Ghana Telecom • What does the future hold?

Feature (Editiral Page) 14/2008

By Charles Benoni Okine

DISCUSSIONS on the sale of 70 per cent shares of one of the country’s most revered assets, Ghana Telecom (GT), rage on even as Parliament is debating the issue.
The government insists on disposing majority of its stake to a foreign company, Vodafone, but the opposition parties and many civil society groups continue to kick against the deal, which they describe as fraudulent, a give-away or in some cases a rip-off.
The concerns of the opposition have been expressed at series of news conferences, while the government has also used similar fora to argue strongly a case for the sale of the 70 per cent shares to Vodafone.
The world over, the telecommunications sector has become a competitive playing field for multinationals because of the huge investments needed to be able to compete.
This is one of the main reasons the government has found it necessary to dispose of some shares in GT. The government has also argued that the deal has become necessary, because the proceeds from the sale are badly needed to support the country’s budget, which appears to be in deficit because of the soaring prices of crude oil as well as the food crisis on the international market.
But even before the analysis is made, there is the need to understand the evolution of the sector in Ghana.

Historical facts
A new chapter in the development of Ghana's telecommunications system was opened in November 1974, when the Post and Telecommunication Department was declared a public corporation by the government of the National Redemption Council Decree No. 311 and placed under the authority of the then Ministry of Transport and Communication.
Under the Instrument of Incorporation, the Post and Telecommunication Corporation (P&T) was formed, and it was administered by a board of directors who functioned as the corporation’s governing body.
In 1975, the P&T began negotiating loans from many multilateral and bilateral financial institutions in order to undertake a number of development projects to modernise and expand both national and international telecommunication services in Ghana.
The objective of these projects, known collectively as the First Telecommunication Project (FTP), comprised rehabilitation, modernisation and expansion of Ghana’s national telecommunication network.
The project, which was expected to span a period of four years (1975-1979), involved financial commitments, totalling $76 million. In the end, the funds were raised by the Government of Ghana, the World Bank, Japan, the African Development Bank, and Canada.
The specific accomplishments of the FTP included the installation of 12 new electronic exchanges to replace old and obsolete automatic and manual telephone exchanges; thus, increasing Ghana’s telephone line capacity by about 50 per cent; increasing the number of subscriber trunk dialling centres from 18 to 24, the construction of tertiary exchange, a telex, a message switch in the capital, an earth station in the country, among others.

Ghana Telecom today
After these came many other projects, all funded with monies mostly from loans.
One may recall the $150 million Alcatel Shangai Bell loan, which did not come in the form of cash but in equipment. Subsequently, the company raised a syndicated loan of $60 million in the country and $200 million bonds, among many others.
Today, the company is indebted to the tune of almost $450 million, in the face of annual loses from its operations. Because the lone shareholder is unable to inject capital into it, GT continues to post losses each year, ever since the Norwegians left the company after they were handed a management contract to turn the fortunes of the company around.
Preceding the coming of the Norwegians, there had been the Malaysians, who after buying 30 per cent of the shares of the company, were also handed the management contract, which was abrogated after the contract expired. Later the government bought back the shares from the Malaysians.


Competition
Since the government opened the sector up to competition more than 20 years ago, the services of the company have seen dramatic transformation, all in its quest to be able to stay competitive.
In 1992, Millicom Ghana Limited, which was the first to start an analogue mobile telephony service, started operating its brand, Mobitel.
After eight years, Scancom Ghana Limited, operators of the then Spacefon, also joined after it had introduced the GSM service, a product that made the telecommunications environment more exciting.
Kasapa, which was then known as Celltel, also joined the competition and contributed towards making the competition keener.
Around that time, the management of GT also wanted a licence to operate a mobile service, but was denied one by the National Communications Authority (NCA). However, it was granted the license when the others had well positioned themselves on the market.
That notwithstanding, it can be argued that GT had been a bit lethargic in rolling out it service at the initial stages, as it could not meet the huge demand for Onetouch numbers, thereby allowing its competitors to entrench themselves with intensive advertising and other promotional mix.
Today, MTN, which is an international giant in the telecommunications industry, has managed to establish itself as the leader in the mobile sector in the country. Milliocom has also taken the new global name, tiGO, and doing well on the market. Kasapa, also belongs to one of the giants in the sector, known as the Hutchinson International.
There are also the new entrants like Zain and Globacom, which are renowned international telecommunication giants with relatively adequate technological resources to make competition even keener.
GT, therefore, finds itself as the lone ranger and the government, which is the sole shareholder is expected to recapitalise the company to ensure that it is able to compete on a level with the competition.
It is, therefore, important at this stage to understand what the other players are bringing to the table to make competition even tougher. Since they are all global companies, measures are being worked out to ensure that anyone on a particular network will pay the same charges, even when that subscriber is out of the country, but within an area where the services of that line is hooked onto.
This is one critical thing that GT cannot do because it is ‘alone’ on the market. If the company is to survive this competition, it will require huge capital injection to do so. But in its present state, the question one may ask is, where will the money come from? After all, the government is the sole shareholder? In that case, the government will have to borrow to settle the debt of the company and then find some extra money to fund expansion projects, which are badly needed if the company is to stay afloat in the market.

What next?
There has been a lot of opposition to the sale of the 70 per cent stake of the company to Vodafone, but the arguments against the deal have not been well articulated. While some say, GT is a national asset and a source of pride, others are of the view that the agreements to be signed are not in the best interest of the nation. There are some who also hold the view that it is not in the interest of the nation because of issues of national security, among others.
Valid as their positions may be, it is important for them to understand in clear terms how the company can survive in the face of the competition that is currently confronting it.
Some have proposed capital injection from the government to ensure that the company gets back on its feet. This means that the government has to spend as much as $400 million to settle the debts of the company and again inject about $500 million to buy new equipment to match its competitors.
In the end, the government should be able to recoup its investments or if for nothing at all, propel GT to a stage that can break even.
But even if that is considered and done, to what extent will the company be able to withstand the competition when the charges in terms of services are going to drop even further as the other players take advantage of their international network to provide reduced prices to stay competitive and give other players a run for their money.
There is, therefore, the need for a dispassionate and non-partisan approach to deliberations on the issue to ensure that Ghana does not lose in anyway.
Finally, it will be necessary for the government to reduce by 10 per cent the shares to be offered to Vodafone. This should be floated on the Ghana Stock Exchange for Ghanaians to also buy to become part owners of a company they have nurtured to grow.
As shareholders, Ghanaians will work towards protecting their interests by ensuring that they stay with the company to enable it make more returns on their investments.