Battling for Nigerias telecommunications

South African mobile giants Vodacom and MTN wrestle for control over a developing market

ean Hoffs article, South African cellular wars in Nigeria, examines one of the fastest growing markets in wireless telecommunications in the world. At present, Nigeria offers players in the mobile technology industry an impressive opportunity to benet from a developing infrastructure and socio-economic conditions that are encouraging competition in the telecommunications market.

At this moment in time, the dominant player in Nigerias mobile telecommunications industry is the South African company, MTN, with 43 percent market share, followed by Vee Networks. This dominance was made possible by the withdrawal from Nigeria of MTNs main South African competition, Vodacom. The purpose of Hoffs article is to examine the reasons for, and wisdom of, Vodacoms decision to withdraw from Nigeria, by outlining the improving conditions that exist for ambitious telecommunication companies willing to take the risk on investment in an unstable economic and political environment.

South African competition

In the South African market, MTN plays second ddle to Vodacom, who lead the market with 56 percent market share. Vodacom has international operations in Tanzania, the Democratic Republic of Congo, Lesotho and Mozambique, all of which are proving successful ventures. As Hoff states:
Vocacom sees its construction of cellular networks across Africa as a means of helping achieve the African renaissance.

MTN has a similarly impressive international portfolio, with operations in Cameroon, Rwanda, Swaziland, Uganda, and now in Nigeria. MTN is the leading operator in Nigeria, partly due to Vodacoms withdrawal from this market. Both companies clearly targeted the whole of the African continent as the main platform of competition, and initially, Vodacom included Nigeria as a primary target. In March 2004, Vodacoms head of treasury Debbie Millar identied Nigeria as the biggest opportunity in Africa, and outlined the companys resolve in obtaining a signicant chunk of the market. So what are the conditions that make Nigeria such an attractive proposition for the telecommunications industry? How have MTN established themselves in this market, and, more pertinently, why did Vodacom withdraw from the competition? These are questions that Hoff addresses, with the following explanations.

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VOL. 22 NO. 7 2006, pp. 8-10, Q Emerald Group Publishing Limited, ISSN 0258-0543

DOI 10.1108/02580540610669017

Nigerian infrastructure
At present, Nigeria has an inadequate telecommunications network, which is further hindered by poor maintenance. The country has traditionally been characterized by political instability, corruption and poor economic management, particularly under the rule of its former military leaders who failed to diversify the national economy away from the oil sector. In addition, the agricultural sector has failed to keep pace with the huge growth in population. The current government, however, has initiated change in Nigerias economy by implementing market reforms urged by the IMF. For example, during 2003, fuel prices were deregulated, the oil reneries were privatized and the banking system was modernized. As a result, by 2004 Nigerias GDP had strongly increased, a welcome change given the still-high levels of corruption. Despite the inherent problems which face investors, however, Nigeria is one of Africas fastest developing telecommunication markets. Hoff quotes a massive increase in telecommunication subscriptions in 2004 of 155 percent, while the number of telephone lines is expected to double to 20 million according to the regulator. The number of mobile subscribers in Nigeria is expected to reach 23 million by 2007, from the 8.6 million that exist at present.

MTNs Nigerian venture

Telecommunications is a massive boom industry for Nigeria, therefore, and MTN, as the leading provider, is reaping the rewards. MTN was launched in Nigeria in August 2001. The growth in the number of subscribers has since been exponential, rising to over four million customers by September 2005. MTNs market share in Nigeria is estimated at 43 percent, and the company was awarded brand of the year by a major Nigerian media group. And there is still plenty of room for further development. MTN still only has limited coverage of the countrys potential area, accounting for some 65 local government areas from a total of 550: in population terms this translates into only roughly 16 million people from a population of 129 million who can receive a signal from MTN. The prognosis for further development is, therefore, very encouraging, and is boosted by the comparatively weak competition from its nearest rivals, Econet Wireless Nigeria (EWN) and Nigerian Mobile Telecommunications Limited (M-tel). EWN is Nigerias second largest telecommunications company with three million subscribers, followed by M-tel with approximately 1.3 million. And, of course, MTNs dominance was rmly established by the withdrawal from the Nigerian market of Vodacom.

Vodacoms gamble
In March 2004, Vodacom announced its resolve to invest in the Nigeria as one of the main targets in the African telecommunications market. An opportunity arose when EWN acquired fresh capital: Vodaom began negotiating for a 51 percent stake in EWN for $250 million, and although the offer was accepted by the shareholders, it was challenged and ultimately thrown out by Econet Wireless International (EWI), who wanted control of the company. Despite this deance, EWN shareholders awarded Vodacom a ve-year management

At present, Nigeria offers players in the mobile technology industry an impressive opportunity to benet from a developing infrastructure and socio-economic conditions that are encouraging competition in the telecommunications market.

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contract, which allowed the company to place its own managers in key positions, and to rebrand the organization from Econet to Vee Networks. This led to protracted legal disputes initiated by EWI, which went as high as the United Nations Commission on International Trade in the Hague. In the end, Vodacom cancelled its management contract amid a scandal involving irregular payments (although Hoff does not clarify precisely what parties were involved or accused in this scandal). The actual reasons behind Vodacoms decision to withdraw from the Nigerian market remain unclear, but in a statement of May 2004 it ofcially announced the decision to the world. It later claimed that the decision was made in order to protect its corporate governance standards, but did not go so far as to name any wrongdoing or corruption of its former executives. Vodacoms complicated withdrawal from Nigeria has left open the way for MTN to consolidate its dominance in this particular market. However, Vodacom is intending to return with an improved offer to acquire a majority stake in Vee Networks, despite interest from Virgin Mobile in the UK. MTN has beneted from being the rst mover into this market, and from taking a chance on an unstable economic and political climate. Although it may soon be challenged once again by Vodacom, MTN will have established a certain level of dominance through the bold management strategy of entering an untried arena.

Keywords: Emerging markets, Acquisitions and mergers, Corporate governance, Mobile communication systems, Due diligence, Nigeria

Comment
This review is of South African cellular wars in Nigeria by Dean Hoff. This article is full of up-to-date information on the present state of the Nigerian telecommunications industries and infrastructure, and the histories of the main players competing for market shares. As this is a case study, the article comes to no rm conclusions as such, but provides a clear outline of the socio-economic conditions in this particular market for potential investors and the problems faced by the major competitors.

Reference
Hoff, D. (2006), South African cellular wars in Nigeria, International Journal of Emerging Markets, Vol. 1 No. 1, pp. 84-95.

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