Public Agenda (Accra)
Amos Safo
18 July 2008
A Political storm is gathering over the Ghana Government's recent announcement that it had sold 70 percent of Ghana Telecom for $900 million to Vodafone, the worlds leading mobile telecommunications operator.
Quite unexpectedly, the proposed sale of GT has united the National Democratic Congress (NDC) and the Convention Peoples' Party (CPP) at least for now. The two opposition parties have so far vociferously raised the stakes against the sale of one of Ghana's biggest assets and revenue earner.
The NDC in particular seem not to have a problem with the privatization, except the lack of openness in the privatization process, expressing its disappointment at the "general lack of openness and transparency in the privatization of a major national asset, which has major national security and economic implications." NDC quite rightly questioned why the privatization of GT could not have been subjected to a competitive process as required by the Public Procurement Act of Ghana.
Both parties have stated that they would renationalize GT when they win the presidency. That would be history repeating itself, given that the NPP annulled the sale of GT to Telecom Malaysia when it assumed office in 2001.
While the NDC has decried the price as low, considering the huge assets of GT, the CPP has completely rejected the sale of GT and called on "well-meaning Ghanaians to oppose the NPP government's impending sale of 70.0% shares in Ghana Telecom to a foreign "strategic investor", Vodafone."
In a statement issued earlier this week, the CPP cited two reasons for opposing the planned privatization of GT. Firstly, the CPP says it "lacks economic merit and will, in the long run, cost the state far more than the paltry US$900 million it is receiving for the sale", and secondly that the "notion that only foreigners can effectively manage our affairs is offensive to our dignity as human beings and undermines the CPP's cherished belief that, 'The Blackman is capable of managing his own affairs.' "
CPP argues that a casual look at GT shows that the company is capable of generating profits far in excess of its sale price, "if only we would emplace proper management that is free of political interference and is publicly accountable to Ghanaians."
Part of CPP's fears are based on the failure of the Malaysians and Norwegians managers to turn GT's fortunes around, which supports the fact that the mere transfer of ownership or management to foreigners will not solve GT's or Ghana's problems.
"Currently, Ghana Telecom owns One-Touch mobile services, has near monopoly over fixed lines, dominates broadband services, and has a major share of the internet backbone, SAT-3. Assuming, conservatively, a combined subscriber base of 2,000,000 and daily average net revenue per subscriber of US$3.00, GT can easily make US$2.2 billion per year, or US$11.0 billion in five years, far more than the US$500.0 million investment being promised by Vodafone", says Ekow Nelson, a Ghanaian based in London.
In line with the call for transparency in the deal, in 2007, a Ghanaian Diaspora professional group, called the Ghana Leadership Union (GLU) announced plans to pool resources to buy a controlling stake in one of the country's biggest assets, Ghana Telecom, if the process was open .
In a statement , the President of GLU, Dr. Kwaku A. Danso, said, "the founders of our nation Ghana did not use taxpayers' funds to set up State-owned enterprises (SOEs) only to be sold to foreigners, or to insiders of the government who use proxies to buy these SoE's and leave the real stakeholders with the debts. This practice must be stopped, by any means necessary".
Asked about the investment strategy, the initiative's lead promoter in the UK, lawyer George Asomaning responded, "It is our intention to ensure that as much of the actual investment received gets channeled into the infrastructural development of Ghana Telecom, so as to position the company to deliver on its promise and to return a sizeable profit for the shareholders, the citizens of Ghana".
Nifa Bankroh, the organizer of the "Lets buy Ghana Telecom" initiative stated, "If Ghanaians do not get involved in the acquisition, ownership and management of significant state owned enterprises that are being divested, the likelihood of Ghanaian nationals being able to control the factors that affect their economic future will be marginal at best, and probably negligible.
Ghanaians are becoming increasingly nationalistic when it comes to divesting state assets; so the question of whether Vodafone or any other strategic investor would represent the national interest keeps coming up. The botch sale of GCB and ADB are classic examples of public opinion prevailing over government plans.
The fear is that in return for US$900m, Vodafone will not only assume control of OneTouch (Ghana Telecom's mobile arm), but also, ownership of Ghana's fixed telecom network (both core and access) will be transferred and with it, monopoly over the provision of international, long distance telephone and fixed broadband services.
One Ghanaian analyst has argued that Ghana Telecom's 1.4 million mobile customers represent just over 0.5 percent of Vodafone's global subscriber base of 260 million. How strategic is that for Vodafone? Given that Vodafone or any other strategic investor achieves 100 percent mobile penetration with a relative small population of 22 million people (which is less than 10 percent of Vodafone's subscribers), Vodafone's stated target market share of 25 percent will only represent 2.2 percent of its current total subscriber base and that won't be achieved for another 5 years at least. "So it remains to be seen whether or not this turns out to be as strategic for Vodafone as the government assumes it will be for Ghana."
The worry is that is it really strategic for Ghana to hand over her fixed telecom network to a company which although is the world's largest mobile provider by revenue, has relatively little experience of running or investing in building fixed telecom networks anywhere in the world? What exactly will Vodafone bring in terms of deep and in-house experience to this business?
As the world moves fast toward the digital world, broadband will become strategic for all economies; so the critical need for utilizing ICT for economic growth, as the NDC argued in its statement is pertinent . Currently, Ghana Telecom's broadband is limited to a couple of metropolitan areas and it will be in dire need of further investment if the government wants to extend that reach to many rural people. No doubt the government's e-government and other ICT initiatives for schools, hospitals etc economy will depend on a robust broadband infrastructure. "Yet this single most important strategic asset has been handed over to Vodafone which has by default become a monopoly provider when few, if any, competitive alternatives exist. We are proposing to transfer a public monopoly to a private one and that cannot be good for the future of our country", says the analyst.
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CONGRATULATIONS GHANAIANS
Your Government has done an excellent job in selling 70% of Ghana Telecom to Vodafone. Vodafone is the worlds biggest and one of the worlds best telecom companies. Ghanaians will forever enjoy the benefits of all the new services being offered by Ghana Telecom in the future.
I read the article published 9th July by Yaw Adu-Out ”Ghana Telecom Majority Sale to Vodafone: Potential Threat to National Security of Ghana” and felt the need to write this article to balance this almost communistic thinking in a world that has embraced international laws and commerce.
Ghana Telecom (GT) was on the brink of bankruptcy in 1999. It was not managed as a telecom company but rather as a state department. The Malaysians brought in an arcane form for management that did not suit Ghanaians and failed. Ghana Telecom was then re-financed by the current Government, restructured and a long process of modernisation took place (normalisation). GT still has a long way to go to compete head on with MTN, Millicom (TIGO), Celtel and all the other international telecom companies established in Ghana. GT led by Vodafone will give the other telecom operators a fair run for their money.
And telecom requires money. There are always new technolgies that needs to be introduced (invested in) to make sure that you offer the customers the modern services and the quality of services they deserve and pay for. Failing this they will choose the operator that does. This is pure and simple market forces at work.
And choice the Ghanaians have. The Government of Ghana has not only during their time in office secured an excellent sale through a long and tough turn-around of GT, but they have also pro-actively de-regulated the whole telecom sector. Again to the benefit of the Ghanaians who now have the luxury of choosing services from some of the best telecom operators in the world. And with Vodafone entering the market I can guarantee that the services and prices will even become better.
The price that the Government has achieved is extremely good. They have secured USD 900 million dollars for 70% of GT from Vodafone. The revenues of GT in 2007 were USD 280 million per year and an operating cash-flow (EBITDA) of USD 42 million. This means that Vodafone were willing to value GT at more than 30 times their operating cash-flow. Vodafone has offered to pay USD 900 millions for 70% of GT that values GT at almost USD 1,3 billion. And by dividing USD 1,3 billion on USD 42 million we derive at 30 times EBITDA. This is an incredable good price and to all you other negative commentators, please bring forward examples of comparable transactions within the telcom sector that gives the same positive financial relationship in favour of the seller (the Ghanaians). In addition to this the Government has secured an ongoing investment commitment from Vodafone in the range of USD 500 million. This is required to continue the re-structuring and turnaround of GT and to secure GT a prosperous position within the competitive telecom market in Ghana.
Amos Safo in his article on 18th July ”Sale of Ghana Telecom Gathers Political Storm” states that NDC will re-nationalize GT if they were to win the next election. Please wake up to the commercial realities of 2008. No sane Government would want to own a telecom operator and continuously be burdened by the constant change in technologies and risk huge future investments to remain competitive. To remain competitive in the telecom sector is all about money and innovation. Do you seriously consider Governments innovative and with limitless supply of money. Even the Swedish Government (probably the most socialist country in Europe) have concluded that they want to exit their current 34% ownership in TeliaSonera (the incumbent telecom operator similar to GT in Sweden). Why? The risks of future ownership is too great even for them.
Ekow Nelson a Ghanaian living in London furthermore states that GT can make USD 2,2 billion in revenues a year and leverage its ownership in One Touch and Sat-3. This statement is beyond me and to secure such a revenue target GT must regain most of its lost market share to MTN, Celtel, Tigo and the others. This is completely unrealistic and a statement made by a person who has zero experience from telecom. However, why do you not invite him back to Ghana and hear him out on his ideas for GT. It may be worth the cost of the airline ticket.
CPP states that they are against the planned sale of 70% of GT to Vodafone as ”It lacks economic merit and will in the long run” and secondly the ”notion that only foreigners can effectively manage our affairs is offensive to our dignity as human beings”. I have myself lived and worked in Ghana for one and a half year, as head of fixed network services in GT. I had the pleasure during this period to meet and work with extremely competent and able telecom executives and engineers in GT. That GT has the human resources and capabilities is beyond doubt. All of the Ghanaians that I worked with were highly educated from the best universities in the world. The issue is therefore not lack of ability to manage your own affairs but the combination of innovation (through active ownership) and money. With the Ghanaian competition within the telecom sector I would never want to be a stand alone shareholder in GT. The decision to sell GT by the current Government is the only way forward for GT. The threat of nationalisation of GT is beyond me as a concept and a concept that was left by most countries a long time ago. Particularly within the telecom sector. The Government has done its job within this sector and the sale of GT is a natural conclusion of this. My suggestion is that the next Government continues the same policies within the telecom sector and make sure that the current competitive climate continues to prosper. It is the only way to secure the best telecom services for the Ghanaians. Even in Norway during the 60’s when oil was discovered, the Norwegians were keen to secure international oil expertise from the US and other mature oil producing nations. This fact did not belittle the norwegians at that time but was rather a necessesity to kick-start the oil sector development. Over time the norwegians took over but much of the oil resources are still being operated and owned by foreign interests.
Selling of the national backbone network ”the GT gold” has been cited by many as wrong. There is nothing wrong with selling the fibre backbone network of Ghana Telecom and Sat-3 as part of this. Sat-3 was bought by GT for USD 23 million. The capacity on Sat-3 is fully utilized and GT together with the other operators in Ghana needs to make additional investments into international cables to secure their own ambitious plans for new Internet services to Ghanaians. Sat-3 will only be a small part of this capacity in the future. GT has a near monopoly on providing fast internet access to Ghanaians through their copper infrastructure (which is being stolen every day because of high copper prices). All mobile operators (Tigo, Celtel and MTN) will start offering their customers fast internet access through their own infrastructure. This means that in the near future there will be as much competition on providing fast internet access as there is currently on providing mobile voice services in Ghana. Therefore the argument that the Ghana State should retain GT to provide this service is mundane and made by laymen without any insigth into the technological advances within modern telecom.
The threat to national security has been cited as a paramount reason for not selling 70% of GT to Vodafone and that Vodafone owned by the Brits will use this to infiltrate Ghana. Again what kind of reality is the person making these statements living in? Of course the telecom infrastructure may be used by political or armed parties to take control over a nation. This should not be joked about and the last time I am aware this was happening was in Pakistan only a year ago. What was telling in Pakistan was that the ruling party (president) took control over all the operators and not just Pakistan Telecom. There is competition in Pakistan similar to that in Ghana and they also enjoy the benefit of international operators investing in Pakistan and creating competition. All the operators had to follow Government instructions and comply by the regulation. Yes this situation may also happen in Ghana – but I do not believe so. Is national ownership of GT necessary to retain national security. The answer is NO. The Parliament should not stop the planned sale because of this immaginary threat. If the Brits wanted to infiltrate Ghana, they could probably just pay one or two executives within GT today a small sum of money and they would control GT. The fact that Vodafone is willing to pay USD 900 million for 70% of GT has nothing to do with national security. It is a pure investment decision. And to state that Vodafone is a British company may be fair – but if you look at the ownership structure behind Vodafone you will definetely not find the British Government – but rather a range of investors from Dubai to Russia. The world is international and telecom is very international.
I therefore again congratulate the Ghanaians on their last coup on convincing Vodafone to set up shop in Ghana and pay USD 900 million for 70% of Ghana Telecom. You Ghanaians will all benefit immensly from this deal in the future. You will be getting better choice, better prices for basic telecom services and you will be able to develop your place within the information society going forward.
The Author: Arild E.Hustad, Managing Director of Telecom Management Partner, 18 years experience within the international telecom sector, Norwegian.