SCRATCH CARD FEVER

UNCLAS SECTION 01 OF 02 LAGOS 001562

SIPDIS

STATE PASS FCC

E.O. 12958: N/A
TAGS: ECPS ECON EINV NI
SUBJECT: SCRATCH CARD FEVER


1. (SBU) Summary: For the past month, between 5 and 10
million MTN mobile phone scratch cards have been held
up in Lagos ports over a payment dispute between MTN
and the Nigerian Customs Service. In the country's
cash economy and largely wireless telephony
environment, scratch cards are an important component
of the local telecoms market. MTN has agreed to pay
indemnity charges incurred since the dispute started,
but will not pay arbitrary/illegal penalties. As the
situation gradually clears up, scratch cards are slowly
making their way back into the market. In the meantime
the Nigerian consumer has been the main loser. End
summary.


2. (U) Pre-paid recharge cards - also known as "scratch
cards" - are the most reliable means of payment for
Nigeria's estimated 3-4 million wireless subscribers.
In a mostly cash based economy, the scratch card system
works. Along the streets of Lagos, hundreds of card
hawkers sell the pre-paid cards (with a numbered code
on the back). MTN's wireless clients buy the cards,
scratch off a security strip to expose the numbered
code, and call a special phone number and dial in the
code to place a call. The prepayment system ensures
that telecom companies and consumers alike need not
worry about outstanding bills. It is a pay as you go
system.


3. (U) Since early June, MTN scratch cards have been a
hot but scarce commodity. Normally, MTN sells 5-10
million scratch cards monthly in Nigeria. Media
reports and the current selling price confirm the
scarcity of cards on the streets and in MTN stores and
distribution ("Friendship") centers. Scratch cards
valued at naira (N) 750 are being sold between N800 and
N900, and N1500 cards are between N1600 and N1900.
Some angry MTN clients believe the shortage is a
moneymaking contrivance of MTN. In late June, the
National Association of Nigerian Students (NANS),even
held a press conference stating that its members are
avid phone users and are prepared to "lock up" MTN
stores across the country to protest the shortage and
higher prices.


4. (U) Since MTN's customer-base includes top
government officials and MTN has the largest mobile
network in the country, the GON (including President
Olesegun Obasanjo) has noted the card shortage. A
recent investigation by the Nigerian Communications
Commission (NCC) held MTN responsible for the scarcity.
The company was ordered to increase the supply of
cards. However, the NCC also noted that millions of
MTN cards were being held up in Lagos ports by the
Nigeria Customs Service (NCS).


5. (SBU) During a recent meeting with Econoff and
EconSpec, MTN Chief Corporate Affairs Executive, Joke
Giwa, said one month's supply of scratch cards is on
hold in the Lagos ports. According to Giwa, the
shortage began more than a month ago when port
officials demanded "other charges" that MTN considered
improper. When MTN refused to pay, port officials
began delaying paperwork and holding up shipments. The
port charges on the consignments have been accumulating
with MTN incurring fees totaling N1 billion ($7.52
million) as of July 23, though the company owes NCS a
total of N3 billion ($22.56 million). Giwa said MTN is
willing to pay legitimate government fees like import
duties. The company has already paid more than N7
billion ($52.63 million) in legal taxes and duties
since the beginning of 2004.


6. (SBU) During the NCC investigation, MTN did not
blame the NCS but rather told GON officials that
production had been on track, that sufficient supplies
had been sent to Nigeria, and that the company has
documentation to prove it. A review of MTN's
documentation and a visit to its warehouses and
friendship centers confirmed the hold up was the ports.
With the spotlight on the ports, the NCS backed down
and has begun to release the scratch cards. Progress
has been slow, but the cards are being distributed in
Lagos' streets and elsewhere.


7. (U) Holding press conferences, MTN advised its
customers not to pay a premium for the cards. MTN also
suggested that its clients take advantage of MTN's new
Virtual Top-Up (VTU) system, an electronic recharge
service.


8. (SBU) Comment: South African MTN is an easy target
of criticism and unwanted attention in Nigeria. It is
the number one mobile service provider in the lucrative
Nigerian telecoms market. Its profits from the country
are known and reported. As a foreign-owned firm, it is
often attacked as an outsider that takes money away
from Nigeria. Giwa suggested MTN would welcome another
successful international player in the Nigerian GSM
market. An additional international presence would
deflect attention from MTN and result in more
competition and better service to subscribers. End
comment.

BROWNE