It was sweet music to the ears of the multitudes of Batswana to hear the Minister of Communications Science and Technology, Hon. Pelonomi Venson-Moitoi break news on the impending privatisation of the Botswana Telecommunications Corporation (BTC) to the nation on June 21st, 2006, or perhaps some trepidation, depending on the audience.
Further Liberalisation of the Telecommunications Sector
“The time has now come to further liberalise the industry in order to increase competition with enhanced quality services at reduced cost”, announced Hon. Venson-Moitoi to the local media in Gaborone before detailing a plan of activities to be undertaken by her Ministry, the culmination of which will be the privatisation of BTC.
The whole process swings into gear from August 1st 2006, with Government issuing licenses to other Internet Service Providers to compete for provision of Voice over Internet Protocol (VoIP) services with the current service providers, namely BTC, Mascom and Orange, as well as allowing BTC’s competitors, Mascom and Orange to build their own backbone infrastructure to carry their own traffic if they deem it appropriate. The two mobile operators are currently compelled to use BTC infrastructure to reach out to their customers, a measure which may impact on the quality and price for their services.
By September 1st, 2006 both the BTC and the two mobile operators will be free to apply for service neutral licenses. These are licenses that allow service operators to provide a cross-section of telecommunication services, ranging from voice to data, irrespective of whether the service is transmitted on wire or wireless and would not restrict them to either fixed or mobile services.
Additional liberalisation initiatives of the telecommunications industry will be effective as of October 1st, 2006 with Government opening up the provision of international switching and transmission of voice services (the International Voice Gateway), thus effectively removing the current BTC monopoly status in the provision of this service.
Government is also allowing BTC to complete its ongoing exercise of adjusting its tariffs to align them with costs to attain a satisfactory level of tariff re-balancing by December 2007. In addition, new entrants will be allowed to tender for service-neutral national licenses by December 2009.
The purpose of the liberalisation measure is to allow for the telecommunications industry to grow as the market dictates and to avoid depressing demand for value added services which leverage different sectors of our economy, e.g. banking and services. The other reason for introducing these market liberalisation measures on the eve of privatisation is to avoid creating a private monopoly out of BTC privatisation. The example of Telkom South Africa which was privatised without liberalisation has resulted in Telkom perpetuating its monopoly power even as a privatised entity, a situation which has not only resulted in unrealistically high costs to end users, but, because it is now an entrenched monopoly, new comers are finding it hard to give effective competition to Telkom South Africa.
Divestiture of BTC
Ms Venson-Moitoi’s announcement came just days after Government’s approval of the strategy for the implementation of BTC’s privatisation. The approved privatisation strategy, encapsulates the following main elements:-
ÔÇó Selling about 40% of BTC equity to a Strategic Equity Partner (SEP)
ÔÇó Reserving about 5% of shares for citizen employees of the BTC under an Employee Share Ownership Plan (ESOP). The purpose of the ESOP is to align the interests of the employees with those of the investor.
ÔÇó Allotment of between 15-25% of shares to the Privatisation Trust Fund for sale to future generations of Batswana in the form of a warehouse facility.
ÔÇó To retain between 25-30% of the shares for later sale (in the next 2 to 3 years) to the public by way of stock market listing. The sale of shares in BTC through listing in the Botswana Stock Exchange will contribute to the development of the Botswana Stock Exchange, which is consistent with the Privatisation Policy objective of expanding and deepening the local capital market, as well as allowing the SEP to benefit from creating value during restructuring.
The privatisation will be implemented in two parts, starting with the process of appointing a Transaction Advisor (TA) and followed by the selection of SEP. In both cases, a two stage procurement process will be followed. The first stage, the short-listing of potential bidders, otherwise known as pre-qualification, helps to select the players with the best credentials to bid for the assignments. This is important to ensure that only competent and qualified bidders will be short listed to participate in the open tender. The second phase will involve dispatching the tender documents (Requests for Proposals) to the pre-qualified bidders who will then submit their detailed bids accordingly. Once the bids have been received and opened, they will then be evaluated and the preferred bidder will be selected. The remit of the TA is to advise on the process of selection of the SEP, and in the case of the BTC privatisation, the target is to have the TA in place by August 2006. The role of the TA will be to advise and guide Government on conduction of due diligence, selection and negotiating with the SEP and ultimately, procurement of the SEP in May 2007.
The privatisation of the BTC will be implemented by the Ministry of Communications Science and Technology (MCST) with PEEPA advising on aspects of the privatisation transaction. A Divestiture Reference Committee to steer the transaction will be formed. The Committee will comprise of representatives from the MCST, BTC, Public Procurement and Asset Disposal Board, the Ministry of Finance and Development Planning, the Attorney Generals Chambers and other relevant stakeholders.
The privatisation of BTC is a sequel to Government’s approval in 2005 of the Privatisation Master Plan, a strategy document that provides the principles and practices to be followed in implementing privatisation transactions, as well as the regulatory, institutional and legal changes required for the implementation of privatisation.
Advantages of Liberalisation
Further liberalisation of BTC and its subsequent privatisation is expected to build on the economic benefits realised as a result of the partial liberalisation undertaken in 1988 which have included price reductions in the last 7 years, more choice of products for consumers and increased Foreign Direct Investment (FDI) by foreign investors in Mascom and Orange, as well as citizen ownership and participation in the telecommunications sector.
Other benefits will include improvement and enhancement of BTC’s customer service as well as reduce Government’s direct involvement in the sector and greater competition in the industry.
With new entrants coming into the telecommunications industry competition is surely bound to be enhanced, therefore customers are bound to rip the benefits of lower prices and improved standards of services.
Of course, competition alone will never be sufficient to guarantee all these benefits. This means the Botswana Telecommunications Authority (BTA), as the regulatory authority for the telecommunications industry, will continue to play the critical role of setting the “rules of engagement” in this sector to safeguard the interests of all players in the industry, including the new entrants and consumers. So, competition and regulation will inevitably play a vital role to level the playing field and ensure successful private sector participation in the telecommunications sector.
In addition, Government will endeavour to ensure that the privatisation of BTC does not in any way deny disadvantaged members of the society, particularly those in the rural areas, the right of access to telephony services through the introduction of targeted interventions.
Advantages of the SEP
The SEP will provide the necessary financial resources, technological and management expertise that are vital to turn around the corporation and eventually to increase telephony penetration in line with Government’s objective of Info-Communication and Technology sector. In addition, the option has the opportunity to introduce technologies that promote and enhance BTC’s competitiveness in a fully liberalised telecommunications market. This will enable Botswana to effectively compete efficiently in the domestic, regional and global knowledge economy while creating value for all the shareholders.
Bringing Stakeholders on Board
As the privatisation march gains momentum there is no doubt that those affected will be keen to know how divestiture transactions such as the BTCs, are likely to impact on their lives. PEEPA, in collaboration with the affected ministries, plans to embark on a nation-wide communication campaign, not only to inform those concerned about the BTC privatisation, but also to inform them about the mitigation measures that will be put in place to cushion any negative impact the transactions might have on their lives, directly or otherwise.
The stakeholders will include the labour unions, the media, potential investors and consumers of the BTC products.