Identifier
Created
Classification
Origin
09LUSAKA805
2009-11-17 06:52:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Lusaka
Cable title:  

DIALING UP ZAMBIA'S TELECOMMUNICATIONS SECTOR

Tags:  EINV ECON ECPS KCOR BTIO ZA 
pdf how-to read a cable
VZCZCXRO0062
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #0805/01 3210652
ZNR UUUUU ZZH
R 170652Z NOV 09
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC 7436
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP 0191
RHMFISS/HQ USAFRICOM STUTTGART GE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 03 LUSAKA 000805 

SENSITIVE
SIPDIS

PASS TO COMMERCE FOR 4510/ITA/IEP/ANESA/OA AND STATE FOR
AF/S JNAMDE AND EEB/CBA DWINSTEAD

E.O. 12958: N/A
TAGS: EINV ECON ECPS KCOR BTIO ZA
SUBJECT: DIALING UP ZAMBIA'S TELECOMMUNICATIONS SECTOR

REF: A. LUSAKA 705

B. LUSAKA 259

C. LUSAKA 275

D. LUSAKA 367

E. LUSAKA 638

LUSAKA 00000805 001.2 OF 003


-------
SUMMARY
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UNCLAS SECTION 01 OF 03 LUSAKA 000805

SENSITIVE
SIPDIS

PASS TO COMMERCE FOR 4510/ITA/IEP/ANESA/OA AND STATE FOR
AF/S JNAMDE AND EEB/CBA DWINSTEAD

E.O. 12958: N/A
TAGS: EINV ECON ECPS KCOR BTIO ZA
SUBJECT: DIALING UP ZAMBIA'S TELECOMMUNICATIONS SECTOR

REF: A. LUSAKA 705

B. LUSAKA 259

C. LUSAKA 275

D. LUSAKA 367

E. LUSAKA 638

LUSAKA 00000805 001.2 OF 003


--------------
SUMMARY
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1. (U) Zambia's under-developed telecommunications sector
will undergo fundamental change in 2010. The Information and
Communications Technology (ITC) Act enacted into law August
26, 2009, endowed the Zambia Information and Communication
Technology Authority with broad regulatory powers and
mandated that it develop a unified telecommunications
licensing regime, penalize service providers for using
unapproved tariffs, and implement an Internet "Universal
Access Project." Although the the Zambian government plans
to privatize up to 75 percent of state-run Zambia
Telecommunications Company (ZAMTEL) by June 2010, allegations
of corruption raised concerns as to whether privatization
will meet its intended goal. With the domestic cellular
phone penetration rate at 32 percent and fixed-line telephony
and Internet at less than one percent, the sector has
considerable room for growth. Although the ICT Act reform
and ZAMTEL's privatization could contribute to Zambia's
economic growth and development, many challenges, including
high infrastructure costs, interconnectivity issues, ZAMTEL's
continued control of the fixed-line and cellular
International Gateway, and state-run Zambia Electricity
Supply Corporation's dominance over Zambia's fiber optic
cable network, remain. END SUMMARY.

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TELECOM'S LAY OF THE LAND...AND SKY
--------------


2. (SBU) With cellular phone penetration rate at 32 percent
and fixed-line telephony and Internet penetration rates at
less than one percent, Zambia's telecommunications sector has
considerable room for growth. Low penetration rates have
been exacerbated by monopolistic conditions in which few
players dominate most telecommunications services. State-run
Zambia Telecommunications Company, Ltd. (ZAMTEL) monopolizes
fixed-line telephony. Kuwait-based Zain, South African-based

MTN, and ZAMTEL subsidiary CELL Z subsidiary are the
country's exclusive cellular service providers. (NOTE:
Minister of Communications and Transport Geoffrey Lungwangwa
told Ambassador in early 2009 the GRZ had decided not to
issue additional cellular licenses beyond the existing three.
END NOTE.) Cellular and fixed-line service providers
connect use ZAMTEL's International Gateway (IGW) exclusively
to access global networks. State-run utility Zambia
Electricity Supply Corporation, Ltd. (ZESCO) dominates data
communications by controlling most of Zambia's fiber optic
networks with limited Internet access via Namibia. ZAMTEL's
own nascent fiber optic network connects to the Internet via
microwave connection in Botswana; however, usage is limited.


3. (SBU) ZAMTEL is the country's sole provider of fixed-line
commercial and residential voice communications with
estimated annual revenues of over USD 100 million. Its CELL
Z mobile phone subsidiary utilizes 2.5G GSM wireless
networks. ZAMTEL also owns the Mwembeshi Satellite Earth
Station (Zambia's IGW) and a Lusaka-based fiber optic network
dubbed the "Metropolitan Project." The USD 48 million
project led to cost overruns that nearly bankrupted the
company and ultimately triggered its privatization. ZAMTEL
plans to link its fiber optic network with Tanzania's East
African Submarine Cable System (EASSy) and improve network
utilization; however, these plans are on hold until the
company has sufficient funding. ZAMTEL is an EASSy
shareholder; it is also considering a link to the recently
(July 2009) inaugurated SEACOM cable in Tanzania.


4. (U) ZESCO has a nationwide fiber optic network known as
"FibreCom Broadband" capable of carrying data communications.
ZESCO laid 1,700 kilometers of fiber optic cable in 2008-09
linking major urban areas at a cost of USD 11 million.
During a second phase set to begin next year, ZESCO plans to
lay an additional 5,000 kilometers of the cable and connect
FibreCom to the Internet backbone via Botswana and DR Congo.
Although the FibreCom network's primary function is to
connect ZESCO offices nationwide, ZESCO leases excess
capacity to ZAMTEL, Copperbelt Energy Corporation PLC,

LUSAKA 00000805 002.2 OF 003


Zambia's nine domestic Internet service providers --
including AfriConnect, Zamnet, and CopperNet -- and cellular
service providers. It also provides network services to
Zambian government (GRZ) agencies such as the Zambia Revenue
Authority and Road Transport and Safety Agency.


5. (U) The Zambia Information and Communication Technology
Authority (ZICTA) licenses and regulates Zambia's
telecommunications sector, including fiber optic networks,
satellite networks, cellular networks, fixed-line
communications, Internet and data services, television
services, andradio spectrum. ZICTA Acting CEO Patrick
Mutimushi told EconOff October 29 that the agency has high
hopes for nationwide public high-speed Internet access. He
said that ZICTA plans to accelerate Internet penetration
through its "Universal Access Project" by building a
nationwide network of community centers (telecenters) linked
to ZESCO's and ZAMTEL's fiber optic networks.

--------------
TELECOM REFORM PROMISES BIG CHANGES
--------------


6. (U) The Information and Communications Technology (ICT)
Act passed into law August 26, 2009, enacted several key
sector reforms. Perhaps most interesting for investors, the
law mandates that ZICTA (formerly the Communications
Authority of Zambia) develop a unified licensing regime for
all telecommunications services. It also endowed ZICTA with
broad regulatory powers, including the authority to regulate
IGW fees and tariffs. Although it stops short of opening up
the IGW to competition, the law prevents ZAMTEL from
leveraging its IGW monopoly to overcharge customers, and it
empowers ZICTA to penalize service providers for using
unapproved tariffs. The law did not grant ZICTA the
authority to regulate ZESCO's network, allowing ZESCO to
continue setting rates for service providers that use
FibreCom. The law further established the ZICTA's
yet-to-be-funded "Universal Access Project."


7. (U) Minister of Communications and Transport Lungwangwa
stated that the ICT Act will help Zambia attract foreign
telecommunications investment by eliminating bureaucracy and
reducing costs. He also affirmed that the law will protect
service providers and consumers by improving transparency and
accountability. He expressed concern in September over the
slow pace of transformation in Zambia's Internet and mobile
communications sectors but was optimistic that ZAMTEL's
privatization would lead to increased competition -- by
injecting private investment into the sector -- and reduced
costs (ref A). ZICTA's Mutimushi was optimistic that sector
reforms would eventually lead to better services, lower fees,
and higher penetration rates.

--------------
ZAMTEL PRIVATIZING...BUT WHO'S BUYING?
--------------


8. (U) The GRZ will sell up to 75 percent of ZAMTEL next
year to private investors to keep it financially solvent.
The Ministry of Communications and Transport tasked the
Zambia Development Agency (ZDA) with overseeing the
privatization and signed a Memorandum of Understanding (MoU)
with Caymen Islands-based firm RP Capital Advisors, Ltd. to
evaluate ZAMTEL's assets and execute its sale (see para. 10
regarding Minister Dora Siliya's illegal contract award to RP
Capital).


9. (U) The ZDA opened the bidding process to established
telecommunications firms in August and announced eight
finalists October 21, including Russia-based Altimo
Holdings/Vimpelcom; Indian telecoms Bharat Sanchar Nigam
Limited (BSNL) and Majanagar Telephone Nigam; Libya's LAP
Greencom; Portugal Telecom; South Africa's Telkom SA; Egypt's
Orascom Telecom Holdings; and Angola's UNITEL. The GRZ
invited the finalists to participate in a due diligence
process November 2 - December 23 in which they may bid on
between 51 and 75 percent ownership in ZAMTEL. The ZDA will
announce the winning bidder and conclude the sale by June

2010.

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PRIVATIZATION RAISES CORRUPTION CONCERNS
--------------


10. (SBU) Allegations of nepotism and corruption involving

LUSAKA 00000805 003.2 OF 003


the ZAMTEL sale raised questions as to whether privatization
will truly achieve efficiencies. Some opposition leaders
charged the government with nepotism for contracting with RP
Capital -- a firm connected to President Rupiah Banda's son
Henry -- to broker the sale. Critics also accused the GRZ of
paying RP Capital its fee -- USD 2 million -- for brokering
the deal before its completion. Then-Minister of
Communications and Transport Dora Siliya resigned after a
tribunal found Siliya guilty of breaching the constitution
for unilaterally awarding the contract to RP Capital without
due diligence. After the Lusaka High Court overturned the
tribunal's decision June 16, President Banda appointed her
Minister of Education (refs B-E).

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COMMENT
--------------


11. (SBU) A unified licensing regime, ZAMTEL's
privatization, and ZICTA's regulation of Zambia's
International Gateways and telecom tariffs are welcome
developments. GRZ efforts to construct a nationwide fiber
optic network with improved links to the outside world and
widely accessible to the public would give Zambia the
technology infrastructure it needs for economic growth and
development. Unfortunately, many challenges, including the
high cost of completing its nationwide fiber optic network,
extending it the "last mile" to businesses and consumers, and
connecting it with global networks, remain. In addition,
ZAMTEL's continued monopoly over Zambia's fixed-line and
cellular IGW and ZESCO's dominance over its nationwide fiber
optic cable network is unlikely to bring down rates
substantially. END COMMENT.
BOOTH