US embassy cable - 04LAGOS2329

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 
----------------------------- 
 
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 
--------------------------------------------- ----- 
 
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. 
 
--------------------------------------------- ----- 
Network Expansion; NITEL Tries to Face Competition 
--------------------------------------------- ----- 
 
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 
--------------------------- 
 
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 
-------------------------------- 
 
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? 
-------------------------------------- 
 
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