MTL ponders job cuts

Malawi Government, through initiatives driven by the Public Private Partnership (PPP) and the Chinese government, is bringing onto the telecommunications market two competitors which have brought fears in the Malawi Telecommunications Limited (MTL) who upgraded their capacity through a loan

An internal document we have seen shows that MTL sees possible job cuts as a means of survival fearing that the two competitors are likely to have their rates very low because of their kind of capital sources.

MTL also argues that the developments mean government rejoining the private sector against a background of a World Bank push for privatisation of State-owned firms.

But the Public Private Partnership Commission (PPPC) says the project they are championing “is to promote competition in the supply of broadband capacity so that customers benefit through lower prices.”

Through a World Bank initiative, PPPC tendered for private companies to be pre-qualified for the provision of International Broadband Connectivity to Malawi over Fibre Optic Cable from Lilongwe to Dar es Salaam using a project called Regional Communications Infrastructure Programme (RCIP).

The RCIP is financed by the World Bank in partnership with African Development Bank (AfDB) and Malawi, Mozambique and Tanzania are benefiting in the third phase worth $20 million.

Communication from PPPC to companies shows that 14 companies, local and foreign participated and no Malawian registered firm is among the pre-qualified six companies.

A generic letter was sent out to all companies on April 10 stating their status.

“Following the publishing of adverts in the media calling for interested firms to apply for pre-qualification on provision of International Broadband Connectivity to Malawi over fibre cable from Lilongwe to Dar es Salaam through the RCIPMW project, we note that your organisation is one of those who submitted an application to be considered for pre-qualification.

Apart from MTL, other local firms that participated are Zanzibar Telecom LTD, Malawi Switch Centre and Telekom Networks Limited.

Lipunga did not explain why all local firms failed but MTL claimed in the internal communication that “we were verbally told by PPPC that local evaluators qualified us but World Bank Washington disqualified us.”

“The Malawian evaluation team pre-qualified MTL but the World Bank , Washington officials disqualified MTL….,” reads the analysis in part.

World Bank spokesperson Zeria Banda did not respond to our questions sent a month ago.

But reports indicate that among others, MTL was disqualified because World Bank saw conflict of interest in view of government’s part ownership and board membership of principal secretaries of ministries of Finance and Information.

In Tanzania, a similar contract was awarded to Tanzania Telecommunication Company Limited which is 35 percent government-owned, as compared to MTL with 20 percent State stake.

The other supposed competition comes with the multimillion contract Government awarded to Huawei Technologies Co. Ltd to install fibre backbone network to connect some districts in the country without public tendering process.

The contract, said OPC, awarded to the Chinese firm is worth $49 644 481 (about K16 billion at the current exchange rate) and includes the installation of the fibre optic cable network, implementation of the national registration system, implementation of a data centre, implementation of enhanced electronic communication systems such as Voice over Internet Protocol (VoIP) and Video Conferencing

However, according to MTL, the company already has $31.1 million (about K10 billion) fibre backbone network which at the moment is underutilised.

Apart from MTL, Electricity Supply Corporation of Malawi (Escom) also has fibre backbone network which most telecommunication service providers are leasing at the moment.

But Lipunga while refusing to comment on the Huawei project, said RCIPMW project is a PPP project in which the private operator is providing the funding while the Government is undertaking to acquire the capacity provided.

“The fibre optic connectivity once constructed will belong to the private sector and not Government,” he added, saying the objective is in fact to promote competition in the supply of broadband capacity so that the customers benefit through lower prices.

But MTL is worried that for them to reach to the current capacity levels, they borrowed and invested up to “US$22 million in its optic fibre backbone comprising 1667km of fully redundant transmission capacity, currently of 10GB, upgradable to meet Malawi’s requirements for ever.”

According to MTL spokesperson Tina Dasi, MTL is projected to lose billions at the time they are also paying back the loans.

“This depends on the amount of market share taken by the two optic fibre networks and the degree to which government prices will be reduced to the favourable loan terms that the government will enjoy. Potentially, MTL will lose two thirds of its projected revenue, resulting in a loss of billions of kwacha per year,” she said.

But Dasi refused to comment on the contents of MTL’s confidential analysis, saying “MTL cannot comment on confidential internal documents suffice [ it] to say that if MTL’s revenues are reduced by two thirds, costs will also have to be reduced by a similar amount.”

“We are currently evaluating alternatives,” she said.

But their confidential document clearly states the way forward to cushion themselves from the shocks coming with more competition on the market.

It reads in part: “…a combination of massive overcapacity funded by non-commercial loans will almost inevitably result in a reduction in tariffs in order to be competitive, potentially triggering price wars.

“The price reductions are likely to be initiated by the operator with access to preferential funding which reduces both the set cost and improves the loan repayment terms compared to MTL, who obtained funding on commercial terms.

“This has a huge impact on the company’s financial obligations which could result in retrenchments and downsizing of operations,” reads the MTL analysis.They also fear loss of skilled labour with the coming of more telecommunication companies on the market.