MTN 'poisoned` Goldleaf business plan

Johannesburg, 20 Jan 2003

Consultants analysing the two bids to control SA`s second fixed-line telephone operator have tacitly accused MTN of poisoning the business plan of contender Goldleaf in order to protect itself from competition.

A report by the Next Generation consortium released on Friday implies that MTN is responsible for Goldleaf adopting its "SNO lite" model and says this may irreparably stunt the second national operator (SNO) while keeping it from competing with MTN.

The report was commissioned by the Independent Communications Authority of SA (ICASA) to assist it in adjudicating the bids of Goldleaf Trading and Optis Telecommunications, the two consortiums vying for a 51% stake in the SNO due to start competing with Telkom this year.

The consultants were not allowed to score or compare the two applications. During adjudication of the third cellular licence applications, ICASA was accused of abdicating its responsibilities after consultants scored the various applications. However, the report is likely to influence the four ICASA councillors tasked with making a recommendation on the bids to communications minister Ivy Matsepe-Casaburri.

The Optis consortium comes off the worst in the general analysis, which leaves little room to imagine that its bid could still succeed. The consultants find that Optis misled ICASA by presenting work by Siemens as its own and continued to withhold important information throughout the bid process.

The report also again highlights issues such as the involvement of 18-year-old Warren Friedland as the biggest shareholder in Optis. Because Friedland, who is still a minor, signed much of the legal documentation that established the Optis shelf company, the bidding entity may not have any official existence.

Next Generation rejects out of hand the Optis technical and black empowerment plans. After noting that the Optis bid made mention of its 4 500 employees - while the group admits to having no employees at all - a hint of exasperation is evident despite the formal tone of the report.

"With this sort of inaccuracy, it is impossible to analyse this applicant," it reads.

Gashing Goldleaf

Despite the heavy criticism of Optis, Goldleaf does not emerge as a certain winner.

The Next Generation group agrees with some legal analysts that having 500 000 active customer telephone lines is an absolute requirement to even bid for the 51% stake. Goldleaf has no such customer base and believes that Matsepe-Casaburri waived the initial requirement. But if ICASA agrees with its consultants, it will be forced to reject the bid without judging its merits.

Goldleaf is also found to share some of Optis` deficiencies when it comes to funding.

"Against the background of the licensing fee requirements of R300 million, the performance guarantee requirement of R50 million and the fact that both the applicants are unfounded cash shells, neither applicant has shown that it could commence business if awarded the licence on 31 January 2003," the report read.

Yet most damning is the heavy hand of MTN that Next Generation says it detects in the Goldleaf business plan.

MTN was responsible for much of the research on which Goldleaf based its bid and decided not to participate in the consortium only a short time before the bid was submitted. In recognition of its contribution up to that point, it has the opportunity to take a stake in Goldleaf, and the SNO, if the bid is successful.

But the Next Generation consortium implies that MTN is more worried about protecting its market than seeing Goldleaf, and the SNO, succeed.

Goldleaf`s lite approach, the consultants say, is "probably in conflict with the model envisaged by government and consumers", who are looking for a large competitor to Telkom.

"MTN`s involvement in the compilation of the bid is significant and Goldleaf`s promotion of an SNO lite directed at the business market, will result in there being no competition to MTN`s interests in the 'non-business` market," it goes on to say.

MTN has more than four million subscribers in SA.

The consultants also believe that, once implemented, the lite strategy will become an inescapable trap. A small contender could churn out steady profits but not enough cash for significant capital expansion, leaving it permanently stunted.

Next Generation sees the motive for MTN`s poisoning in the fixed-mobile licence the SNO will be granted: fixed-mobile services will be based on the cellular GSM technology and by Goldleaf`s own admission, would hold negative implications for an existing cellular operator.

"In all scenarios, the revenues would primarily be achieved by mobile churn and hence the threat to existing mobile operators would be considerable," Next Generation quotes from the Goldleaf bid.

But MTN says this is a single quote taken out of context from a bid running into hundreds of pages. The allegations against it, it says, are far-fetched, unfounded and counter-intuitive.

Arif Hussain, MTN`s GM for strategic investments who has been working closely with the Goldleaf team, says MTN would like to see a strong competitor to Telkom because such an SNO would be to its advantage. He also rejects the implication that MTN could have influenced the Goldleaf business plan to any great extent, saying the Premier Contracts Agency was responsible for the plan and would have rejected any "poison" MTN attempted to introduce.

"It is ludicrous to suggest that we would be able to influence that process," he says.

MTN also believes the threat fixed-mobile presents is overplayed by Next Generation. It says the restrictions on such services are still unclear and the technology untested, which is exactly why Goldleaf does not plan on introducing it at launch.

ICASA will accept public comment on the Next Generation report until Friday and hopes to make its recommendation by the end of the month.