Sell MTC and use the proceeds to build a strong Telecom leo

Elsewhere in this edition is a submission by the Namibia Consumer Trust, a local lobby group for the protection of consumer rights and interests, on the intended acquisition of mobile operator leo by Telecom Namibia.
The Consumer Trust has obviously done its homework. I gather from the printed version prepared for publication by newspapers, they have participated in last week’s round of consultations by the Competition Commission, as a stakeholder in their capacity as a pressure group for consumers in general. The Consumer Trust submission offers some very valid points, and I believe these will have to be considered in detail by the Competition Commission as most of the trust’s arguments are either based in fact, or in solid points of law. In short, if the Competition Commission happens to see Telecom’s proposed take-over of leo in the same light as the trust, there are compelling arguments for it not to approve the sale.
Most of what the Consumer Trust argues, is covered by the common-sense argument that in the absence of a competitive force in the mobile market, Namibia Post and Telecommunications Holdings Ltd will effectively control both operators of a mobile license.
Let’s look at the current picture and see if possibly there is some way out.
MTC claims a customer base of 2 million users. This is probably somewhat overstated, and it would be more realistic to say they have issued 2 million numbers over the past 15 years. However, their trafficking and billing system is world class, so the MTC management should have a fairly reliable figure on how many active numbers are out there and how many are contract clients. If I account for a minimum age below which a cellphone is just a toy, and if I take into consideration that roughly 73% of the national population is rural, i.e. a significant portion does not enjoy network coverage, then it is probably more realistic to say MTC has about 1.6 million active numbers. My rough estimate even makes provision for the oddball one finds here and there with two cellphones, one from each operator. Still, an impressive number of clients and if one looks at MTC’s financials, more than sufficient to carry a company that makes over half a billion EBIT every year. And that is with less than 500 employees. Indeed the goose that lays the golden eggs.
With leo the picture is markedly less impressive. Given the fact that leo does not advertise its number of customers, I doubt that it exceeds 200,000 individuals, probably closer to 100,000. This remains academic since leo would not have been ripe for a take-over, were it making a profit. But it did try to create a foothold in the market through some aggressive pricing strategies. Of the outcome I am not so sure but I do not think they have captured a sufficiently large customer base to reach break-even.
At some point in the past three years there were allegations that leo was not paying its license fees. This featured prominently in the press and leo, naturally, denied it. leo started its operations under the Cell 1 banner in 2006, with a firm guarantee that a third operator will not be allowed for five years. All very nice, except that Telecom was allowed to introduce Switch long before the five years lapsed.
In Botswana with a slightly smaller population, but also a much smaller geographic footprint, two mobile operators exist profitably side by side. This indicates that the same should be possible for us.
Yet, in my view the consumer trust is right. Long term protection of the consumer can only be guaranteed if there are two independent mobile operators and an independent regulator. The latter we have recently instituted so now it is only a shareholding issue between the two existing license holders, and this is where a huge opportunity presents itself.
I say, let the Competition Commission allow the Telecom leo deal. That way Telecom can get in on the mobile scene and ensure a long term future for itself. But the trade-off is that NPTH must then sell its shareholding in MTC.
Taking a modest 5-year view on profits, I do not think it is unrealistic to ask between N$10 billion and N$12 billion for the stake in MTC. This realised investment can then be used to turn leo into a genuine competitor for MTC. This solves the issue of competition and it ensures that government, through NPTH, remains in the mobile business with a fat (guaranteed) future revenue stream. Then, also, the regulator will actually have something to regulate.