Listed prepaid distribution company Blue Label Telecoms says its Nigerian unit is set to sue Telkom subsidiary Multi-Links over the profit it will lose out on, because Telkom is exiting Nigeria and a contract between the companies has been canned.
Telkom said last week it was looking at how to get out of its struggling CDMA business in Nigeria, and was evaluating bids for Multi-Links' CDMA business. Telkom spent about R3.2 billion buying into Multi-Links between May 2007 and January 2009.
Multi-Links has been problematic as it struggled to become profitable, and Telkom has written down the value of the unit by more than R5.6 billion. Exiting the CDMA side, which accounts for about 90% of Multi-Links' revenue, could cost Telkom up to R1.3 billion.
However, selling out of the network could potentially cost Telkom more than anticipated, as Blue Label subsidiary Africa Prepaid Services Nigeria is set to sue Multi-Links to recoup lost profits. The amount of damages has not yet been quantified.
Lost revenue
Africa Prepaid Services Nigeria had a “super dealer agreement” with Multi-Links, which allowed it to acquire customers for Multi-Links' CDMA network, as well as sell and market the range of Multi-Links' CDMA service and products for an exclusive 10-year period until December 2018.
Blue Label has a 36.72% stake in the company through its 72% ownership of Africa Prepaid Services, which owns 51% of the Nigerian company. APS distributes bulk printed physical prepaid products and starter packs.
As a result, says Blue Label, Africa Prepaid Services Nigeria intends suing to recover the damages it had, and will, incur because of Multi-Links' cancellation.
However, Blue Label has not spelled out how much revenue or profit it will lose out on, or the amount of damages its Nigerian unit intends to claim from Telkom.
For the year to May, Africa Prepaid Services Nigeria added R38.7 million to Blue Label's net profit after tax, which amounts to 5.1c of its headline earnings per share of 48.27c. The subsidiary started operating in May 2009.
Life after Multi-Links
Africa Prepaid Services Nigeria's deal with Multi-Links was not the only contract the company had in Nigeria, and it does not expect to pull out of the country.
Africa Prepaid Services Nigeria “has confidence in the growth opportunities which Nigeria presents for the consumption of prepaid products, including airtime, electricity and other products and services such as bill payments and, in time, money transfer”, says Blue Label.
The Nigerian unit intends to “expand its existing transactional footprint to facilitate growth in the virtual distribution of these products in partnership with Nigerian network operators and utility providers”, it says.
Blue Label joint CEO Mark Levy says the subsidiary has been mitigating its risk by growing its distribution network and signing deals with other mobile operators in the West African country.
During the past financial year, the company inked deals with Zain, Globacom, Etisalat and Starcomms. In Blue Label's annual report, the company said “agreements with other network operators are expected to follow”.
Telkom will not comment on the pending legal action.
Related story:
Telkom plans Multi-Links exit
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