In 2009 when a novice announcement of a 75% private partner sell of Zamtel was made by then Rupiah Banda government, the general populous grew squeamish. The same sentiments have been expressed upon the announcement of a 4th mobile phone company. Recently, Angola’s Unitel (Uzi) were officially announced as the e fourth mobile player in Zambia.
Zamtel for a long time had natural monopoly, pricing power and scale of operation, dominating both economies of scale and economies of scope. It has increasingly been validated that the entire business model is about the cost of capital, implying in a world of autonomy new entrants with huge balance sheets can topple the existing monopoly. In the case of the Zambian telecommunication and mobile phone market, the MTN group and Airtel came in, as disruptive market forces and modeled their own demand. It won’t be any different with UZI mobile.
Zamtel’s woes have been steady and persistent. In 2015, the Government set out to fundraise a USD 350milllion offshore financing for the recapitalization of Zamtel. Unfortunately, they were unsuccessful. However, Zamtel’s numbers look interesting and do require further analysis. For example, by 2016, the total subscriber base was 900,000. Consequently, by end of 2017 the numbers had exponentially grown to 2.5million subscribers (Zambia has 12 million subscribers from a total population of 16million providing a signal of duplication in the era of single users with multiple data devices). It doesn’t end there. Zamtel would like to make us believe that 2017 was a ‘magical year’. For the first time in more than a decade the company recorded a positive profit after tax (notwithstanding its outstanding historical tax debt obligations, and a colossal USD380 million dollars to be repaid to Lap Green).
When I last wrote an analytical piece suggesting Zamtel could be saved via a leveraged buyout (LBO), an intellectual debate was sparked among capital markets enthusiasts. It has widely been believed that LBOs are a ruthless financing mechanism and uncompromising. This perception has mostly been driven by the caricature peddled in Bryan Burrough’s book; ‘Barbarians at the Gate’.
It has become evident that Zamtel doesn’t possess the ‘financial muscle’ to jostle for market share and simultaneously provide quality service to the customer. But then again it might not be an issue of financial muscle but more an issue of focus. Following their recent installation of 110 mobile communication towers across the country (which will come with a huge maintenance bill), one might argue that they are placing more focus on an infrastructure strategy that is leading them away from a customer service centered strategy that would win the hearts of many. In comparison with other incumbent players such as Airtel and MTN, they have opted out of owning heavy maintenance infrastructure as this hurts working capital. They chose for focus on product and service delivery.
Therefore, the company cannot justifiably continue to bleed out cash in offering product promotions which are mostly perceived to be of poor quality. It’s incumbent upon the Industrial Development Corporation (IDC) to quickly find a private equity partner who will strive to return shareholder value and preserve the company for onward listing on the Lusaka Securities Exchange.
We snooze one moment, it could spell the demise of our beloved Zamtel!