*Consolidation seems best option
*Qubain, Starcomms ex boss agrees
By Prince Osuagwu
The talk in recent times has been whether the CDMA operators deserve a bail out
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| Dr Juwah, EVC, NCC |
fund to help them grow their networks to be able to face competition against their GSM counterparts whose fortunes continue to grow astronomically.
In a recent meeting with the Executive Vice Chairman of the NCC, Dr Eugene Juwah, the operators themselves cried out through their umbrella associations, the Association of Telecom Companies of Nigeria, ATCON and the Association of Licensed Telecom Operators of Nigeria, ALTON, that things are no longer rosy with them.
In fact, they admitted that “we are no longer as vibrant as people perceive us. Our industry is in the throes of death. Many of us have stopped operating and several others are simply limping with one leg. Something must be done urgently to save the industry. We need a government bail out as was the case in the United States, when several companies that were dying got injection of government fund as elixir for their rebound”
However, ICT industry professionals are divided on the issue.
While some believe in the bail out option, others believe that a tinkering of business model could do the magic. Some others even feel that consolidation among them would be the best option as it would help the operators straighten things out.
But bail out or not, the truth is that the future of the CDMA operators have continued to dwindle in a market that has attracted the attention of strong world investors.
Statistically, the operators have narrowed down their numbers to about only two strong players, Visafone and Starcomms, from a market that used to have over 15 operators.
Dwindling financial fortunes
Their financial base has also nosedived from a plethora of market share losses. In the first six months of 2010 the CDMA operators lost about N1.95bn. This loss was judging from the subscriber data analysis by the Nigerian Communications Commission.
From the analysis, the CDMA operators, Starcomms, Multilinks, ZOOMmobile and Visafone, lost about 1.08 million active subscribers between January and July, 2010.
Going by the National Bureau of Statistics’ N1,800 Average Revenue Per User, ARPU index for telecoms services in Nigeria, including the CDMAs, the 1.08 million subscribers loss by the CDMA operators in the first half of the year, meant that about N1.95bn was lost in revenue .
The ARPU is a financial benchmark often used by telecoms companies to measure the average revenue generated from an average subscriber. It is the revenue from the services provided divided by the number of users of those services.
Also from the financials for the full year ended December 2010 submitted to the Nigerian Stock Exchange, NSE, there was a drop in all vital indices of one of the leading CDMA operators in Nigeria, Starcomms.
Sales for the 12 month period recorded a steep 15.37 percent drop to N29 billion from N34 billion in the corresponding period of 2009. Though the company’s loss before tax declined from N7.68 billion in December 2009 to N5.16 billion December 2010 profit after taxation, reportedly witnessed only a marginal change from N7.79 billion to N7.66 billion mainly due to a steep 77 percent rise in tax provision to N2.5 billion.
It was not just the company’s sales and revenue figures that experience declining performance, other measures of financial health also saw steep declines. The company’s fixed assets slipped 19 percent to N43 billion from N54 billion while investments held by Starcomms also dropped by 55 percent from N2.54 billion to N1.13 billion, among other losses.
Even in 2009, the story was not different. The CDMA operators showed signs of gradually going down to their knees and it was not too long before it happened. Starcomms was said to have recorded up to recorded N666m operating loss in 2009; Multilinks’ loss before interest, tax, depreciation and amortisation almost tripled to $88m at the transaction year ended March 2009. Visafone was also reportedly recorded losses in 2009 which was not made public and of course ZOOMmobile continues to be at the rock bottom of the CDMA market revenue table.
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| Telecom Mast .....Facilities CDMAs needed to build |
Immediately after the loss by Multilinks, Telkom South Africa, which invested $410m to acquire Multilinks Limited, made a u-turn. Its Chief Executive Officer Mr. Reuben September, hinted of intention to divest in the Nigerian business and eventually perfected the move in ..........
September said that he was later to realise that most CDMA operators in Nigeria at start up, engaged in an unfortunate price war while rolling out the technology.
Ironically, the CDMA has one of the best and robust network platforms that can readily engender growth anywhere in the world.
In the United States of America, CDMA is the chief network and that is why Verizon, a CDMA Operator remains one of the world’s strongest networks.
Also in India, CDMA drives the market which model, other markets are copying. Why this has not been the case in Nigeria is a wonder.
However, several reasons have been adduced. Part of them are that the operators underestimated the potential value of the Nigerian market and adopted business models that are inimical to fast growth.
Other reasons include that the operators failed to make massive investments in infrastructure building since Nigeria lacked the facilities that can cater for them in long term.
The kind of licenses that supported their operation at the initial stage, has also been a strong reason given to why the CDMA’s are in the position they are today. The licenses were regional and never allowed them room to expand until the GSM operators came, soar and conquered.
There are also other pockets of arguments including that operators came out with fragile and inferior equipments in phones and other dongles and also that the operators failed to understand that rural markets would have been their major market instead of facing each other in a needless competition in urban centres.
Meanwhile, industry stakeholders have said that something can be picked from each of these arguments to raise the fortune of the CDMA again.
Juwah on faulty business model
When the EVC of NCC, Dr Juwah in an interaction with journalists, was confronted with the bail-out idea, he said, “I have my own view on this issue just like any other person. Remember that I was part of the CDMA operation also. Basically, the first license for the CDMAs was a very regional sort of a licence when they were known as fixed wireless operators. Judging by their capitalization and the amount of frequency that they had, they were fairing well. But incidentally, this universal access licence came and they wanted to compete with the bigger boys and doing that, some of them that have very little capital went and borrowed and when you borrow at 25% interest rate, in Nigeria, it will take out all your profit. So this may be one of the causes of their problem. Their strategy was wrong. It cannot be attributed to mismanagement or fraud or anything. It is just that their vision was wrong. In that case, I don't think they are entitled to a bail out, although it is not for me to decide.
Quibain on consolidation
Meanwhile from the operators themselves, there is beginning to a gradual acceptance that something has to be done to their business model. For instance, Retired Managing director of Starcomms Plc, Mr Maher Qubain, told us that consolidation in the CDMA segment of the telecommunications market and a fair playground for all networks are vital considerations.
Speaking against the background of the tough operating conditions of the CDMA networks in the country, Qubain said with all the CDMA networks put together controlling less than 10 per cent of the telecom market, operating in a lopsided competition against larger GSM networks, there is need for constructive measures by both the CDMA networks and the regulators.
For him,“it is important for the CDMA networks to come together in the face of the operating conditions. With that, they can achieve scale. They can muster greater buying power. So, instead of struggling for survival, they can compete as a dynamic force in the industry. CDMA mortality rate is alarming.
“For instance, there were twelve active CDMA networks in the country two years ago. They came down to six by last year and now there are three or four. Meanwhile, GSM networks are growing in number because they have scale and they are favoured by the interconnect rate allowed in the industry”.
He however, noted that consolidation can happen in diverse ways like making the unused spectrums of moribund networks now lying fallow, available for others to use.
Qubain also believes that improvements may also come if the Nigerian Communications Commission, NCC strictly enforces its own “use the spectrum or lose it” rule on networks that are no more operating and re-allocate them to others.
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