Analysts call for Telecom changes

By: JO-MARÉ DUDDY

“TELECOM Namibia needs to change course and focus on profitability or face the risk of becoming another indebted state-owned enterprise (SOE) with decreasing significance for Namibia’s telecommunication sector,” leading telecoms expert Christopher Stork has warned in his latest review of the industry.

Teaming up with veteran economist Robin Sherbourne for the new edition of ‘Namibian Telecommunication Sector Performance Review’, released by the Institute for Public Policy Research (IPPR) and Research ICT Africa on Friday, the two concluded that “Government should sell a large share of Telecom Namibia to a strong operator with low cost CDMA expertise”.
The SOE could benefit from the MTC model, where Portugal Telecom’s acquisition of 34 per cent of the shares in the local mobile operator proved profitable for both Government and Portugal Telecom, they suggested.
“Seeking a partner with global technical and management expertise could still turn Telecom Namibia into a cash cow whilst better serving Namibia’s development goals,” they said.
For now, Telecom Namibia is not living up to expectations.
Although revenue have grown steadily, from N$652 million in 2000 to N$1,08 billion in 2008, net profits after tax have been on a roller-coaster. It plummeted from a record high of N$121 million in 2004 to N$84,6 million the year after, only to increase again to N$112,3 million in 2006. In 2007 it dropped to N$23,2 million, before recovering to N$46,9 million in 2008.
Equally, return on equity (ROE) has been fluctuating. It grew from 11,3 per cent in 2002 to 21,4 per cent in 2004. Since then, ROE has dropped, some years more drastically than others, to 2,3 per cent in 2007.
In 2008 it increased to 4,4 per cent. This, unfortunately, is not good enough, according to the authors.
“The recent ROE would hardly be enough to compensate an investor for the value lost due to deflation,” the authors said. And further: “What is clear is that Telecom Namibia is struggling to become a flourishing and growing business.”
Stork and Sherbourne regard Telecom’s linking of its wholesale and retail business as the company’s biggest mistake.
“Using wholesale prices to protect retail revenues leads to sub-optimal business performance and holds back economic development,” they said. Both should be seen as separate profit centres “both trying to maximise profits on their own”.
Wholesale should try and push out as many ADSL connections as possible, whether to Telecom Namibia’s retail section or any other reseller in such a set-up, they said. “That helps to reduce waiting times for installations and lets the retail arms compete against other resellers.”
Separating wholesale from resale and the “unbundling of the local loop to allow other operators access to Telecom Namibia’s customers”, may require regulatory intervention in the fixed-line sector.
“That might sound like a threat to Telecom Namibia’s existence but is likely to be a blessing. Similarly, competition has been a blessing to MTC, which is now a much stronger and more profitable company tab it has ever been,” Stork and Sherbourne said.
Focusing on Switch, Telecom’s mobile service, Stork and Sherbourne said the “political restriction” to fixed-wireless for three years is likely to have damaged the brand and its adoption considerably.
“So much so that it might be advisable for Telecom Namibia to relaunch its services altogether, possibly as converged services.”
The two researchers were equally unimpressed by Telecom Namibia’s attempt to enter new markets outside the country.
The company entered into an agreement with Angola’s Mundo Startel in 2004 – a venture, which by Telecom’s own admittance – is struggling. It also teamed up with VSNL/Tata to become the second national operator in South Africa, a venture they remain “upbeat” about.
Stork and Sherbourne have their reservations about this. “Neotel, for example, is unlikely to turn into a cash cow any time soon.”
“Expanding to neighbouring countries may be a very profitable strategy if supported by a growing business at home. A crumbling business at home might make such strategies risky,” they said.
For Stork and Sherbourne the key to Telecom’s success “will be to turn the domestic market into a growth market.
“Less relevant for that will be how things have been done in the past and more relevant will be how things can be done to grow customers and turnover, in both retail and wholesale,” they said.

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