US embassy cable - 04LAGOS170

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