WHEN Etisalat Nigeria came into the telecommunications industry in the country about nine years ago, many people gave it little chance of survival considering that three other operators had seized the stage and were moving with the speed of light. But then there were some optimists who may have had insight into what the parent company of Etisalat Group was doing, providing innovative solutions and services to more than 162 million subscribers in 16 countries across the Middle East, Asia and Africa.
At the beginning, the arrangement for the formation of the Etisalat brand in Nigeria was based on the equation that Emirates Telecommunications Group Company (Etisalat Group – owns 40 per cent); United Arab Emirates Sovereign Wealth Fund through Mubadala Development Company, Abu Dhabi (45 per cent), and Myacinth (15 per cent), through Emerging Markets Telecommunications Services, EMTS Holding BV, owned by former United Bank for Africa, UBA, Chairman, Hakeem Bello-Osagie.
Many people were not in the know about the configuration of the company since what they were after was quality of service and an array of options to choose from and only those who concerned with industry matters might have bothered about the powers behind the new brand.
Everybody thought everything was going on well even when the company decided to gather some consortiums of banks together in order to raise funds for obvious expansion projects on its network. But as it turned out, that was the beginning of the trouble for the company.
In 2013, a consortium of about 13 Nigerian banks led by Access Bank, GTB and Zenith Bank in concert with some foreign banks gave Etisalat a syndicated loan of $1.3 billion. This loan was expected to help refinance its existing loans and raise working capital. $650 million was set aside for refinancing and the balance for network expansion.
As of 2016, the company had started defaulting on its loan obligations which led to a few bailouts from its parent company in Abu Dhabi.
In early 2017, it was reported that the consortium of 13 banks had threatened to take over the operator in order for it to recover the money.
CBN along with the Nigerian Communications Commission (NCC) stepped in to avoid a forced receivership.
The consortium of Nigerian banks later requested that Etisalat UAE and Mubadala step in with another bailout fund but Mubadala hesitated. Mubadala stressed that Etisalat UAE’s insistence to divest from Etisalat Nigeria was part of its global strategy to reduce its several overseas interests.
Etisalat Nigeria then offered the consortium of Nigerian banks shares in the entity via a debt to equity swap deal, but the banks declined the offer insisting on a bailout.
After several unmet deadlines, the consortium again put forward a deadline of June 23 for the Etisalat Group to come up with a solution or transfer its shares to a trust, which would be managed by an independent trustee. Just as these were going on, the board members led by Hakeem Bello-Osagie resigned from the board thereby creating room for the constitution of another board. This could not save the company as more problems were to rear their heads.
Later, Etisalat Abu Dhabi announced that it had transferred 70 per cent of its holding in Emerging Market Telecommunications Services Ltd (EMTS), comprising of 40 per cent of its ordinary shares and 25 per cent in preference shares respectively.
As all these were going on, Etisalat International last Monday said it had terminated a management agreement with its Nigerian unit, saying that it gave the business three weeks to drop the Etisalat brand in the country. This position was made known by Mr Hatem Dowidar, the Chief Executive Officer of Etisalat International.
According to Dowidar, “The Nigerian lenders may try to continue to operate the company until they find a buyer; or they may merge the company with the existing players in Nigeria.” He said it was tough to say what the lenders would do.
He added, “The brand agreement in either of these two scenarios won’t be a long-term thing, so we take out the brand; in the long term, Etisalat won’t be in Nigeria.”
A new twist was introduced into the whole saga when it was announced towards the end of last week that Etisalat had changed its brand name to 9Mobile telecom.
But where did the company derail, many Nigerians are wont to ask?
Some stakeholders offered insights into the factors that might have contributed to the company’s predicament.
According to Gbenga Adebayo, Chairman, Association of Licensed Telecom Operators of Nigeria (ALTON), it is a problem traceable to the current state of the telecom industry, where cost of providing the service is extremely high and consumers’ prices are low and players are struggling to break even and to meet their financial obligation to creditors.
He said, “The industry needs to consider price review for all services to reflect the reality of the operating costs and the state of the economy. All services have had price increases except telecom services; there is now a need to consider upward review of tariffs as most operators are charging below cost of providing services.
“A time has now come when our regulator, the NCC, should do more of pro-active than re-active regulation. Efforts must be made through regulatory intervention to balance the powers of the mega-operators; anti-competitive practices against the smaller players must be checked.
“Pricing has always been said to be a commercial factor and said to be best left to market forces to determine, however, some recent developments have shown that in an attempt to get a share of the market, there is a continuous race to the bottom of the pricing ladder by many players: leading to some operators offering rates for services that are far lower than the cost of providing such service, and thus leading to endless struggle for survival,” he said.
Adebayo further stated that contract for services and obligations between players that are offered in naira, but charged in foreign currency should be re-considered.
According him, local content for a numbers of services, currently offered in foreign currencies across the industry must be discouraged. He said this does not only lead to capital flight but that it also discourages local companies from investing in the sector.
Government, he said, must provide access to foreign exchange for telecom operators to service critical foreign exchange dependent services and to enable them honour existing contractual obligations.
Speaking on the same matter, Ikechukwu Nnamani, Chief Executive Officer of Medallion Communications Ltd, said what is happening to Etisalat is part of the consequences of taking a foreign by a local entity.
According to him, if the information about the subscriber base of Etisalat is accurate, then the business should not go down because of the loan since they should have enough revenue to cover it. Nnamani said in his opinion, there is more to the story than what is put out to the general public.
“If we go with the information in the public domain, the major error I see here is that they took a dollar-denominated loan, while their income was in naira and they did not buy any protection against exchange rate fluctuation. That is the main error in the structure that I can see. If they had bought insurance to cover any anticipated exchange rate beyond the baseline they used for the financial analysis towards the loan, then they should be fine because their subscriber base has grown over the period of the loan and they should be generating enough revenue to cover it,” he noted.
He opined that how the Etisalat issue is handled by the stakeholders involved will have serious implications for the industry.
In his words:” If they handle it professionally and get a new investor with good telecom experience in similar market as Nigeria to take over operations, the impact will be minimal. For now, this is not an industry crisis but a crisis specific to one of the major players in the industry. It is important this is not treated as an industry crisis since all the information available so far indicates this is internal to Etisalat. It is, however, a lesson to other players in the industry to review the kind of debt arrangement they have with their lenders to be sure the repayment terms are sustainable.”
He also added that the way forward is to get one of the top global telecom operators to invest and manage the network. According to him, the banks cannot run a network so as much as they should take steps to secure their investment in Etisalat they should not attempt to run the network as a service.
“The sooner they get an investor – operator involved the better. The banks should also be flexible in their terms with prospective investors so this can be resolved sooner before subscribers start to migrate to other networks,” he concluded.
Also, Mr. Olusola Teniola, president of the Association of Telecommunications Companies of Nigeria (ATCON), said the problem facing Etisalat Nigeria is a combination of macroeconomic headwinds, such as, recession, forex risks, sustained non profitability of operations and an inability to agree on restructuring of debt facility with their lenders.
“The actions of their main shareholders are that they didn’t see any more value in continuing their involvement in the Nigerian operation and took the decision to cut their losses and furthermore wrote down the value of their investments to zero.
“This final action sent a strong signal that any additional funds would come from another source in the form of an outright sale or merger. To be frank, the notion that the way to funding telco operations would depend predominately on dollar-denominated facilities has now come to an end. The industry is being transformed right before our eyes where voice revenues can no longer be the single source of income for telcos and the new reality is for a truly converged broadband ecosystem to develop and replace the old structure which was based on making a simple call.
“Other operators in the industry will be following very closely the outcome of what will become of Etisalat and lessons learnt will dictate the shape and size of operations going forward.
“We see more consolidation happening in the industry and a new regulatory regime that begins to seek a balance of increased competition versus the need to ensure that universal access is really achievable in the near future. The current configuration of the industry is unsustainable and if not corrected may result in more operators taking the Etisalat route,” Teniola stated.
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