THISDAYonline

There's no going back on the big day any longer. Come tomorrow, the Nigerian Communications Commission (NCC) will hold sway over the nation's first and biggest public auction for three second-generation digital mobile licenses that could each fetch as much as $150 million to $200 million or more for the Federal Government, depending on how aggressive the five pre-qualified bidders are during the auction. But the eventual price the three successful bidders would have to pay (a fourth license has been reserved for NITEL/M-Tel) is just a tip of a very large iceberg for these telecom firms wishing to operate as mobile phone operators in the country. The real challenge, experts believe, will come after the auction and after the firms must have met the 14 working day deadline set by the NCC to pay the final bid price. Subsequently, each of the licensees will be under pressure to raise additional capital running into several millions of dollars needed to roll out a nationwide network. Given the peculiar nature of Nigeria, additional costs would also have to go into providing power to make sure the equipment and infrastructure are functioning smoothly. Operators would also have to take into consideration that under NCC rules, they are expected to comply with the Universal Service Obligations (USO) of the International Telecommunications Union, which stipulates that every network operator must deploy their services to as many parts of the country as possible within a specified time frame. In the case of Nigeria, the three successful bidders are expected to set up services in each of the six geo-political zones, whether it is financially expedient to do so or not.

Investigation, however reveal most of the Nigerian promoters behind the firms actually lack the financial muscle to pull this grand scheme through. It is for this reason they have formed alliances with independent African operators, such as Orascom Telecom, South Africa's Mobile Telephone Networks (MTN), MSI Cellular Investments BV and Econet Wireless International, which have the experience and better access to capital required to pay for a license and set up operations. But to raise their share of equity, Nigerians involved in the deal have turned to the banks and local venture capitalist, which like the shylocks that they are only willing to provide the financial backing to the prospective licensees under the stiffest of conditions. The reasoning of these bankers is that the political uncertainty of the operating environment (there are reservations as to whether President Obasanjo can secure a second four year term), policy inconsistencies and five year life span of the license, which is subject to renewal by the NCC, makes funding of the prospective licensees a high risk gamble. They also believe the NCC as presently constituted under the 1992 Decree is too powerful, given that it has the powers to revoke a license whenever it deems fit, and in the event that this occurs, they stand the risk of losing their funds. As a result most of the banks are insisting that they must be guaranteed a return on investment by at least 2003 before they finance the GSM venture.

Against this backdrop the four licensees (NITEL inclusive) will be operating in a highly competitive sector in which most of the mobile phone giants, such as Vodafone Airtouch, Deustche Telekom, Orange, NTT DoCoMo, France Telecom and BT Cellnet among several others, showed no interest participating in the Nigerian auction. The reality is that most of the mobile phone heavy weights are already stretched to the limit and over-leveraged following rounds of mergers and acquisitions, and spending several billions of pounds and dollars for third-generation mobile phone licenses in developed countries like the United Kingdom (22.5 billion pounds sterling) and Germany (30 billion pounds sterling) As such a 2G auction in Nigeria holds very little attraction for the major mobile phone companies. Rather they have left the turf for the smaller independent African operators to bear the initial risk of starting operations, before they move in to buy them out at a later date. Besides, the advent of 3G mobile phones are rendering 2G mobile technology, which Nigeria is about to adopt less attractive. Ironically, the craze for 3G licenses is beginning to ebb in the industry. Already, countries like Italy, Switzerland, Hong Kong and Singapore have had to postpone their 3G auctions after failing to attract enough interest from global players. Most major operators, experts predict, will in the months ahead focus their energies on finding ways to get their investment back. Added to this is the fact that the high cost of mobile phone licenses has raised fears in the world's financial centres that banks may no longer be willing to provide the funds needed to pay for the 3G infrastructure. In the United Kingdom, the Financial Services Authority has gone a step further by writing to the chief executives of 34 banks to remind them of the importance of carefully monitoring their exposure to telecom companies and has advised that they be particularly alert to any downturn in the telecoms sector.

So as the five companies prepare to lock horns tomorrow, they would need to take into consideration the harsh realities of the operating environment. Operators would also have to bear in mind that the acquisition of a license is no guarantee to success, as a World Bank report showed that six of the companies that won 2G mobile phone licenses in India were unable to sustain a roll out plan after paying massive fees for their licenses and were forced to close shop. Paying for a mobile license is just part of a larger equation that could open or even shut the door to the fast paced world of information technology, where today's new products and inventions can be rendered obsolete in a space of three months. Already, one or two of the bidders participating in the auction tomorrow, are questioning the rationale in investing so much today in a 2G license, given that the NCC may in the next few years hold a 3G auction. One of them has also privately expressed a preference for waiting for a 3G license. Some of these firms are also conscious of the fact that Motophone belonging to the Lebanese Chagoury family has instituted a legal suit in Paris and Lagos against the government and NCC challenging the decision to revoke its license in 1999. If Motophone gets a ruling in its favour, (which is possible, given the desperation of the Chagouris and the track record of the Nigerian Court system) this will mean that the exclusivity of the four mobile phone licenses issued by NCC will cease to exist as another unexpected variable would have joined the matrix.