Chad: What does the future hold for the country's under-developed telecoms sector?

Earlier this week, courtesy of Alastair Sharp of Reuters, I learned that Orascom Telecom has received a USD 4.9 million settlement from the Government of the Republic of Chad following a dispute over the ownership of a mobile operator in the country.

In July 2004, Orascom Telecom suspended the operation of MNO TchadMobile, then a joint venture between the Egypt-headquartered group and Chad's national incumbent fixed-line operator SOTEL Tchad. At that time, the country's mobile market was split two ways: TchadMobile had just 33,000 subscriptions, according to WCIS. Its rival - now branded Zain Chad - had around 78,000 subs.

The suspension of operations resulted from Chad's telecommunications ministry invalidating the transfer of of a 51% stake of TchadMobile to Orascom Telecom (as part of an agreement struck in 2002), which then took the case to the International Chamber of Commerce (ICC) in March 2005. A long wait, then, for a modest payout.

As far as I know, Orascom Telecom has yet to comment on the degree to which this is felt to be a satisfactory outcome. I don't have any data on how much money the company would have invested in its Chad operation, but I'd guess that the ICC award must represent a fraction of that sum. Further, the breakdown of the relationship between the telco and the Chadian Government means the former has foregone the opportunity to profit from the growth of the country's telecoms sector in this years that have followed. In terms of mobile subscriptions, this has been quite significant - Chadian mobile subscriptions now number almost 1.9 million.

Looked at one way, this figure represents a mobile boom. However, relative to other African nations, Chad continues to be a laggard in terms of mobile penetration - this now stands at just 16.33% vs. the overall African figure of 39.19%.

According to telecoms research consultancy BuddeComm, Chad has one of the least developed telecommunications market in the world, with low penetration rates across all market sectors – fixed telephony and Internet as well as mobile – well below African averages. BuddeComm's Chad country profile states that the country lacks a national backbone infrastructure to support efficient broadband services and that in order to raise the capital needed to fund development of the network, the Government is intent on privatising SOTEL Tchad. Any telecoms group potentially interested in that particular opportunity would presumably want to have a thorough understanding of how Orascom Telecom's relationship with the Chadian Government went sour, not least because the country is listed by Transparency International as one of the most corrupt in the world. Perceptions of this kind can hardly be reassuring for prospective investors.

Further, the country is not only thought of as corrupt but also is also suffering the effects on an ongoing civil war and an influx of refugees from neighbouring Sudan. Chad is also one of the world's least affluent countries, with much of its population living in poverty as subsistence farmers and herders. Poverty this extreme will always be an inhibitor to growth, with even very low-cost services beyond the reach of many citizens.

This country of about 10.8 million people, then, would seem to represent a daunting challenge for telecoms groups looking for a solid return on investment.

One company which has been brave enough is Millicom International Cellular, which, in November 2004, won a tender for a 10 year licence to operate a GSM network in Chad. The group's Chad operation now has a 37.41% share of those 1.9 million subs. In March this year, Millicom deepened its commitment to its Chad operation by buying out the 12.5% share held by former joint venture partners.

One threat to the current status quo (a Zain-Millicom duopoly in mobile) identified by BuddeComm is the possibility of SOTEL re-entering the mobile space via adding mobility capability to its CDMA WLL network.

Taking all of this into account, troubled Chad seems like an above-averagely tough place for a telecoms group to make money. I wonder, therefore, if Orascom, the small scale of its recent payment from the country's Government notwithstanding, sheds many tears over its exit from the Chadian market.

Chad: What does the future hold for the country's under-developed telecoms sector?