Vodacom exit from Congo will be messy

The Nigerian company is now one of that country's top three cellular companies.

Now SA's largest cellphone company by customer numbers finds itself facing another potentially bruising tussle, in the Democratic Republic of Congo.

At the centre of the latest dispute is the reported plan by JSE-listed Vodacom, led by CEO Pieter Uys, to offload its 51% stake in Vodacom Congo in a deal that could net more than $500m.

There is a roster of investors, including MTN and Angola's Unitel, that are reportedly keen to buy the stake, having already made requests to conduct due diligence.

But Vodacom's minority partner, Congolese Wireless Network, is having none of it and has rushed a court application to stop the sale, claiming it has pre-emptive rights and alleging Vodacom is not being transparent in the process.

As if this setback is not enough, the Vodafone-owned company is also faced with a legal suit of about $40m from former consultant Moto Mabanga, who said he helped the cellphone company with negotiations with Congolese Wireless Network.

Mr Mabanga was paid $2,8m for his services, but claims he is entitled to a further $40,8m, and has reportedly threatened to attach assets of the company to retrieve the money.

Arthur Goldstuck, MD of World Wide Worx, says Vodacom's problems in the Congo are not good for the company's image.

"It appears they are discovering that Africa is a lot harder and more complicated for doing business than they anticipated," he says.

"And it seems MTN, on the other hand, has got the formula right because one of the most difficult markets is in Nigeria and yet MTN is now a household name there."

Vodacom's brief flirtation with Nigeria ended in an embarrassing exit from what has become a pot of gold for companies such as MTN and India's Bharti Airtel.

The company's image was bruised after a tussle with Econet Wireless International, the SA-based telecoms company, which disputed its purchase of a controlling stake in Nigeria's Vee Networks, in which Econet was a minority partner.

Vee Networks, originally known as Econet Wireless Nigeria, was subsequently renamed Vodacom Nigeria, prompting Econet to mount a legal challenge to have the deal reversed, claiming its partners had breached pre-emptive rights when they sold the controlling stake to Vodacom.

So messy was the deal that allegations of corruption were made, forcing the Vodacom board to instruct then CEO Alan Knott-Craig to terminate the deal.

Mervin Miemoukanda, telecoms industry analyst at research firm Scott & Sullivan, says doing business in Africa remains tricky, particularly when dealing with partners aligned to political leaders or the government.

An example of how an investment can be overturned when there is a change of government was FirstRand 's experience in Zambia, where it was forced to cancel a deal to buy Finance Bank of Zambia for just over $5m after new president Michael Sata cancelled the deal.

In Vodacom's case, Mr Miemoukanda says the lesson for the company is to ensure that future partnerships in Africa are based on tighter agreements to avoid disputes. "It is a good lesson. Next time they will be very careful when they do business with an African partner," he says.

But he questions Vodacom's decision to exit the Congo, saying if it has ambitions of becoming one of the top cellphone companies in sub- Saharan Africa, it has to remain in the Congo , where cellular penetration is under 50% - compared with more than 100% in SA.

Vodacom appears to have become tired of funding its unit in the Congo without support from its minority partner and decided to cut its losses and run.

Its unit in the Congo was a market leader in the vast Central African country five years ago, but has since lost market share to Tigo Congo and Bharti Airtel.

Vodacom is also facing renewed competition from France Telecom, which recently obtained government approval to buy its 49% stake in Congo China Telecom.

But Mr Miemoukanda says opportunities for growth remain in the country. Vodacom appears to agree, saying in its last published annual report that while mobile SIM penetration is 107% in SA, it averages 26% in its other four markets, the Congo, Lesotho, Mozambique and Tanzania.

Mr Miemoukanda says opportunities for growth in mature markets such as SA are limited, and competition could increase as the industry consolidates.

"We are going to witness consolidation in the next three to five years in the region, where some markets like SA are already saturated," he says.

"So the only other way Vodacom can significantly grow (including remaining in the Congo) could be in new markets such as Sudan or maybe Ethiopia, but the question is whether it is willing to invest money into these countries."

Mr Goldstuck suggests Vodacom should "go back to the drawing board" and apply the lessons it has learnt in successful markets such as Tanzania on new ventures. "They are doing well in Tanzania and they are a dominant brand in Mozambique, so they need to go back to the drawing board to see what they did right in those market and apply in other markets," he says.

Source: Business Day