Fresh interest in DRC’s mobile phone industry

The Democratic Republic of Congo’s (DRC) mobile telecommunications industry has received a lot of attention over the past week.

Bloomberg last week reported that MTN is looking to buy South African mobile operator Vodacom’s 51% stake in Vodacom Congo SPRL, a joint-venture with Congolese Wireless Network SPRL (CWN). According to Bloomberg, CWN as well as a former consultant have filed separate legal challenges to block the sale.

In December 2010 Vodacom said it had appointed NM Rothschild & Sons to explore options for the Vodacom Congo SPRL business. At the time it was speculated that the company might sell its stake in the DRC venture.

Bloomberg previously reported that CWN was granted the licence to operate in the DRC in 1999, and formed a venture with Vodacom in 2001. The venture has been losing money ever since a tax holiday ended in 2007, CWN’s lawyer, Joseph Lumbala, said in Kinshasa on 30 March 2010.

The relationship between Vodacom and CWN deteriorated when its Congolese partner accused Vodacom of fraud and abuse of trust. The dispute centres around interest charged on loans made by the Vodacom Group to Vodacom Congo for its expansion plans. CWN accused Vodacom of charging inflated interest and fees on the loans. Business Day earlier reported that CWN demanded that Vodacom pay back more than US$166 million in interest and fees paid to it by Vodacom Congo.

“CWN are unhappy that interest is now flowing back to Vodacom Group. They say that Vodacom Group should have contributed equity rather than debt but at the same time CWN could not raise any money themselves and they weren’t willing to change their shareholding. It was essentially impossible for Vodacom to contribute equity given CWN’s terms,” David Lerche, a Johannesburg-based telecommunications analyst for Avior Research, told How we made it in Africa in May 2010.

According to a Bloomberg source, Angola’s Unitel SA is also interested in acquiring Vodacom’s stake in CWN.

In other news last week, France Telecom, owner of the Orange brand, announced that it will buy 100% of Congo Chine Télécom (CCT), a mobile operator in the DRC. ZTE, a Chinese telecoms equipment manufacturer, currently holds a 51% stake in CCT, while the government of the DRC owns the remaining 49%.

“The operation reflects France Telecom-Orange’s international strategy, which aims to stimulate growth by entering high potential emerging markets,” said the company in a statement. “The development of CCT, which holds a national mobile licence and has significant market share in certain regions of the country, offers real potential for growth over the next few years.”

“The acquisition of CCT is an important step in our policy of expansion outside Europe, and contributes to our stated aim of doubling our revenues in Africa and the Middle East by 2015. Orange is already present in over 20 countries in the region and has built up considerable experience developing networks and new services that are specifically tailored to the needs of local markets,” said Stephane Richard, France Telecom-Orange’s chairman and CEO.

With over 70 million inhabitants, the DRC is Africa’s fourth most populous country, but mobile penetration is only around 17%.

The DRC has significant untapped mineral resources. According to Rand Merchant Bank (RMB), the country is “normalising after decades of economic mismanagement”.

RMB notes that there are, however, various challenges to doing business in the country, including:

  • A very weak operating environment: Complex regulations and high levels of bureaucracy; regular electricity blackouts; dilapidated infrastructure; high property rental costs; tax rates that can be above 100%; legal rights that aren’t protected; lack of public services; high internal transport costs
  • Low income levels
  • High political risk; history of instability; armed groups still operating; democracy not entrenched
  • Extreme levels of corruption
  • Macroeconomic instability, with a history of hyper-inflation
  • A lack of financial services