Telecom Namibia's move to withdraw investments in Angola and South Africa to concentrate on its local market is the latest sign of a wave of frustration that is sweeping through the Southern Africa telecom market.
The African telecom market is undergoing a transformation following investments by international telecom operators from Asia and Europe that have brought stiff competition. Many of the African operators that expanded their investments on the continent have failed to establish themselves in the new markets.
The move by Telecom Namibia to withdraw these investments comes only seven months after Telkom South Africa pulled out of the Nigerian market, claiming the investment was no longer profitable.
The international competition has in particular affected the fortunes of less-innovative African operators that are not well-funded.
Close to six years ago, the Namibian telecom giant made over US$80 million investments in Neotel South Africa and Angola's Mundo Startel in hopes of capturing the Southern African telecom market. Saying that the investments have not been profitable, Telecom Namibia has now decided to withdraw its investments in the two companies. The Namibian government-run telecom operator is now trying to recover what it invested.
Telecom Namibia has a 12.5 percent stake in Neotel and a 48 percent in Mundo Startel.
Telkom South Africa entered the Nigerian market in 2007 after buying a 75 percent, $280 million stake in Multi-Links Communications, which provides services including wireless, unified access services and international data services in Nigeria. In January 2009, the company bought the remainder of Multi-Links Communications.
Telecom Namibia hoped entry in the Angolan and South African markets would provide a stepping stone for the company's investment in other markets in Southern African countries, which have financially struggling operators. The pullout of Telecom Namibia from these markets, however, means that the company has also suspended its planned investments in any other African country.
The partnership between Telecom Namibia and Mundo Startel was expected to result in the deployment of 100, 000 wireless lines providing voice and high-speed data services throughout Angola's capital Luanda before extending the services throughout the country.
Telecom Namibia Managing Director (MD) Frans Ndoroma claimed that the Angolan market has proved difficult politically, culturally, regulatory and logistically. Positive results from the market would take longer to realize than originally forecast, he said.
"The expansion problems facing African operators paint a gloomy picture on investments within the region. A lot of planning has to be done by the operators before making the investments," said Collins Chinyama, president of the Computer Society of Zambia.
Usually, African companies expanding their geographical footprint are faced with prohibitive restrictions, high taxes and lack of locally sourced skilled workers, which raise the cost of running business. Unlike the Angolan market, the South African market is not prohibitive in terms of costs but stiff competition is rife in both fixed and mobile market.
Ndoroma also said the company is ditching the Angolan market in order to pull all its resources and effort and concentrate on the domestic market. Telecom Namibia's mobile unit is not doing well on the domestic market, except for its data arm.
African telecom analysts believe that many other operators are also feeling the strain and may divest regional assets to focus on their local markets. Protea Hirschel, an ICT industry analyst from Frost and Sullivan, said, "this holds many lessons regarding how a company should approach geographical expansion."
Due to financial stress, Telkom South Africa has further closed down Telkom Management Services, an venture that was created by the company to pioneer investments into Swaziland, Lesotho, Democratic Republic of Congo, Malawi, Zimbabwe, Ghana and Uganda.
In addition, regional mobile operator Vodacom Group's investment in Vodacom Congo has not yet made a profit. Indications are that Vodacom Group may soon pull out of the Democratic Republic of Congo to concentrate on other operations.