South African mobile operator Vodacom Group may consider selling its Democratic Republic of Congo (DRC) business, according to Bloomberg.
Vodacom in December released the following statement: “Shareholders are advised that Vodacom Group’s wholly-owned subsidiary, Vodacom International Limited, which holds 51% of Vodacom Congo SPRL has agreed with Congolese Wireless Network SPRL, the holder of the other 49% of Vodacom Congo SPRL, to appoint NM Rothschild & Sons (South Africa) (Pty) Limited to explore options for the Vodacom Congo SPRL business.”
Bloomberg quoted Vodacom spokesman Richard Boorman saying: “One potential outcome is the sale of the business.”
Bloomberg Businessweek previously reported that Congolese Wireless Network (CWN) was granted the licence to operate in Congo 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.
With a population of close 70 million, the DRC certainly holds significant potential. Back in 2002, a Vodacom spokesperson told BBC News Online that the company expects Vodacom Congo to be “one of the most profitable networks in Africa”. In March 2009 mobile penetration in the DRC was estimated at a mere 16%.