Telecoms: why mergers and acquisition may characterise 2007
Jonah Iboma
One of the notable developments that took place in the Nigerian telecom sector towards the end of 2006 was the acquisition of VGC Communications Limited, by mobile phone giant, MTN Nigeria.
In a deal worth a little over $65m, MTN completely bought the both the operations, assets and liabilities of the national unified licensee firm owned by the Globe Holdings Group which boasts of other businesses in construction, telecom and the hospitality sectors.
With the takeover, which was concluded after some lengthy discussions, MTN had effectively entered the fixed wired-line services market where VGCCL specialises with notable presence in the three most economically important cities- Lagos, Abuja and Port-Harcourt.
Besides marking one of the highest takeover deals among local telecom firms, the acquisition is viewed by many as a pointer to what the telecom sector would experience in the country this year and in the near future.
Industry experts have predicted that there be increased mergers and acquisitions in the Nigerian telecom market in the coming months given the current state of the sector.
One of the points that have been identified as responsible for the situation is the recent policy shift by the Nigerian telecommunications regulatory authorities allowing operators to offer both fixed and mobile services subject to the areas of their licenses coverage.
The Unified Access licensing policy introduced in March 2006 by the Nigerian Communications Commission came with the end of the five years exclusivity period granted mobile phone companies since the introduction of GSM services in 2001.
Effectively, Unified Licensing has began opening up the sector as many fixed wireless firms rushed in to get permits to offer mobile services. However, with many bigger firms outside the shores of Nigeria showing interests in the Nigerian market, within a few months, many local fixed wireless firms began to see that they could not really compete with bigger players except they got the needed funds to remain relevant in the sector.
According to Mr. Oromena Ajakpovi, the Managing Partner of Abraham and Company, a law firm with specialisation in telecommunications, there is bound to be increased mergers and acquisitions in the sector in the coming months as the Nigerian telecom sector had past the initial phase whereby many people did not understand its requirements. He noted that as current telecom firms understand the need for increased funding they would have to find ways to allow bigger players to do it as they would become almost overtaken by the challenges.
He said, “This year, a number of telecommunications companies would find out that it had become financially too burdensome to provide services that would meet consumers expectation.”
He added, It means we must have the coming together or mergers of operators or have an arrangement to strengthened telecom service delivery.”
Commenting on the issue, Mr. Nam Mokwunye, a Nigerian Reuters Digital Vision Fellow at the Stanford University in California, noted that mergers and possible acquisitions was unavoidable in the telecommunications sector after the development the sector had undergone.
He said, “It is the inevitable direction for the sector. Some operators have been holding licenses for the past five years and have done very little with them. Now with developments in the last two years, operators must prove whether they actually deserve to hold such licenses. So mergers would certainly take place as the sector so that those who can introduce new services and better manage telecommunications resources come in.”
Also, the immediate past Chairman of the Association of Licensed Telecom Operators of Nigeria, Chief Adebayo Akande, predicted that mergers would enter the sector as the challenges of offering services dawn on operators.
In terms of impact, the Managing Director of NegstGlobal, Dr. Babatunde Obada, noted that if merger and acquisitions really took place in the telecom sector in Nigeria, it would be good for the economy. Obada said without such a development, some telecom firms would probably cease to exist as they may seek to cope with the task of competing in the harsh economic environment as Nigeria.
However, Managing Director of Juniper Solutions Limited, Mr. Adegboyega Ojuri, noted that besides the MTN deal, he does not expect to see much activities in terms of mergers and activities in the telecom sector in the first half of this year. According to him, with the country’s political landscape currently giving the signs of possible troubles, investors would be very cautious to put money in the system.
He however noted that once the elections had been concluded and the direction the country was heading politically was now clear, there could be some activities in terms of mergers and acquisitions.
Ojuri, whose firms runs a subsidiary that offers Internet service noted that the even if there would be mergers and acquisitions, this would be limited to few firms because many of the smaller players that bigger operators would be looking at acquiring were not running very well. He said the bigger firms would be forced to seriously consider weather it were better for them to invest in those firms or to build their own networks in areas where they were not operating.
Sources close to MTN said before the take over of VGCCL, MTN had attempted to takeover a few other firms but had to look away as my of them were found not to be running properly with their accounts not properly kept.
One of the notable developments that took place in the Nigerian telecom sector towards the end of 2006 was the acquisition of VGC Communications Limited, by mobile phone giant, MTN Nigeria.
In a deal worth a little over $65m, MTN completely bought the both the operations, assets and liabilities of the national unified licensee firm owned by the Globe Holdings Group which boasts of other businesses in construction, telecom and the hospitality sectors.
With the takeover, which was concluded after some lengthy discussions, MTN had effectively entered the fixed wired-line services market where VGCCL specialises with notable presence in the three most economically important cities- Lagos, Abuja and Port-Harcourt.
Besides marking one of the highest takeover deals among local telecom firms, the acquisition is viewed by many as a pointer to what the telecom sector would experience in the country this year and in the near future.
Industry experts have predicted that there be increased mergers and acquisitions in the Nigerian telecom market in the coming months given the current state of the sector.
One of the points that have been identified as responsible for the situation is the recent policy shift by the Nigerian telecommunications regulatory authorities allowing operators to offer both fixed and mobile services subject to the areas of their licenses coverage.
The Unified Access licensing policy introduced in March 2006 by the Nigerian Communications Commission came with the end of the five years exclusivity period granted mobile phone companies since the introduction of GSM services in 2001.
Effectively, Unified Licensing has began opening up the sector as many fixed wireless firms rushed in to get permits to offer mobile services. However, with many bigger firms outside the shores of Nigeria showing interests in the Nigerian market, within a few months, many local fixed wireless firms began to see that they could not really compete with bigger players except they got the needed funds to remain relevant in the sector.
According to Mr. Oromena Ajakpovi, the Managing Partner of Abraham and Company, a law firm with specialisation in telecommunications, there is bound to be increased mergers and acquisitions in the sector in the coming months as the Nigerian telecom sector had past the initial phase whereby many people did not understand its requirements. He noted that as current telecom firms understand the need for increased funding they would have to find ways to allow bigger players to do it as they would become almost overtaken by the challenges.
He said, “This year, a number of telecommunications companies would find out that it had become financially too burdensome to provide services that would meet consumers expectation.”
He added, It means we must have the coming together or mergers of operators or have an arrangement to strengthened telecom service delivery.”
Commenting on the issue, Mr. Nam Mokwunye, a Nigerian Reuters Digital Vision Fellow at the Stanford University in California, noted that mergers and possible acquisitions was unavoidable in the telecommunications sector after the development the sector had undergone.
He said, “It is the inevitable direction for the sector. Some operators have been holding licenses for the past five years and have done very little with them. Now with developments in the last two years, operators must prove whether they actually deserve to hold such licenses. So mergers would certainly take place as the sector so that those who can introduce new services and better manage telecommunications resources come in.”
Also, the immediate past Chairman of the Association of Licensed Telecom Operators of Nigeria, Chief Adebayo Akande, predicted that mergers would enter the sector as the challenges of offering services dawn on operators.
In terms of impact, the Managing Director of NegstGlobal, Dr. Babatunde Obada, noted that if merger and acquisitions really took place in the telecom sector in Nigeria, it would be good for the economy. Obada said without such a development, some telecom firms would probably cease to exist as they may seek to cope with the task of competing in the harsh economic environment as Nigeria.
However, Managing Director of Juniper Solutions Limited, Mr. Adegboyega Ojuri, noted that besides the MTN deal, he does not expect to see much activities in terms of mergers and activities in the telecom sector in the first half of this year. According to him, with the country’s political landscape currently giving the signs of possible troubles, investors would be very cautious to put money in the system.
He however noted that once the elections had been concluded and the direction the country was heading politically was now clear, there could be some activities in terms of mergers and acquisitions.
Ojuri, whose firms runs a subsidiary that offers Internet service noted that the even if there would be mergers and acquisitions, this would be limited to few firms because many of the smaller players that bigger operators would be looking at acquiring were not running very well. He said the bigger firms would be forced to seriously consider weather it were better for them to invest in those firms or to build their own networks in areas where they were not operating.
Sources close to MTN said before the take over of VGCCL, MTN had attempted to takeover a few other firms but had to look away as my of them were found not to be running properly with their accounts not properly kept.
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