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Friday, 7 August 2009

Ministerial Statement : Sale of ZAMTEL

Ministerial Statement made to Parliament on 7th August, 2009 by the Minister of Communications and Transport, Hon. Prof. Geoffrey Lungwangwa (PhD), MP, on the partial sale of Zambia Telecomunications Company (ZAMTEL).

A very poor statement from Lungwangwa. It does not address any of the critical questions we have raised. Atleast we know Government plans to sell the whole lot. One buyer will keep the international gateway, Cell-Z and the domestic element. Lungwangwa outlines several options that he rejected including decoupling. When is Lungwangwa going to make the non-existent cost benefit appraisal available? Zambians should not be treated as children. Government should be pressed to release every bit of paper on this! I would say Lungwangwa's list of people they consulted is a joke, if it went so serious. It is an absolutely mind boggling incompetent speech. We demand better.    


  1. Quote: " In order to fully understand ZAMTEL's position, finances and prospects, government engaged the services of RP Capital to conduct a detailed assessment. The assessment reviewed the state of ZAMTEL, which include its operations, financials, human resources, technology, legal and other issues. The assessment also covered the information communications technology (ITC) sector in Zambia. This was done in order to precisely define the status of ZAMTEL so as to set out the options going forward. Cabinet used the results of the assessment as the primary basis for considering the best option for ZAMTEL.

    Mr. Speaker, the report of the consultants was presented to the cabinet committee of ministers on ZAMTEL. The consultants recommended that in order to avert a collapse of ZAMTEL, the government should look for an equity partner who can buy 75% shareholding in ZAMTEL, and the government should retain 25% equity in the company. The committee studied the report and presented a joint CAB memo to the economic restructuring and development committee of the cabinet (ERDC). The ERDC approved the recommendations of the cabinet committee on ZAMTEL. The recommendations of the ERDC were subsequently aproved and adopted by the full cabinet. In addition, cabinet directed that the Zambia Development Agency undertakes the implementation of the recommendations in accordence with the ZDA Act no. 11 of 2006. "

    End Quote


    In other words, it was RP Capital Partners which not only evaluated ZAMTEL, but also came up with the 'recommendation' that 75% of shares should be sold in order to 'avert the collapse' of ZAMTEL.

    The question is - if ZAMTEL is in a state of near collapse, why were there 'numerous' bidders interested in the company?

    Also interesting - the Minister mentioned:

    Liabilities: $125 million (2008)
    Operational Cost deficit: $17 million (Yearly)

    So I don't know where the $200 million number comes from that President Banda mentioned.

    However, what is most striking is that nowhere are ZAMTEL's assets (as opposed to liabilities) mentioned.

  2. Mr K,

    "The question is - if ZAMTEL is in a state of near collapse, why were there 'numerous' bidders interested in the company? "


    The government is not speaking from the position of strength. The emphasis is simply on liabilities, liabilities, and more liabilities. Not one mention of assets and strategic position. Therefore it's clear now that Zamtel is up for sale for a song and Zambians must never allow that.


    Reading through the ICT Bill 2009, I thought I didn't see a clear segmentation of the company as had been proposed. It mentions the regulator overseeing more competition in the international gateway, and also prohibits cross-subsidisation. To me that meant Cell-Z could delink from Zamtel either completely or operationally. It appears the minister left enough room for himself there and has opted for the latter.

    RP Capital's evaluation of Zamtel occured under questionable circumstances and therefore the right thing for the Zambian government to do is scrap that evaluation and follow procedure to prepare ground for a fresh one.

    Zambians must demand a fresh evaluation and nothing less.

  3. Zedian,

    I think the principle is that you don't regulate markets you are involved in. It makes the regulator meaningless. In short by having a Regulator govt anticipates greater role for Market forces. 

    The other point is one you have noted which is that the three aspects of ZAMTEL will have to individually independent due to the absence of cross subsidies. This effective de-links the company. Whether they are owned by one person or not is probably of little consquence.

    My problem is that increased investment and lower costs in the gateway requires economies of scale. That comes by allowing some degree of monopolistic coordination among players. In short I do not believe it's in the interests of the country to sell that component as suggested.

  4. I don't think that the government is interested in an opinion coming from Zambians. Magande, Prof Luo, Prof Richard Mbwewe and a few others have expressed resentment to the route government wants to take - but has fallen on deaf ears.

    RP Capital has issued a sermon which we all must swallow. Clearly a case of bad governance. The rulers do not want to listen to the ruled. A very unfortunate situation indeed. Both Luo and Magande have served in government -so they know what is possible or not.

    If RB's government is so sure that - the one equity partner they're looking for is going to come up with answers, why can't they seek for those answers from the Zambian community in or out of the country? I bet you that new partner will just do the same things we've been proposing to government, one of them being restructuring (as opposed to selling), trying a new management, plus firering a few dead wood in the labor force. Unless that new partner will be Chinese - who could bring in their new managers as well as laborers, we'll see the same faces in the work force.

    Our government has simply stopped using their smarts. Period!

  5. So, according to the March 2007 Zamtel financial report from the later posting, it had about $90 million in net fixed assets and $60 million in long term liabilities in 2007. Add $105 million to both LT assets and liabilities for the recent fibre optic and mobile network buildout and you have $205 million in net fixed assets and $165 million in long term liabilities. Add $34 million to LT liabilities for possible 2007-2009 operational losses and you have $199 million in long term liabilities. So Zamtel is worth $5 million maybe?

  6. Cho,

    Is it me or your response to my post appears somewhat truncated?

  7. Error in my calculation above, $90 million plus $105 million is $195 million in net fixed assets. With $199 million in LT liabilities, Zamtel is worth -$4 million possibly?

  8. A blast from the past (courtesy of Computerworld Kenya):

    Zambian ministries aim to save Zamtel
    By Michael Malakata , IDG News Service\Lusaka Bureau
    7 Jul, 2008

    Three Zambian ministries have started consultations to come up with a strategic business plan to help Zambia Telecommunications (Zamtel), which is in a financial crisis that leaves it facing operational difficulties.

    The ministries of Communications and Transport, Finance and National Planning, and Commerce, Trade and Industry are working on the business plan. Zamtel, which is state-run, is retrenching more than 800 workers due to financial problems.

    Zamtel needs more than an infusion of money and different management -- it needs a new business model, Minister of Communications and Transport Dora Siliya said last week. The company has the potential to offer more services than it currently does, Siliya said.

    Zamtel is the only company in Zambia that provides fixed, mobile and Internet services to its customers. The company also has the infrastructure to sub-lease to other service providers in the telecom industry, Siliya said.

    The company owns the Mwembeshi satellite station that provides the country's international gateway to other service providers, including Celtel and the mobile telecommunication network providing mobile services.

    One of the business plans being considered includes separating CellZ, Zamtel's sister company providing mobile service, from Zamtel. Currently, CellZ operates under Zamtel management.

    Zamtel acting CEO Mukela Muyunda said the two companies can operate independently to save Zamtel from closing due to financial problems.

  9. Due to change in technology, mobile phones command far more market share (3.7 million subscribers) than copper fixed line phones (100,000 subscribers). So the question is whether $17 million should be spent every year to subsidize the 100,000 subscribers or if the money could better be spent on health, education, infrastructure, etc.

    The fibre optic network being constructed is an asset, however it is also a liability since creditors who financed it are owed money on it.

  10. Kafue,

    Good point. It's going to be difficult to justify further investment in fixed lines, and I've been saying this for a while now.

    However, I personally think the fibre backbone is an investment, which obviously cost money, but which will pay off as it is technology of the future. It has the capacity and capability to deliver all the media requirements of the foreseeable future, i.e. voice, data and video.

    The mistake govt made with the fixed network is that they waited too long to liberalise that market, hoping Zamtel's monopoly was going to pay off. Guess what, it hasn't and it won't, and now Zamtel is left with a major liability which they probably won't be able to sell on its own. Hence the bundling with Cell-Z.

    If they had liberalised it in the 90s at the same time as they did cellular telephony, perhaps we could have had significant levels of fixed line penetration, which could have spawned widespread ADSL broadband. Now, there are other technologies around which can deliver broadband and voice without the hassle of fixed lines.

    By the way, the ICT Bill 2009 still doesn't allow competition on fixed lines, and still restricts VOIP. How many more opportunities are we going to miss?

    I suppose though, that whoever advised the govt on selling Zamtel (whom it is suspected is also the potential buyer), asked to maintain the monopoly as an incentive. They probably want to turn it around with new tech and all, so that by the time fixed lines are liberalised they would have the upper hand in the market. We can only speculate though, until we see the docs pertaining to the advice given to govt.


  12. Kafue,

    That says it all! Brilliant article.

    I particularly like the concluding paragraph which calls for innovative ways in the regulatory approach, such as India's reverse auction system. The only problem I would see in that system in Zambia is that quality standards would be compromised even further, because as things are, the regulator struggles to implement punitive measures against operators who flout the rules.

    A case in point is the proverbial 'subscriber is unreachable' problem on Zain's network, including the recent nationwide service blackout I covered here.

    A privately owned Zamtel would help matters in that the regulator would be more free to exercise their full authority without fear of stepping of govt's interests. Ultimately this is about the consumer and the economy.

  13. VOIP in South Africa:


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