SIERRA LEONE TELECOMMUNICATIONS IN TROUBLE?

C O N F I D E N T I A L SECTION 01 OF 02 FREETOWN 000230

SIPDIS

DEPARTMENT FOR AF/W (JHUNTER)

E.O. 12958: DECL: 06/19/2019
TAGS: ECPS EINV PGOV SL
SUBJECT: SIERRA LEONE TELECOMMUNICATIONS IN TROUBLE?

Classified By: CDA Glenn Fedzer for reasons 1.4 (b/d)


1. (C) Summary: The telecommunications industry, viewed as a
success story of foreign business investment in Sierra Leone,
is clashing with the GoSL in its attempts to remain
profitable. The three main Global System for Mobile
Communications (GSM) cellular operators, Zain, Comium, and
Africell, which together provide the vast majority of
cellular phone service to the country, describe the operating
environment as increasingly non-permissive. They have
concerns that the GoSL is making a push to drive them out of
business, perhaps in an effort to carve out market-share for
Sierratel, which is a national entity and the sole Code
Division Multiple Access (CDMA) wireless network provider,
which recently expanded to cellular service. If GSM cellular
providers are shut down or choose to divest, the results
would be disastrous for the economy of Sierra Leone, as the
CDMA network is underdeveloped and would not be able to
handle a huge influx of customers. End Summary.


2. (C) In 2008, the telecoms industry accounted for
approximately 16% of Sierra Leone's GDP. For 2009, telecoms
is forecasted to provide around 40% of GDP, largely due to
the general collapse of the mining industry in Sierra Leone.
Despite their status as some of the only functional high-tech
businesses in the country, both Zain and Africell reported
large losses in 2008 (Note: The validity of these reports was
questioned by Atlas Communications, a U.S.-based newcomer to
the market who claimed that Africell was most definitely not
in the red. End Note.).


3. (C) The GoSL continues to issue licenses to new telecoms
companies, seemingly without regard for market forces or
validity of business plans. The licenses cost USD 1 million
up front to procure, and have recently been issued to
companies from Libya, Dubai, and Pakistan, among others. Some
of these companies list telecoms low on their list of
business interests, and it is unclear whether they intend to
actually operate in the market at all.


4. (U) Currently, the GoSL taxes the GSM operators at 47.5%.
The government is implementing a GST, but is not willing to
cancel the other taxes that a GST would normally replace.
Over the course of the current economic crisis, the value of
the Leone has depreciated approximately 10%, and GSM
operators announced a planned increase in tariffs in early
April in an effort to preserve profits. The GoSL's telecoms
regulatory body, the National Telecommunications Agency
(NATCOM),came down hard on the operators, claiming that the
companies had failed to provide adequate notice of the price
increase to consumers as required by the 2006
Telecommunications Act. NATCOM demanded that the increase be
canceled, and the Minister of Communications and Information
chose to politicize the conflict, making multiple radio and
newspaper statements in the first two weeks of April
criticizing GSM operators for raising rates and stealing
money from Sierra Leoneans. Some journalists went so far as
to call for the resignation of the Comium, Zain, and Africell
CEO's for their "unfair" business practices. The operators
canceled the planned increase and entered into negotiations
with NATCOM.


5. (C) GSM operators appealed to NATCOM with a compromise
plan, asking that they be allowed to raise their selling
price for distributors, who would essentially pay a premium
to carry the GSM phone cards in their stores, and would not
be permitted to pass the burden of the increase on to
individual consumers. According to a GSM operator source,
this request was granted, and an agreement with NATCOM was
signed in mid-April. NATCOM denies the existence of this
agreement. By late April, the telecoms companies were pushing
NATCOM to honor the agreement they believed had already been
negotiated, but NATCOM refused to do so. The compromise that
was eventually announced allowed GSM operators to raise
consumer prices per card by a very small amount (100 Leones,
or 3 U.S. cents) beginning May 18th.


6. (C) The GoSL announced the inauguration of cellular
service by the government-funded Sierratel CDMA network,
which requires its own technological infrastructure, in
mid-April. This network's start-up costs were partially
funded by $17 million loan from the Chinese government to the
GoSL, although GSM operators estimate that only about $5
million of that loan money has actually been invested in CDMA
infrastructure, with the remainder either not yet invested,
or diverted by the GoSL for other uses or into individuals'
pockets. Sierratel states that revenue from the CDMA service
will be used not only to grow the business, but also to pay
down the loan, which puts immense pressure on the GoSL to
ensure that Sierratel is profitable. Some GSM sources are
very concerned that the GoSL, including officials at NATCOM,

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now have a clear incentive to push GSM to the side and
shepherd Sierratel into profitability, regardless of the
quality of service provided. GSM analysts estimate that an
additional expenditure of USD 30-40 million would be required
to bring the CDMA network up to the maturity level of the GSM
structure.


7. (C) Comment: It is disheartening to hear the CEO of Comium
describe Sierra Leone as "an incredibly difficult place to
turn a dollar of profit," comparing the business environment
unfavorably to Nigeria, Siberia, and Kazahkstan. These major
investors, feeling themselves locked in a battle for survival
with the GoSL, are not likely to recommend Sierra Leone as a
good place for prospective investors. Post is concerned that
the telecoms licenses currently being issued may provide
illegitimate businesses adequate cover for illicit trade or
money laundering activities. Post is also concerned that the
GoSL (particularly the Minister of Communications and
Information) may not understand the extent to which the CDMA
network is unable to deliver adequate service to those who
would be left without communication in the event that the
government shut down one or all of the current GSM providers.
End Comment.
FEDZER