This Day (Lagos)

21 February 2013

Nigeria: Elesho - We Will Increase Broadband Penetration Significantly

interview

The Chief Executive Officer of Capcom, Demola Elesho, spoke with Ojo Maduekwe on the benefits of the merger of Starcomms, Multi-links and MTS First Wireless, into one big CDMA entity, that would transform broadband penetration in Nigeria

Why are the shareholders of Capcom taking a bet on Nigeria where four GSM operators are already very dominant?

Capcom's DNA is replete with businessmen who are in love with the emerging market. They understand that the emerging market opportunities if done right could make a lot of money. But more importantly, they can impact the lives of people. So the combination of business gains as well as making impact in people's lives is what attracts them to the Nigerian market in the first place. And specifically, when you look at the demographics of the Nigerian telecommunications sector, we've done very well in the last 10 years to increase teledensity from less than one per cent to a number between 60 and 80 per cent depending on how you measure it. However, our measurement of what you will call broadband penetration is still very low, less than about five per cent. So the secondary reason is that the opportunity exists to help the Nigerian market increase in data or broadband services penetration to a bigger number. And like I said the combination of business opportunity plus change in people's lives by making broadband services more reliable, accessible and pervasive has been irresistible to Capcom shareholders.

The same challenges of a harsh operating environment that formed the basis for the acquisition of the former CDMA operators still exist. What does Capcom intend to do differently to raise sufficient capital to achieve national coverage and shore up voice and data customers?

At Capcom, we are not going to do the same thing nor are we going to make the same mistakes like the CDMA operators made in the past. The first thing is that the technology platform is different. The platform is LTE which everybody in the world agrees is the future revolution of data networks. For a start, we've got the right technology platform from which to exploit the new broadband services we are going to deliver to the customer base. We have also seen and learnt the lesson that the pursuit of vast national coverage before you have a stable cash flow quality business can lead you into trouble. So what you will find is that the Capcom-led operation will pursue national coverage but in a steady, methodical and deliberate manner. This will give us a different approach in a more business-like manner in order to be successful.

Capcom has also acquired two operators with huge debts on their books, how does the company intend to restructure these debts?

Capcom is acquiring two operators with debts- Starcomms and Multi-links but MTS First Wireless Spectrum has no debts; we are just buying the spectrum from AMCON. As to how we intend to manage the debt burden within Starcomms and Multi-links. Agreed it is going to be a challenge, we will be seeking to have negotiations with our creditors for reasonableness and forbearance when necessary. Most importantly we will be fair to them to understand that we are coming in to basically revive the old business platform, so we need to acknowledge their situation and debt. So the only way everybody gets what they want is if we have the opportunity to repair the machine that makes the money from which we all benefit.

Will the emerging entity be rebranded, what will be its trading name? As a follow-up, when will the new entity start offering voice and data services to new and prospective customers?

We initially intend to run the business with the existing Starcomms Plc brand, because the brand Starcomms is already known, and it is a publicly-traded company on the Nigerian Stock Exchange. So whilst we integrate the company and do the rollout of the company, we will maintain the brand. When we get to a point in which we are ready to launch the new services and capabilities on our LTE platform, we will review the position as to whether or not to simply brand the products we are selling or rebrand the whole company. As to when the new entity will begin offering voice and data services, it will take us between six to nine months to deploy, implement, and test the new technologies and services we are offering. So my estimate is sometime between September and December 2013, our brand new broadband services offering both predominantly data products and thereafter voice services will be available for commercial purposes.

With the acquisition of MTS First Wireless, Multi-links and Starcomms, from the onset, what will be the size of the Capcom network in terms of subscriber base, base stations and fibre backbone?

The acquisition, followed by the merger would give us a network base that is medium sized in Nigeria today. We should have presence and services in at least 26 states of the Federation. The number of base station count is something to be decided because we have a combination of base stations close to each other. Not to miscount, let's just say that we will have enough base stations where we will offer services. For the fibre networks, it will be an approximately 9,000kilometres crisscrossing Nigeria.

Looking at all the owners of Capcom, namely MBC, Helios Investment Partners Plc, Asset Management Company of Nigeria (AMCON), Middle East Capital Group, Oldonyo Laro Estate, Private Equity Investors, and Bridgehouse Capital Limited, only AMCON is Nigerian focused and holds a small stake of 2 per cent in shares. It looks like Nigerian investors are sceptical, or what do you think?

I would not say Nigerian investors are sceptical. Rather, in fairness, because of the recent history of what has happened, the fortunes of all three companies have been badly damaged in the last five to six years, so there is some apprehension initially. But, again we will be having a publicly-traded company. So as soon as people begin to see that this is a serious turnaround story, an improving company, and that there is vast opportunity in the broadband market, it is expected that the investors will come back into the market and they would be able to buy the shares that would be traded on the floor of the Nigerian Stock Exchange (NSE). I think that's where we will see the larger participation of Nigerian consumers as well as Nigerian institutions.

Also, of all the people being proposed as members of the board of Capcom, only two are Nigerian, you and Babatunde Soyoye. The rest are expatriates. What informed this selection, doesn't Nigeria have people matching such competence and how much of Capcom is proudly a Nigerian company?

The initial board members you see on the new Capcom takeover represent the interest of the people who have put together the transaction. In Capcom, it is recognised that post transaction, there would be a restructuring of the board, and there will be a few more recognised industry faces and a few more Nigerians represented to increase the local visibility participation within the operational business. This initial board is basically the deal makers who have done the transaction and not necessary that representing the operational campaign that will emerge subsequently to take over.

When will the acquisition of Starcomms be given the approval by the Securities and Exchange Commission (SEC)?

I hope they do so, as soon as possible. I have no power to know or understand what the internal process of SEC is, but I believe they are doing their job diligently and when the time is right they should give their approval and that obstacle would have been cleared for the final takeover by Capcom to occur. We are looking forward to that happening and are encouraging SEC to make it as quickly as possible.

We understand Capcom may be in talks with Zoom and Intercellular to acquire their licences/spectrums. What value proposition will these two CDMA networks be bringing to the table? Isn't Capcom overstretching itself given that these two CDMA operators just like MTS First Wireless, had stopped operations and are heavily leveraged?

The initial Capcom transaction that you see with Multi-links, Starcomms and the spectrum from MTS is happening in the 1900 MHz band in terms of the rate of spectrum available. Potentially, if all things go right, the ambition of Capcom is to do a spectrum amalgamation in the 800 band, which is where people like Intercellular, Reltel, Zoom, etc are resident. That would help further improve the broadband services proposition that the new Starcomms or Capcom-led operation would be making available to the Nigerian public. So it is really a potential acquisition to further increase the value proposition in the broadband space. Are we overstretching our capabilities? I will say no we are not overstretching our capabilities. All I can say is that Capcom has the ambition to do that. That ambition can and will only be realised if the business proposition, financing numbers, cost of acquisition of these companies is appropriate, and if the added benefit we get from the 800MHz will help create better, stronger revenue streams to help pay for the further acquisitions. If it doesn't happen, Capcom would not do it, Capcom won't commit finances to such.

Other than you as the CEO of the emerging entity, who are the other key management hires that will be coming on board?

At this moment, I'm not at liberty to disclose that information because of the integration. The intention though is to keep as many of the existing Starcomms and Multi-links employees that have worked very hard, under very tough conditions in the last 24 months to maintain services on both networks. We want to make sure that we keep the best of these people, as many as possible to help develop the new operation. No doubt we will be injecting some new blood to help energise, revitalise and bring some new management and operational capabilities as well. So it is a delicate balancing act, which we intend doing our best to respect everybody.

Let's move on to industry issues. Service quality on the bigger networks has been atrocious for over a year. Given your knowledge of the industry and having worked overseas as well as for MTN Nigeria as its pioneer COO, what exactly is the problem with the service offering of the networks here?

It is a difficult one to pin down in one or two sentences, but it is a combination of the Nigerian factors we all suffer in our homes and offices. The number one problem most operators are suffering from and continue to do is that apart from being experts in the telecoms business and the technologies associated with telecommunication services, Nigeria has forced telecoms operators to become experts in medium-sized power provision. This has challenged the telecoms operators in organisation. Also, the continued hope different governments put out there by the various initiatives and promises of better power supply has caused the telecoms operators to look at solving the power problem from a temporary point of view, because they are hoping that power would soon be sorted out. The problem then is that these interim measures to provide power have not survived the longevity of time, so you have generator that breakdown, etc. The way networks operate; this is almost like a chain. A chain may be good from one link to another, but one small breakage in the middle of the chain breaks the whole thing. To use an old English saying: "You are only as good as your weakest link." So the telecoms networks behave only as well as their weakest point. One small power problem somewhere in the chain makes the large part of the network look very bad. This is typically what has happened in the Nigerian environment.

What can be done to solve these problems to improve service quality?

In the first instance, telecoms operators, especially the bigger companies who have been here for a while and have huge investments, customers and large revenue streams have now taken a second look at the problem and are looking robustly at their power provision. They are looking at long-term provisions and almost to a certain extent forgetting and bypassing any more promises of power being available. Everybody is now adopting robust technology that will give better reliability of power to their network infrastructure.

For instance, the use of hybrid technologies where there is a combination of solar, wind, and batteries, plus a top up generator to keep things rolling in case any one of those three is not sufficient enough to keep the power going are now being massively deployed across lots of telecoms operators infrastructure.

Despite the submarine cables terminating in Nigeria, broadband connectivity remains a pipe dream and internet charges are still high relative to other countries. Why aren't the networks or other service providers investing in last mile connectivity in this country?

It is not easy to invest in last mile connectivity. People are investing to the best of their ability. The investment amount needed in the telecoms sector are large, and like you said, what people want to see is the price coming down. So what we have are two diametrically opposed vectors: investment required is high, while price and revenue to be collected is experiencing downward pressure. It makes it a very delicate balance for people to make that investment. But slowly we are getting there, and I think broadband services and helping the last mile connectivity is precisely the opportunity that Capcom is investing in.

One of the challenges of the telecommunications sector in Nigeria is the number of regulators in the industry - there is one for the network operators, another one for broadcast operators, and yet another one for frequency management and allocation. Do you support the notion that the communications policy should be reviewed leading to consolidation and the emergence of one regulator for the entire industry?

Without being political, I do think that the emergence of a single regulator that has an end to end view of the industry's resources and challenges is probably the best way to go. The reason is that having multiple regulators increases the number of interfaces that an operator has to handle in other to deliver, innovate or improve services. What we should be about in the 21st Century is making things faster, cheaper, better and not more bureaucratic and difficult for innovation to go from an ideas lab into implementation. So the policy makers should be looking for faster and cheaper ways of doing business.

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