A NEW PLAYER: VODACOM ENTERS NIGERIAN

UNCLAS LAGOS 000170 SIPDIS STATE PLEASE PASS FCC E.O. 12958: N/A TAGS: ECPS ECON EINV NI SUBJECT: A NEW PLAYER: VODACOM ENTERS NIGERIAN TELECOMMUNICATIONS MARKET REF: 03 LAGOS 2462 SENSITIVE BUT UNCLASSIFIED. CONTAINS PROPRIETARY DATA INTENDED FOR THE RECIPIENT ONLY. DATA SHOULD NOT BE RELEASED WITHOUT THE ORIGINATOR'S APPROVAL. ¶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