Wednesday, May 22, 2024

BTC IPO was daylight robbery

With as much hype as was generated about the Botswana Telecommunications Corporation Limited (BTCL) initial public offer (IPO), the entire Gaborone International Convention Centre was literally packed to the rafters at the company’s first IPO grand assembly (Pitso) in December 2014. Seganeleng Matale recoiled with horror at the spectacle.

“Why did the government advise hardworking citizens to invest their hard-earned money in an obsolete business model? This was daylight robbery,” he says. 

With such conviction, it didn’t come as a surprise to him when BTCL share price took a nosedive and that this had to do with the write-down of obsolete equipment.

Around the world and in a trend that goes back more than a decade, global telecommunications companies are really struggling. In 2011, Dutch telecoms operator, KPN reported an 11 percent drop in net profit for the second quarter of the year. Months earlier, Deutsche Telekom had announced a 37 percent drop in its net profit. Etisalat, the UAE’s largest telecoms provider, saw its second quarter profit drop by 14 percent while New Zealand’s Telecom profits dropped by 32 percent. In that same year, South Africa’s Telkom reported a 35 percent drop in its full year profit. Other giant telcos like China Mobile and Telef├│nica are also struggling.

This misfortune is a result of the rise of Internet-based telecommunications software and according to Ovum, a London-based research and analytics company, the telecommunications industry will lose a combined US$386 billion between 2012 and 2018. This loss will be a result of customers using free over-the-top (OTT) voice applications such as Skype and Lync. Within the Botswana context, the latter means that one can make a call without using BTCL services.

Matale says that most companies use Skype, which is a free voice over Internet protocol (VoIP) app to do professional voice communication with other companies. 

“This has replaced the traditional professional communication of using landlines, a monopoly that BTCL enjoyed for a very long time. The reason why companies have resorted to this platform is for simple cost-cutting since Skype is free as long as there’s Internet connection,” he states.

Some organisations that BTCL has traditionally made a lot of money from are adopting telecommunications technology that removes the network operator from the equation. One way that has happened has been by acquiring Lync to support internal VoIP. Matale says that while this technology comes with a (subscription) cost, it enables free inter-organisation telephony. An example he cites with regard to the latter is Botswana Post which has acquired internal VoIP technology. Likewise, the Botswana Power Corporation currently owns and operates an optical fibre network that is embedded in power lines and is used exclusively for power system operations and internal voice and data communication. Matale says that the BPC network provides a valuable asset upon which the parastatal can create a successful alternative wholesale network operator. 

With regard to personal communication, he notes that VoIP telephony has been adopted on a huge scale in Botswana.

“Skype is freely available on smart phones which can consume the service via Wi-Fi connectivity or alternatively by using bundles. It is by far the most commonly used VoIP app. In terms of popularity, it is followed by WhatsApp. There are other vendor-specific VoIP apps that are commonly used locally. iOS, an Apple operating system, has FaceTime as its VoIP solution and allows Apple-to-Apple devices to conduct VoIP communication. So, your iPhones can communicate freely via Internet connection as well as via iPhone to iPad, Mac or iPod. FaceTime runs on 3G/4G or any Wi-Fi connection with requisite bandwidth. Blackberry devices have a similar setup,” Matale says.

That is a lot of money that could have gone to BTCL and a lot more if one factors in use of similar VoIP apps like VMobile, Voxofon and LINE.

It was against this background that BTCL became the first parastatal organisation to be privatised and in line with its citizen economic empowerment policy, the government offered citizens an opportunity to buy shares in the new company. At the IPO Pitso, BTCL’s management touted the company’s strong performance among reasons why investing in it would be a wise decision. The view that Matale held then, which he retains to date, is that the government was selling its own citizens a dud because the BTCL will suffer (if it hasn’t already) the fate that other telcos around the world have suffered.

“What is painful here is that traditional telecomm machinery which BTCL has purchased over the years to sustain its once flourishing voice telephony cost it millions of pula. It is now slowly becoming obsolete and some industry experts say in five years or less, that machinery will be useless. That is because even governmental organisations will migrate to cheaper and more robust ways of making landline calls and using fax machines,” he says.

His assessment of another aspect of the problem is that the option of selling off that machinery doesn’t exist because there is no market for it.

“Who is going to pay for a white elephant in the form of old machinery which is obsolete? This machinery will be almost impossible to auction because all industry leaders know the direction the business is heading,” says Matale adding that the ill-advised members of the public who bought BTCL shares at IPO have unwittingly inherited this obsolete machinery.

Those who are sailing smoothly are what he calls “new lean and mean” tech companies which specialise in converged communication. Matale says that these companies offer unique bundled services, VoIP, messaging as well as online TV streaming services for Smart TVs or ordinary TVs that are connected to domestic network routers. He adds that with relevant hardware infrastructure like Raspberry Pi, one can use the Internet with a considerable amount of bandwidth and do virtually everything from making voice calls to video calls to surfing the net to watching streamed television programmes without having to even subscribe to MultiChoice, the local cable TV network. In expanding the latter point, Matale notes that in the long term, MultiChoice will itself feel the pinch that BTCL is currently. 

Not that BTCL is completely helpless because there is the option of adapting to new technologies in order to fight off the competition. However, Matale says that the challenge that comes with that is that it will be extremely expensive to make such transition.

“Not even the best telecomms companies in Europe have been able to do that,” he says.

Closer to home, South Africa’s Telkom started 8ta (a mobile operator) and that model was later copied by BTCL by establishing Be Mobile.

In the long term, this is not feasible and Matale point to 8ta as a living example of a short-term solution applied to a long-term problem. Balancing the scales takes the form of adapting to “lean and mean” forms by doing more bundled services like VoIP and domestic Internet entertainment through live streaming. 

“Make this your core business because this is where the market is headed. As much as possible, improve bandwidth offerings to allow seamless operation of diversified services since each will need a significant bandwidth to operate seamlessly without buffering,” says Matale adding that BTCL’s future lies in making as its next CEO, an industry expert with full understanding of these market trends.

BTCL became the first privatised parastatal to list on the Botswana Stock Exchange on April 8 this year. As one of the largest IPOs on the BSE, the company’s IPO was oversubscribed 1.68 times and to a large extent this had to do with a rigorous marketing campaign. The euphoria has been short-lived because four months later, the company shares fell below IPO price. This came after BTCL had reported a loss of P371 million for its 2015/16 financial year, down from a profit of P147 million the previous year. The loss was attributed to impairment costs from the write-down of property, plant and equipment due to technology changes. Matale says that a fair portion of the IPO Pitso should have been devoted to detailed information about how the stock market operates because some investors plunked down money for the BTCL shares without the most basic knowledge of how BSE functions.


Read this week's paper