US embassy cable - 04LAGOS524

UNCLAS SECTION 01 OF 02 LAGOS 000524 
 
SIPDIS 
 
STATE PLEASE PASS FCC 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, EINV, NI 
SUBJECT: NITEL: NEW MANAGEMENT, LITTLE CHANGE 
 
1. (U) Summary: One year into its three-year management 
of Nigeria's national carrier, Nigerian 
Telecommunications Limited (NITEL), the Netherlands' 
Pentascope International has generated surprisingly 
little change.  Executives remain optimistic, but given 
Pentascope's slow progress in implementing reforms, 
repairing and expanding fixed line and mobile networks, 
and strengthening NITEL's balance sheets, that optimism 
may be misplaced.  End summary. 
 
2. (U) For months, Pentascope executives have awaited 
approval of proposed structural reforms.  President 
Obasanjo's mid-November decision to dissolve NITEL's 
board delayed consideration, and the board's nwest 
members, appointed January 13, have yet to take a 
decision.  Pentascope's proposal calls for general 
managers to report directly to NITEL's chief executive 
(rather than to various executive directors) and for 
territorial managers to report to NITEL's chief 
technical officer, a move that would streamline 
operations and hasten decision-making.  NITEL's Lagos 
Zone General Manager, Segun Oguntoyinbo, believes the 
proposed reforms would generate "radical change," but 
he is not optimistic they will be introduced anytime 
soon.  Decisions within NITEL are taken slowly, he 
says, largely due to the need to win government 
approval. 
 
3. (U) The board's failure to approve reforms may 
present obstacles to Pentascope's expansion plans.  The 
firm's business plan is ambitious, but progress is 
slow.  The plan estimates capital expenditures at $900 
million over three years, calls for the rehabilitation 
of existing networks, and projects the installation of 
600,000 new fixed lines (to bring total installed 
capacity to 1.3 million lines) and 1.2 million new 
mobile lines (up from about 120,000 now) by the time 
Pentascope relinquishes management control.  Given the 
pace of work, it is unlikely NITEL will meet that 
deadline.  The firm has only recently begun 
rehabilitation efforts, and most observers are 
skeptical of its ability to meet even the relatively 
modest target of 150,000 lines per year.  Network 
expansion is behind schedule - managers expected to 
complete the installation of new mobile lines months 
ago - and future attempts will likely fall even further 
behind, not least because contract terms are 
unrealistically short. 
 
4. (U) Oguntoyinbo points out that under a recently 
awarded contract, Germany's Siemens and China's Huawei 
Technologies have only nine months to add 250,000 fixed 
lines to NITEL's Lagos network.  It may be virtually 
impossible to meet that deadline, but delays are 
nothing new.  Plans for 41 new switches have yet to be 
implemented, and local fixed wireless pilot programs 
are moving more slowly than expected.  According to 
Oguntoyinbo, NITEL has installed 10,000 fixed wireless 
lines in each of two locations, but the pilots have yet 
to generate significant results.  If they do, NITEL may 
elect to abandon fixed lines in favor of fixed wireless 
networks - the latter are less expensive and suited to 
both urban and rural areas - but as in everything else, 
progress may be slow. 
 
5. (U) NITEL has performed dismally over the last 
fourteen years.  It boasts only 700,000 fixed lines, of 
which only 500,000 are even sporadically operational, 
and provides notoriously poor service.  Some 60 percent 
of calls are never completed, and nearly 180 faults per 
100 lines are recorded annually.  Pentascope executives 
hope to increase call completion rates to 95 percent 
and reduce interruptions to fewer than 50 faults per 
100 lines, but improvements have been minor.  The 
firm's balance sheet is weak - federal and state 
governments, the military, and corporate and individual 
customers owe nearly $320 million in unpaid fees - and 
it typically manages to collect only 70 or 80 percent 
of total annual revenues.  Pentascope has recouped $30 
million since taking over, but debtors have been slow 
to settle accounts.  Revenue collection may improve 
with the introduction of pre-paid billing systems for 
fixed lines, but plans are still being tested. 
 
6. (U) Not surprisingly, NITEL has steadily been losing 
market share to competitors.  Lagos now accounts for 
only 30 percent of NITEL's total revenue, down from 60 
percent a few years ago, and customers are steadily 
leaving NITEL for mobile service providers and private 
telephone operators.  These provide more reliable 
service at comparable or lower prices, and the ready 
availability of lines eliminates the months- or years- 
long wait for NITEL lines.  The recent entry of a 
second national operator, Globacom, will likely 
increase competition, but Oguntoyinbo believes the 
Nigerian telecommunications market is large enough to 
absorb several different players.  He "appreciates the 
challenge" of Globacom's entry but believes NITEL has 
several advantages over its competitors.  The firm's 
executives know the market, he says, and have the 
technical expertise and long-standing customer 
relationships that others lack. 
 
7. (U) Oguntoyinbo expects private telephone operators 
to continue working with NITEL, if only to take 
advantage of the preferential interconnection fees he 
expects NITEL to offer.  In the meantime, Pentascope 
executives are doing what they can to retain customers. 
In mid-December they introduced a 75 percent reduction 
in NITEL's international tariffs, cutting rates from 
N99 ($0.73) per minute to N34 ($0.25) per minute in off- 
peak hours.  Executives report a 20 to 25 percent 
increase in traffic, and many expect the numbers to 
improve.  Oguntoyinbo hopes, if nothing else, that 
Pentascope will succeed in increasing NITEL's emphasis 
on customer service.  The customer should be king, he 
says, and NITEL should work to maintain the integrity 
of its brand. 
 
8. (U) Comment: Observers applauded Pentascope's 
arrival early last year, but the firm has struggled to 
meet expectations.  Some believe its executives found 
NITEL in a more pronounced state of disrepair than they 
expected, set unrealistic goals, and are now paying the 
price.  Pentascope's efforts to improve NITEL's 
infrastructure, expand existing fixed line and mobile 
networks, and strengthen the firm's balance sheets have 
been complicated by the necessity of coping with 
government interference and entrenched bureaucracy.  As 
such, it is perhaps unsurprising that Pentascope's 
executives have generated relatively little change over 
the last year.  If they continue to make so little 
progress, it may be some time before NITEL is ready for 
privatization.  Oguntoyinbo believes the GON may sell 
15 to 20 percent of its shares in an initial public 
offering (IPO) later this year, but most observers take 
such statements lightly.  GON officials talked about an 
IPO in August 2002 and again in November 2003 but 
delayed the event both times.  The process has been 
botched before, and it will likely be botched again. 
End comment. 
 
HINSON-JONES