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Telkom loses in failed Multi-Link’s venture

More facts have emerged on why Telkom South Africa failed in Nigeria’s highly competitive telecommunications market. Roy Padayachie, minister of communication, South Africa disclosed, yesterday that Telkom did not succeed in Nigeria due to its acquisition of a Code Division Multiple Access (CDMA) operator in an industry dominated by the lower cost Global System Mobile (GSM) technology.

He further revealed that Telkom’s failed Multi-Link transaction in Nigeria has cost the firm over N157 billion (R7 billion). Padayachie was responding to a written parliamentary question by the Democratic Alliance’s Niekie van den Berg, who wanted to know the reasons for Telkom’s failed efforts to gain ground in the Nigerian telecoms market. Still on the reasons for Multilinks poor performance, the minister added that the rapid expansion of the network that had to be implemented could not be supported by the underdeveloped distribution channels, thus affecting sales revenue.

According to him, “Some contracts were entered into which did not deliver the anticipated benefits and incurred significant operating expenses. The worldwide economic troubles also affected the Nigerian economy. Multi-Link did not have sufficient market share, pricing power or strategic and operational advantages to be successful in the resulting tight economic environment.” Telkom’s Multi-Links unit suffered an operating loss of R522 million for the financial year ended March 31, 2009, and R1.039 million for the year ended March 31, 2010.

“In addition Telkom has been required to write down goodwill and assets of R5.823 million,” Padayachie said. Replying to another question — by Juli Killian of the Congress of the People — he said as one of several shareholders in Telkom, the government raised its dismay at the write-off of “approximately R5.2 billion in the Nigerian operation at the Telkom AGM in 2010. “Telkom underestimated the highly competitive nature of the Nigerian telecoms market and also failed to build and manage appropriate distribution channels,” he said.

These, indeed, are not the best of times for CDMAs – also known as Private Telephone Operators (PTOs), as a significant number of them are finding it extremely difficult to survive the stiff competition in the nation’s telecommunications industry.

Analysts who spoke with BusinessDay said low capitalisation, poor promotion of CDMA technology, subscribers’ preference for GSM telephony, and corporate governance issues have seen the fortunes of these CDMA operators dwindle over time.”The greatest problem confronting CDMA companies in Nigeria is funding. They are not as highly capitalised as GSM operators. So, they do not have the same level of coverage or reach.

“Also, the ease to change from one network to the other gives GSM operators an edge, whereas CDMA operators have to buy handsets and subsidise them. This adds to their costs of operation. If a handset is faulty, GSM subscribers can easily buy another handset and simply transfer their SIM card, but for CDMA, it is not like that. And most times, the subscribers have to buy another handset and reprogramme their old numbers. That is one of the reasons why CDMA is not really growing,” Oladipupo Alabi, a telecoms engineer, told BusinessDay. Gbenga Adebayo, president, Association of Licensed Telecommunications Operators of Nigeria (ALTON) has, meanwhile, advised the Federal Government to find ways of supporting ailing CDMAs, adding that a bailout from government could enable them expand their network, strengthen existing product offerings and roll out innovative services. “This is not necessarily talking about consolidation, but some kind of relief that can be granted to them to deploy infrastructure better. This is like a bailout from government”, he said.

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