Dangote, Etisalat Nigeria seal N22.5b 3G spectrum sale deal

By Shina Badaru

Lagos. December 12, 2009. Dangote Group, owners of Alheri Engineering Limited, the company granted Nigeria’s fourth licence for third generation (3G) services, have inked a deal to sell the N22.5billion ($150million) frequency spectrum to Etisalat Nigeria, the last entrant into the competitive GSM mobile phone market.

Technology Times checks reveal that protracted negotiations between the two companies have now paid off as they have finally signed off on the 3G spectrum sale that will return a premium to Alheri Engineering, a wholly-owned subsidiary of Dangote Group promoted by industrialist, Aliko Dangote.

Hitherto, speculations have been rife about the fate of the transaction even as the final sale price remains closely guarded by both companies, who are keeping sealed lips over the deal, after indications emerged last week that they have finally agreed to sign the dotted lines.

Officially, both companies continue to keep the lid on the transaction said to have been finalised after an agreement was reached by the two parties to trade the 3G licence at a yet-to-be-confirmed price of $225million.

Technology Times is also yet to confirm if Etisalat has finally paid the deal price, an issue that was said to have placed a strain on the protracted talks following which Dangote was said to have indicated its intentions to take measures to ensure that Etisalat meets up with the offer terms after the transaction received regulatory clearance, a necessary requirement for the transfer of ownership of telecoms licences issued by the Nigerian Communications Commission (NCC), according to people conversant with details of the transactions.

An official spokesperson of the Dangote Group promised to return to Technology Times yesterday when we visited the corporate headquarters of the conglomerate at Falomo, Ikoyi in Lagos to seek official clarifications on the issue from the company.

She said on phone that the appropriate person to comment on the details of the transaction was in meeting and promised to revert before close of business. The response never came before press time.

It was also the same for Etisalat as an official spokesperson promised to revert on clarifications sought to clear some of the grey areas of the landmark deal.

However, market analysts wager that the deal may pave the way for Etisalat Nigeria to join the league of rival GSM networks offering third generation wireless services supporting faster transmission of data and video over mobile networks. The big three GSM networks, MTN Nigeria, Glo mobile and Zain Nigeria all offer commercial 3G services on their in select locations across the country, particularly the urban city centres.

It is also a relief for the Dangote Group, owners of Alheri Engineering as the company has come under regulatory pressure over the dormant licence issued in March 2007.

Executive Vice Chairman, NCC, Ernest Ndukwe, confirmed this much in an exclusive interview with Technology Times last year when he hinted that a regulatory probe was then underway by the regulator into the continued dormancy of the 3G spectrum over one year after it was issued Alheri.

According to Ndukwe, NCC has written the company seeking explanations for the continued dormancy of the US$150 million licence issued March 19, 2007, “and the public will be kept abreast of the development.”

During the 3G licence sale in 2007, MTN Nigeria Communications Limited, Celtel Nigeria Limited (now rebranded Zain Nigeria) and Globacom Limited alongside little-known Alheri Engineering were each issued 3G licences at $150m per spectrum in a transaction that raked $600m into government coffers.

While the other three 3G licensees have commenced commercial service on the spectrum, the continued dormancy of Alheri’s licence has brought the licence holder and the regulator under pressure.

According to Ndukwe, “usually, when we conduct auctions, you know that auctions make it possible for people to buy spectrum based on a very competitive level, and we really don’t sanction as such for people who don’t meet whatever target, because they are the ones losing more than anybody. We have initiated moves to contact the operator that has been licensed and if we don’t get any satisfactory action or responses, we might consider re-offering the spectrum to the market, because it is a very valuable spectrum and cannot be left unutilised over too long a time.”

In 2006, NCC had announced its intention to license four available spectrum lots in the 2 GHz bands to facilitate the development of the communications industry. Following the Commission’s advert for Expressions of Interest in February 2007, 17 companies responded. An auction was not conducted as the four companies that expressed interest were awarded the four licences.

According to NCC, “the four applicants’ submissions were evaluated with respect to the compliance details outlined in the Information Memorandum. Each applicant was found to have been fully compliant. In these circumstances, where the number of applicants matches the number of lots, no further allocation process is required.”

Market watchers weekend say that recent policy directions of NCC and the latest 3G spectrum deal may shore up the market competitiveness as the market telecoms market crossed a threshold 70.3million active lines dominated by its mobile phone rivals.

Early this month, NCC announced new Interconnect rates determined to offer preferential rates to Etisalat following the regulator’s recognition of its position as a new entrant player completion against more established market rivals.

NCC plans to protect new entrants like Etisalat into the telecoms market because they have lower volumes, operate at higher unit cost and compete against established players with significant scales, under new telecoms market Interconnect rates to go into effect on December 31, 2009, according to plans unveiled by the regulator.

Under the plan, Etisalat and other new entrants into the telecoms market will enjoy a ‘glide path’, a model adopted to gradually review an operator’s interconnect rate over the next five years in a bid to protect them and enable them muster significant market clout against bigger incumbent players.

With this glide path model, a new entrant’s mobile termination rate will be reduced annually by a factor of N0.64 annually into December 31, 2012. Hence, with the glide path model, Etisalat’s interconnect rate will undergo two factors of review by year-end that will see N1.28 chopped off its current rate to become N10.12. Over the next three years, N0.64 will be deducted annually that will bring about a gradual review of its rate to N9.48 by December 31, 2010; N8.84 by December 31, 2011 and N8.2 by December 31, 2012.

Etisalat emerged on the Nigerian telecoms landscape after the Federal Government of Nigeria, during the regime of ex-President Olusegun Obasanjo, announced early 2007 that it plans to award Mubadala Cyprus a 15-year Universal Access Service Licence at a price of $400 million.

Mubadala had later that year subsequently appointed Etisalat of the UAE as the operator for the EMTS Nigeria telecoms network trading under the name ‘Etisalat Nigeria’ under which the EMTS’s shareholding structure was split among Mubadala Holdings Cyprus (30%); Etisalat International Nigeria Ltd (40%) and MyaCynth Cooperatief (30%).

Mubadala, the wholly owned investment vehicle of the government of the Emirate of Abu Dhabi, which is part of the United Arab Emirates, was later issued the licence in March, 2007. The licence was issued to Emerging Markets Telecommunications Services Limited (“EMTS”), which at the time was wholly beneficially owned by EMTS Holdings, a limited liability company incorporated in the Netherlands, and which in turn was owned by Mubadala Cyprus, itself a subsidiary of Mubadala.

In September 2007 Mubadala appointed Etisalat as the operator of its licence in Nigeria, under the terms of an agreement that saw Mubadala Cyprus transferring 40% of its shareholding in EMTS Holdings to Etisalat International.