NIGERIA: SECOND ATTEMPT AT NITEL TELECOM

UNCLAS SECTION 01 OF 02 LAGOS 002329

SIPDIS

STATE PLEASE PASS FCC

E.O. 12958: N/A
TAGS: ECPS ECON EINV NI
SUBJECT: NIGERIA: SECOND ATTEMPT AT NITEL TELECOM
PRIVATIZATION



1. (U) Summary: Nearly three years after a failed
attempt to privatize state-owned Nigerian
Telecommunications Limited (NITEL),the Bureau of
Public Enterprises (BPE) is again seeking investors for
the company. Currently under a three-year management
contract with Dutch company, Pentascope BV, NITEL is
trying to improve its chances of attracting credible
investors by expanding its network, particularly in the
Lagos area. NITEL management and staff seem more
compatible with the attempted privatization than during
the first round. End summary.

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Another Privatization Attempt
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2. (U) State-owned Nigerian Telecommunications Limited
(NITEL) is again slated for privatization, following a
failed attempt about three years ago. The Bureau of
Public Enterprises (BPE) is accepting expressions of
interest (EOI) for 51 percent of the GON's equity in
NITEL.


3. (U) The BPE also plans to sell 20 percent of the
remaining 49 percent shares on the stock market through
an initial public offer (IPO). Though scheduled for the
last quarter 2004, the IPO may be deferred. According
to Suleyman Ndanusa, Director General, Securities and
Exchange Commission (SEC),BPE has not requested the
required SEC approval for an IPO. (Comment: Once a
request has been submitted, the Commission's approval
could be obtained within one month. But it is unlikely
an IPO will be approved before the year ends, since BPE
has not yet submitted its request. End Comment.)

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NITEL May be More Attractive to Investors Now;
Staff Support Privatization
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4. (U) NITEL's Lagos Zone General Manager, Young Eyo,
told us the company is more marketable than it was two
years ago. Key marketing features include NITEL's
monopoly of the SAT3/WASC cable facility and the
operation of a more reliable GSM subsidiary, M-TEL. The
Southern Africa Western Africa Submarine Cable
(SAT3/WASC) and South Africa-Far East (SAFE) cable is a
15,000-kilometer high performance fiber optic cable
connecting Europe, South Africa and the Far East. It
provides cheaper, high quality alternatives to
satellite links. (Comment: However, there is talk that
the GON may transfer the operation of the SAT3 to
another state-owned agency. If so, NITEL would likely
become less attractive to prospective buyers. End
comment.)


5. (U) Eyo said NITEL management and staff more clearly
see the inevitability of the company's privatization
than they did three years ago. The firm's recent focus
on customer care and aggressive marketing has helped
reorient staff, he said. Akin Olufade, the Deputy
General Manager of Operations, Lagos Zone, added that
staff is earnestly looking forward to full
privatization and an improvement in operations and
conditions of service.

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Network Expansion; NITEL Tries to Face Competition
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6. (U) The Lagos Zone remains a major hub for the
company's activities. However it has lost many
customers to private telecom operators (PTOs),which
offer better services, mostly using GSM and fixed
wireless technologies. This keen competition is
inducing the state-owned company to expand its network
in the zone. Earlier this year, the company awarded
Germany's Siemens and China's Huawei Technologies a
contract to add 250,000 fixed lines to NITEL's Lagos
network. (Comment: The ambitious expansion plan,
relying mostly on fiber optic technology, is being
characterized as "ongoing" but the results are not yet
visible. NITEL's local fixed wireless pilot program
that should have taken off at midyear is also moving
more slowly than expected. End comment.)


7. (U) According to Eyo, fixed lines remain NITEL's
focus, as the company seeks to carve a niche for
providing data transmission services to customers,
particularly businesses.

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Introduces Prepaid Platform
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8. (U) Revenue collection remains a major problem for
NITEL, mainly due to its inadequate data recording
systems. This chronic gap encouraged the company to
introduce the "NITEL Prepaid Platform" during the third
quarter 2004. This scratch-card service allows
subscribers to make calls on all NITEL and PTO phones,
after dialing a secret code number. Distinctly
different from the prepaid service provided by other
GSM operators and PTOs, which are adapted to specific
networks, NITEL's prepaid platform has all the features
of a calling card and can be used for both local and
international calls. NITEL officials acknowledge that
public awareness of this more comprehensive prepaid
service is very low.

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Highly Indebted To GSM Operators
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10. (U) Press reports estimate NITEL's debts on
interconnection fees to major GSM companies (MTN,
Vmobile and Globacom) at $82.7m (N11bn). NITEL
subscribers soon may be unable to access these GSM
networks as the operators are threatening to cut them
off. (Comment: This huge debt may have a dampening
effect on NITEL's privatization efforts. End comment.)

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GON Too Hands-On in NITEL Management?
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10. (U) The GON decided to improve NITEL before
privatizing it in order to increase the potential sale
price of the company. Towards that end the GON awarded
Dutch firm Pentascope BV, a three-year contract to
operate NITEL. Recently, however, the Senate initiated
a probe of the contract, alleging "fundamental flaws".
Industry watchers say the probe is primarily motivated
by a desire to target former BPE director, Nasir el-
Rufai (Currently Minister of the Federal Capital
Territory (FCT). The no-nonsense, blunt-talking El
Rufai has had a string of run-ins with lawmakers when
he was at BPE and now as head of the FCT.) They
acknowledge, however, that there may be some problems
with the Pentascope contract.

11.(U) Similarly, the top officials of NITEL's GSM
subsidiary, M-TEL were recently sacked for "non-
performance". On September 6 a GON-appointed board
Chairperson suspended the managing director of M-TEL (a
Pentascope appointee) and retired seven other top
Nigerian officials of the company. Shortly after, the
chairperson was also relieved of his duties. This
action resulted in negative press reports and an
attendant decline in market share.

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Comment
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12. (U) It is difficult to predict when NITEL will be
privatized. There is a certain ambivalence within the
government about selling it. This duality, coupled
with the very real institutional shortcomings of the
company have continually stalled NITEL's efforts to
improve its services, become profitable and be more
attractive to prospective investors. If reports are
true of GON attempts to transfer SAT3 to another
agency, thereby stripping NITEL of its major selling
point this would confirm that the GON remained
conflicted with itself on whether to get out of the
business of being a telecom provider. Getting the
privatization process right is critical to the
credibility of the privatization. The GON process has
failed to privatize any major utility company since

1999. Recent government action casts doubts on the GON
ability or willingness to privatize the company soon.
End comment.


13. (U) This Cable has been cleared by Embassy Abuja.


BROWNE