A NEW PLAYER: VODACOM ENTERS NIGERIAN

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TAGS: ECPS ECON EINV NI
SUBJECT: A NEW PLAYER: VODACOM ENTERS NIGERIAN
TELECOMMUNICATIONS MARKET

REF: 03 LAGOS 2462

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1. (U) Summary: South Africa's Vodacom Group recently
announced plans to purchase a 51 percent stake in
Nigeria's second largest mobile service provider,
Econet Wireless Nigeria Limited. The US$250 million
deal represents Econet's best chance of overtaking its
one major competitor, MTN Nigeria Communications
Limited, but neither Vodacom nor Econet will be able to
move forward until outstanding legal issues are
resolved. End summary.


2. (U) South Africa's Vodacom Group is poised to take
control of Nigeria's second largest mobile service
provider, Econet Wireless Nigeria Limited. Vodacom
agreed in principle to a $250 million purchase of a 51
percent stake in the company in mid-December, and the
two signed a management agreement shortly thereafter.
Vodacom technical experts are now surveying Econet's
mobile network and making plans to improve service
quality, and company executives are preparing for an
unprecedented expansion. They expect to match western
quality of service standards in three to six months.


3. (U) Vodacom's infusion of cash is a boon for Econet:
with access to hundreds of millions of dollars of
additional financing, its chronic money problems may
become a thing of the past. And with a steady supply
of funds, it should be able to build the network
company executives have dreamed about. Econet has long
maintained that its network is superior to that of its
one major competitor, MTN Nigeria Communications
Limited, and company executives hope that by providing
more extensive and better quality service, their firm
will ultimately become the dominant player in Nigeria's
mobile communications industry. The gap between the
two, according to one of Econet's chief executives, is
a mere 370,000 active subscribers.


4. (U) Unfortunately, neither Vodacom nor Econet will
be able to move forward until outstanding legal issues
are resolved. Vodacom's mid-2003 expression of
interest prompted Econet's parent company, Econet
Wireless International (EWI),to seek an injunction in
Nigeria's courts to stop the deal, alleging that by
entertaining and then accepting Vodacom's offer, Econet
was reneging on an agreement to let EWI increase its
stake in the company from 5 to 33 percent via a US$150
million equity injection. When Nigeria's high court
failed to appoint an arbitration panel within a
stipulated sixty-day period, EWI took its case even
further: it applied to the United Nations Commission on
International Trade for arbitration and sued Vodacom
for breach of contract, arguing that the firm induced
Econet to violate its agreement with EWI.


5. (SBU) Comment: No one is sure what the dispute's
outcome will be, but Vodacom executives have come up
with a clever means of circumventing the issue.
According to one executive, Econet will likely transfer
its global system for mobile communications (GSM)
license, network, and subscribers to a newly created
Vodacom Nigeria, a move that would leave Econet nothing
more than a shelf company equipped to fight legal
battles. If the plan works, Vodacom could expand
freely - and its entry into the Nigerian
telecommunications market could create remarkable
waves, particularly since it faces only one other major
player. End comment.

HINSON-JONES