Telecoms investment threatened by poor corporate governance

Ben Uzor Jr

If strict corporate governance practices are not adhered to, Nigeria's highly competitive telecommunications industry risks losing significant foreign and local investment needed to sustain the growth recorded in the industry, analysts have warned. Over the years, the telecoms industry has witnessed the steady decline in the performances of the Code Division Multiple Access (CDMA) players. Issues revolving around funding, corporate governance, subscriber preference for GSM technology have seen these small operators lose 1.3 million subscribers within a year.

Though, the nation’s telecoms industry ranks among the top 10 in attracting FDI in sub-Saharan Africa, analysts told Benuzorreports that the sector in the recent years has missed out greatly as investors are already taking a second look at the industry. Analysts have also identified non adherence to the principles of corporate governance as the rot eating deep into Nigeria’s telecom sector. According to them, corporate governance issues have seen the fortunes of CDMAs – also known as Private Telephone Operators (PTOs) nose dive in recent times.

Benuzorreports further gathered that the decline in fortunes were aggravated by their major financiers like financial institutions and venture capitalists pulling out investments due to the inability of the affected companies to find the right balance between technology development and institutional management. Thus, industry analysts say there is need for operators to develop corporate governance code in order to ensure they operate with high sense of responsibility. According to the industry analysts, operators must function within the dictates of the law and observe basic principles of corporate governance to sustain the growth recorded in the industry.

In the last decade, telecoms operators’ subsequent to the sector’s successfully deregulation raised the subscriber base from 400, 000 active lines in 2001 to the current 99.14 million as at the end of March 2012. Usen Udoh, senior executive, communication and high technology, Accenture Nigeria told Benuzorreports in a phone interview that there is a direct correlation between corporate governance practices and the increasingly international character of investment. “Most of the telecoms companies that are not doing well today in the country are essentially one man businesses. A one man business typically has weak corporate governance. The owner of the business in most occasions has a strong influence over the board.

“Any serious investor would take that into cognizance before making any investment. Corporate governance is a big issue in Nigeria’s telecoms industry and must be urgently addressed if we intend to sustain the growth recorded in the industry. The reason for the poor performances of CDMAs today is not a question of the effectiveness of technology but rather a problem of ownership structure. Over the years, the technology has been proven to be effective for regional deployments, data services. The fundamental issue is that these companies are less attractive to foreign investors due to poor corporate governance structures.” 

Lending his view to the issue, Ernest Ndukwe, past executive vice chairman of the NCC explained that the degree to which regulators insist that operators within its industry observe basic principles of good corporate governance is an increasingly important factor for investment decisions. According to the former EVC, investigations into corporate governance scandals proved that lack of transparency, deliberate accounting fraud, weak board oversight and failure of internal controls are significant shortcomings inherent among some companies in the industry. “Sub-optimal corporate governance complicates the work of the regulator,” Ndukwe disclosed, stressing the need for the operators to, “openly admit to customers of shortcoming and stating measures being taken to correct same, which is critical for transparency and sustenance of corporate governance”.

Reacting to the sub-optimal growth of the CDMA operations in Nigeria, Alex Dadson, managing director, West Africa, Qualcom, a pioneer company in CDMA technology, believes the challenge before the CDMAs in the country was not due to technology failure but a number of other key factors such as inadequate capital, poor management and limited network coverage among others. "The key problem is one of business strategy. It is more of the environmental factor that affects you business and how you manage it. The CDMA while it was an early entrant was also disadvantaged. We did not start out with nationwide CDMA licensing. There were riggings. The interconnect regime weighed against CDMA. All these problems have been subsequently fixed but CDMA took a beating as a result of business strategy, as a result of environmental factors and so on", he concluded.