Page last updated at 23:01 GMT, Thursday, 15 April 2010 00:01 UK

Zambia telecoms future on the line

By Kennedy Gondwe
BBC World Service, Lusaka, Zambia

Zamtel mast

If there is one thing that Zambians usually complain about - yet find it hard to do away with - it is communication.

The southern African country has some of the highest communication tariffs in the region.

Yet on a bad day, one has to overcome crossed lines, static interference and congestion to get the person on the end of the phone.

It seems the government has had enough of this and is now shaking up the telecommunications sector.

The centrepiece of this latest move to stimulate the industry is the part-privatisation of the only state-owned telecommunications company, Zamtel.

"The benefits of what Zamtel is offering are not trickling down to the people of Zambia," observes Dominic Sichinga, a permanent secretary in the ministry of communications and transport.

"What the people of Zambia want to see is a vibrant industry in which Zamtel plays its part.

"They want to see lower communication prices."

Lagging behind

Mr Sichinga could be right. The teething problems Zamtel is grappling with are decades old.

Dominic Sichinga
Zamtel has not been able to compete with its competitors
Dominic Sichinga, Zambian communications ministry

The company had initially been enjoying a monopoly, but the liberation of the sector in the 1990s saw two foreign companies - Zain and MTN - enter the fray.

While Zain and MTN have been have been harvesting huge profits and investing it back in technological advancements, Zamtel has been resting on its laurels and mismanaged.

The company has debt of more than $75m and needs about $200m to recapitalise.

Recapitalising Zamtel is not an option to the government.

It could come at a huge cost to other competing sectors, such as health and education, as it would mean cutting funding to these areas.

"The telecommunications market has grown at a very astonishing rate and Zamtel has not been able to compete with its competitors," admits Mr Sichinga.

"It has remained behind and been a drag on the economy."

Zamtel, which also runs mobile-phone and internet wings, has a dwindling and paltry subscriber base of about 100,000 people on its network.

Zain's is about three million, followed by MTN's, which is about a million.

The alarming difference in subscriber numbers is certainly an indication that Zamtel, which has been in existence for about 40 years, has failed to expand its business to meet the pace of its competitors.

Going private

"Zamtel itself was expected to be profitable, so that in order to invest in new technologies, it should have been able to do that from its own profits," notes Mukela Muyunda, the company's managing director.

"But over the years the company hasn't been that profitable in effect, meaning it hasn't got its own resources to invest in new technologies."

Andrew Chipwende, head of the ZDA
Andrew Chipwende's ZDA is masterminding the Zamtel sell-off

Although the government will retain a 25% controlling interest in the institution, there are concerns from critics that privatising Zamtel would lead to mass job losses.

But the government says it has been empowering workers with entrepreneurship skills to take the sting out of potential job losses.

The government has appointed the Zambia Development Agency (ZDA), a unit which oversees the country's investment, to handle the privatisation process.

The ZDA has shortlisted three potential investors from an initial eight firms that submitted their bids.

Andrew Chipwende, the chief executive officer of the ZDA, explains that a number of options were explored before arriving at the decision to privatise.

These included liquidation, unbundling the institution and selling off the individual components of the company.

They were not all acceptable.

"The best option to take was to sell shares in the company," he says.

Network challenges

Ahead of the company's privatisation, the government has handed Zamtel the only fibre-optic cable, a facility that increases the efficiency of internet-driven and electronic data transaction businesses.

This move means the new owner will have virtual monopoly over other competitors, thereby making the transaction even more lucrative.

Zamtel headquarters in Lusaka
Zamtel is not making as much money as had been expected

Yet in a bid to make the cost of international phone calls cheaper, the state has given international gateways to Zain and MTN, something Zamtel monopolised for 20 years.

By granting international gateways to the two companies, it means Zain and MTN will no longer use Zamtel facilities as a route for international phone calls.

But Lusaka-based business consultant Bob Sichinga fears the benefits of such steps might still not be felt by consumers.

"The prices Zambians are paying to communicate are far too high," he says.

"We should look at addressing the tariffs in general and not just granting international gateways for cheaper international calls.

"How will a person making calls within Zambia benefit from the international gateways?"

Maybe it is a matter of being optimistic.

Africa Business Report is a monthly programme on BBC World News. The next programme will be on Saturday, 17 April, at 0430 GMT and 1730 GMT, and on Sunday, 18 April, at 1030 GMT as well as 2330 GMT.

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