Third cell network looks closer

By ADAM GIFFORD

Prospects of a third cellphone network have been rekindled after Econet Wireless received a US$70 million ($104 million) cash injection from South African telecommunications, multimedia and IT conglomerate Allied Technologies (Altech).

But telecommunications analyst Paul Budde remains sceptical that there is room in the market for another GSM network or for a 3G network.

Criticism of Econet has grown as the company has been missing targets for a network launch.

The venture's fate is entwined with that of the Maori spectrum trust Te Huarahi Tika, which has the right to buy 3G spectrum set aside for Maori.

The trust spent $4 million buying a 30 per cent stake in Econet Wireless. Mavis Mullins, chairwoman of Te Huarahi Tika, said the local operation would receive a capital injection as a result of the deal.

"All I can say is we will have more than our fair share of capital," Mullins said. "The reality is Econet have put a stake in the sand regarding their investment in New Zealand, and they are serious about that investment and the business opportunities here."

Bill Osborne, chairman of the trust's commercial arm Hautaki, which holds the 3G management right option, said Econet chairman Strive Masiyiwa "does want to be in a developed country as well as in developing countries. He thinks it is important for the mix of products the company is developing".

He said Masiyiwa had business integrity as well as entrepreneurial zeal, which appealed to Te Huarahi Tika and Hautaki.

Osborne said Econet's New Zealand business plan must be revised because of the time it had taken to get capital.

"The co-location provision doesn't extend to 3G, and the market has moved to the extent we may have to put up a 3G network as well immediately."

Econet had talked at an engineering level with TelstraClear, but had no firm plans to work with it as yet.

Econet has 2.5G spectrum it bought at auction, and it can force Vodafone to co-host transmission equipment and allow customers to roam on the Vodafone network - a concession which significantly reduces its cost of rolling out a network.

But it is still unclear what priority Econet will give its New Zealand prospects when it also has commitments in several African countries. Budde said Africa was an enormous growth market.

"Countries are booming from a mobile point of view. It would be more sensible for Econet to put their money there than in a crowded market like New Zealand."

Econet's best prospect in New Zealand may be to work alongside TelstraClear, which has announced its intention to roll out its own mobile phone network, he added.

Econet's often elusive New Zealand head Tex Edwards is back in the country after a long absence. He has been in South Africa, where the deal, announced in South Africa last week, sees Altech and Econet Wireless form a South African-based telco called Newco, which will trade under the Econet brand.

Altech will put in US$70 million cash, while Econet contributes assets valued at the same amount, including its businesses in New Zealand, Botswana, Kenya, Lesotho, Nigeria and a British-based satellite company.

It has options to increase its stake in several of those companies, which will require further investment, and it is in a legal battle with Vodafone subsidiary Vodacom over its Nigerian investment.


Budde said 3G networks had not taken off so far because people had been unable to find a compelling application which can't be served by other networks.


"Because Econet is a niche player, its set-up costs will be unfortunately high.

If they do try to roll out a network, I expect Vodafone and Telecom will go back to subsidising handsets and locking customers in on three-year plans."

Budde said the next generation of wireless broadband was likely to capture the territory 3G players hoped to occupy.

In the year to June 30, 2003, Econet Wireless New Zealand declared a group after-tax loss of $2.8 million on no revenue.

Radio spectrum rights were valued at $12.7 million, down from the March 2001 purchase price of $13.2 million, and the value of Hautaki's 3G spectrum option was put at $4.75 million.