[Documents menu] Documents menu

The Challenging Environment In Privatizing The Telecommunications

TOMRIC News Agency (Dar es Salaam), 1 March 2000

Dar Es Salaam - The privatization processing in Tanzania has reached the highest stage. After privatizing over 250 parastatals, the coming stage is to divestiture the public utilities. Already the government has cautioned its privatization agency, the Parastatal Sector Reform Commission (TTCL), to handle utilities with great care.

Among the utilities for divestiture, is the Tanzania Telecommunications Company Limited (TTCL). In this feature, the TOMRIC Agency discusses on this industry, especially on whether the privatization will bring telephones in remote areas of Tanzania.

The government of Tanzania intends to sell 35 percent of the Tanzania Telecommunications Limited Company (TTCL). According to the TTCL recent statement, the government plan to sell up to 14 percent of shares to international financial institutions and associated investors, 5 percent to TTCL employees and up to 10 percent to Tanzania financial investors.

The privatization of TTCL comes at the time when the parastatal has pursued key rehabilitation program since 1994, in which exchange capacity has increased by 81 percent and connections by 66 percent by February 1999. Following the privatization schedule whose copy was available to the TOMRIC Agency, show that the divestiture process of the state-owned TTCL set to be completed between March and June this year.

The divestiture of TTCL was advertised between June and July, last year, in local and foreign media, leading to response by 28 interested firms.

According to some reports says already a South African company MTN, has been earmarked to buy the Tanzania Telecommunication company limited (TTCL).

The firm is among four companies short-listed by the Parastatal Sector Reform Commission (PSRC) to take over the giant TTCL, which is currently under privatization. The other short-listed firms are Korean Telecom, Mauritius Telecom and Telecommunications Consultants of India.

PSRC had been holding a meeting in the Dar Es Salaam Sheraton Hotel, last week, which sources said was for evaluation of the short-listed firms.

Firms which showed interest, included Mauritius Telecom, World Tel, Korean Telecom, STET, MTM, Telecom Malaysia, Videsh Sanchar Nigam, Forum Capital Partners (PTY) Ltd. and Netcom Africa Ltd.

Other were RITES, Eskom Enterprises Pty, South Development Group, Consortium, Telecom Representative, Telegeography inc, Nortel Networks, CAL Merchant Bank Ltd, Mitsubishi Corporation, Sterling International Group Inc, Telecom Africa, Logic Invest Holdings Ltd and Emerging Markets Partnership.

Also in the list were Banque Parbas, Goodworks International LLC, Telecommunications Consultants of India Ltd, and Telecommunications management group.

With the Tanzania Telecommunications Co. Ltd. (TTCL) geared for privatization, many are wondering how far this move will place the sector in a better position as an input to the various sectors of business.

While the use of phones is understood in urban companies of various sizes, small traders involved in buying and selling farm produce often operate as if phones did not exist.

The TTCL customer base in narrow and heavy urban based serving at most 127,000 connected or fixed line customers. Over three quarter of them in the principal urban areas. Telephone services are scare in rural areas and smaller townships.

TTCL in the last two years, took measures to increase its customers base by cutting installation fees by half. A start evidently, but this extension effort will prove too slow and the rates as yet unaffordable in the rural areas.

TTCL board chairman Ahmed Hassan Diria remarked at a familiarization tour of the Zanzibar Telecom Ltd. (ZANTEL) recently that widening coverage upcountry was among the major motives of privatising TTCL.

A number of merchant banks are already advising potential bidders on the potentiality of the phone business locally, shareholder uptake prospects, etc.

Japan was sometimes back funding a study to determine the extent of imbalance of phone access. Perhaps a more urgent point is the extent of demand for phone services in business, or projection as to how quickly it is likely to grow.

A study as to how suitable, simple and low cost phone connection of most rural areas is advisable at the moment, considering the rapid progress in communications technologies in recent years. Operators in privatized telecoms environments focus on the most profitable market segments which means the same urban areas where TTCL, despite high prices, could serve.

While traditional economic wisdom had it that rural phone business is unprofitable and must be subsidized new school suggest that a key point in accelerations development is competition.

Relating to entry regulations and fostering competition can go a long way toward meeting basic telecommunications needs in rural areas in commercial terms.

Yet some feel that subsidized operations can exist alongside competition because commercial objectives will limit spread of phones in rural areas, despite competition.

Mobitel or Tritel are unlikely to become pioneers in rural phones spread, which means that going rural will depend on strategies investor in TTCL.

Ambassador Diria said that this investor will pick up a controlling share amount of 35 per cent.

In Chief for example, market forces and determined which projects qualify for subsidy and to what extent with competitive bidding always following established administrative procedures, subject to judicial review to keep political pressure at bay.

Again, in Chile projects would fail to get bidders if the maximum subsidy was too low, in which case such a project would be re-listed the following year, possibly with higher subsidy limits.

Projects deemed viable, but eventually failing to be undertaken on commercial basis were again placed on subsidy list which can also be done here.

But do we have the capacity to ensure that all this is rule-based, not guided by favouritism? Clusters of localities can provide a good basis for planning such an extension of phone services, while primary service areas can be set up to this effect.

There can be a call charge for subsidized rural phones for calls within the said area, including the smaller towns or district headquarters but not municipal centres.

In the absence of clear regulatory frame work, investors run the risk that government may initially offer them attractive terms and impose costly demands later, Checks and balances would remain important to be developed as experience sets in.

Britain has for years imposed an overall ceiling on utility prices tied to inflation and an adjustment factor. But with new European Union and World Trade Organization (WTO) regulations, most of this along with subsidies is being dismantled.

The challenge thus is to use competition almost by itself to spread telephones in the rural areas. This may not be easy, but few options for subsidized telephones and ability to ensure that this facility is not abused, really exist.