eBusiness Weekly
Michael Tome and Tapiwanashe Mangwiro
With the privatisation of TelOne and NetOne on hold after failing to raise funds for transaction advisors, some analysts have suggested that consolidating the two State-owned firms would be “a better strategy to achieve efficiency.
Telone, the country’s sole fixed telephone company and NetOne, the second-largest cellular carrier, are among state-controlled entities earmarked for privatisation as the Government seeks to ease the burden on the fiscus and enhance efficiency.
The government intends to dispose of 60 percent shareholding in each of the company.
Business consolidation generally refers to the combination of different business units or companies into a single, larger organisation. It is initiated to improve operational efficiency by reducing redundant personnel and processes, according to Investopedia. Often associated with mergers and acquisitions (M&A), business consolidation can result in long-term cost savings and a concentration of market share no matter how expensive and complex it may be in the short term.
It is understood that privatisation of the two companies are now on hold after they failed to raise the US$5 million needed by Pricewater-Coopers (PwC) for advisory services.
“NetOne and TelOne indicated to Government that they cannot afford US$5 million transactional fees for consultancy services,” said a source privy to the matter.
The source added that, following the unsustainable fees for the transaction, the Government has since canceled the transactional contract with PwC and is looking at retendering or sourcing for the services of other bilateral or multilateral partners.
In the wake of such revelations, calls for a consolidation of both telecom companies in order to create a bigger company that has a big capital base and a wider customer pool are now loud. Some have gone as far as saying the two state-owned firms should in their plan integrate a bank in the consolidation so as to make capital raising easier.
The current telecom market is characterised by fierce competition, and it is difficult for the operators to grow organically.
Numerous firms and a small market have led to companies not seeing growth because income has been dwindled by a tough environment.
Key factors that influence operators’ return on investment include weakened bargaining power in the procurement of network equipment in view of the difficulty to obtain foreign currency to pay Chinese vendors Huawei and ZTE. Economist, Professor Tony Hawkins said, “Mergers in such an environment help achieve economies of scale through an increased number of subscribers, pooling of resources and lower operating costs.
“It is likely that if the consolidation is done, it improves the overall quality of infrastructure, but only after close scrutiny from regulatory bodies.”
Telone has been diversifying from only fixed-mobile services as it has integrated other business opportunities such as vehicle tracking, streaming services as well as the latest farm management service.
This will help NetOne also feed off such offsprings and make it easier to provide cable services using their network towers.
Econet is an example locally of such a company that is consolidating its services as separate entities.
The telecoms firm is into banking, internet, and fibre services and has other farming services as well as insurance in itself.
Analyst Takudzwa Maradze said; “the model Econet uses should help as a benchmark for NetOne and TelOne and also even come into the fray and throw ZimPost in the mix for an Amazon type of service using fibre and network service of the two telecom giants.”
Economist, Dr Prosper Chitambara said; “There is a high likelihood of the market evolving to a smaller number of integrated telecom operators offering fixed-mobile convergence services and diversifying the way they engage with consumers.
“One can see such positive impacts from the UK’s Virgin Media O2 case, as the new operator recently reported on its first anniversary that there is a growing adoption of converged services, with 45 percent of its broadband customers also taking a mobile contract.”
However, the source said the two boards have been avoiding such talk because they fear the loss of jobs and prefer to sit back and wait for Government to settle the bill and do the moves separately.
Professor Mthuli Ncube is on record saying the privatisation issue should be finalized, but the details around the next steps of privatisation have however remained sketchy.
For now, the two firms are waiting for an evaluation that was done to assess the potential of privatisation.
