Resisting political corruption- the story of Econet- Part Seven

The dates for the High Court hearing of Econet’s appeal were set for September 18 and 19, 1997. After the hearing, Justice Sandura’s assistant informed the press that because of the huge amount of documents that needed to be studied, a decision would be made only by the end of the year.

The High Court’s decision finally came on December 31, 1997 – Justice Sandura revoked the license awarded to Telecel, and ruled that the second cellular license be awarded to Econet.

By this time, Telecel had already started installing its infrastructure; its Chairman announced that his company would contest the High Court decision.

On January 15, 1998, the new Minister of Information Chen Chimutengwende, who had replaced Mujuru, said that the government had unconditionally accepted the court ruling, which meant the automatic invalidation of the Telecel license. He added that “Econet was under no obligation to take on board Telecel as a business partner.”

Telecel filed an urgent appeal to the Supreme Court against the High Court ruling. In the affidavit that he filed in response, Masiyiwa stated that Telecel’s appeal was designed to “coerce” his company into offering Telecel some form of shareholding.”

High Court Justice Smith ruled on February 10, 1998, that Telecel’s appeal to the Supreme Court did not suspend Econet’s license.  On February 18, 1998, the Cabinet announced that it was issuing a third license to Telecel, which accepted the license and withdrew its appeal to the Supreme Court.

This decision to grant Telecel a license without any tender was received with outrage by Zimbabweans. An editorial titled “A travesty of justice” in the Financial Gazette dated February 19 was scathing in its criticism of the government.

“In one single strike, President Robert Mugabe’s government unashamedly overturned repeated and unambiguous rulings of the country’s highest courts, the very foundations of the rule of law, just in order to curry favor with its cronies stunned that they cannot have things go their way all the time.” ….

“Oblivious to the widening pain gripping the nation because of its failed policies, the crumbling regime ordered Telecel, an open club of the government’s blue-eyed boys and girls, duly licensed to operate a third cellular telephone network, a decision already soundly shot down by High Court judges Wilson Sandura and George Smith in separate judgments in the past two months.” …

“Yesterday it was wrong and technically impossible to grant Zimbabwean Strive Masiyiwa a license to run a third cellular phone network, we were told. But today, because the government’s supporters have come unstuck and looked certain to remain so forever, it is suddenly all right and necessary to have another network.”

By April, Econet had drafted an interconnection agreement with PTC that they hoped would be signed by the end of May. The agreement was expected to earn PTC Zim$64 million annually in the first year; this would increase to Zim$600 million by the tenth year. Econet’s staff had increased from 51 at the end of 1997 to more than 100 at the end of May 1998. More than 20,000 subscribers had applied for service.

Rudnick, who had been working in Kantor & Immerman until June 1998, was invited by Masiyiwa to join Econet as an employee. He described his first impressions as a staff member.

“Well, what impressed me straight away was that whilst I’d been working on the court case with – I got to know a number of the Econet people, and as a lawyer I always felt that what they were doing was working on a court case, and then I discovered that in the three years that they had been working, they had actually been working, they hadn’t been sitting and waiting for the court case to end. They had prepared themselves in a very detailed way as to how the company was going to be run.

“They had spent their time assessing equipment so that they were now able to buy their equipment almost immediately, because they had tested almost every component time and time again. They knew who the contracts were going to, they had done their bids, they had got the best pricing, they knew – you know, they were up and running, they weren’t now trying to get things moving. They hit the ground running from the day the license was awarded. The only thing that slowed Econet down in the beginning was raising capital.” …

“You know, the engineers, whilst they’d been helping with the court case, they’d spent those years designing the network and planning it to a meticulous level of detail. The marketing people had been preparing brochures and booklets and strategies and branding.

“You know, there was an enormous level of thought and preparation that had gone into it. And I remember going to a cocktail party in their offices the month before I actually joined them. Remember I was still their lawyer during this time, so I was a part of it even though I wasn’t physically there, and the excitement in the air was palpable.

“Now things were happening. And a member of staff showed me around this building, and he said to me this was the IT department, this was the Billing, and it was completely empty.

“They didn’t yet have the money to put these things in, but they’d ordered everything, they knew where every computer was going to go, the cabling they were going to put in, the points were there, they had – you know, it was planned, and they had floor plans of where desks were going to go, where people were going to sit. It was very organized”

Douglas Mboweni, an IT specialist, had joined the company as Billing Manager in April 1996. He indicated that right from the beginning, Econet’s management wanted to benchmark itself against the best organizations in the world on corporate governance practices.

“Basically what we focus on is creating a world class standard kind of organization. Right from the level of the CEO, …….. , what we keep our eyes on always is what are the international trends in management. What should we be focusing on. What are the things that we should be using to measure our progress as an organization. The systems that we should have put in place. The kind of standards that we should apply”

Econet assets were valued on 30 June 1998 at approximately Zim$240 million, which was equivalent to US$ 13.25 million (at the prevailing exchange rate of 1US$ = Zim$18.06). This was made up of Zim$ 121 million in fixed assets, Zim$ 118 million in pre-operating expenditure, and Zim$1 million in current assets. This was mirrored on the liabilities side by Zim$ 66 million in long term capital, and Zim$ 173 million in current liabilities (short term loans, overdraft facilities, and creditors).

Econet planned to raise a further Zim$ 540 million of proceeds from an initial public offer (IPO) of share capital (290 million) and debentures (250 million) to fund its expansion. Half the share capital was to be placed with institutional investors in London, who had shown great eagerness to participate in Econet’s equity capital.

Masiyiwa and his team felt that the IPO was necessary so early in the company’s life because they were having great difficulty in raising funds from traditional sources such as banks.

“The challenge we faced at that time was that nobody understood this business. The only other operator who was out there was Government, and therefore the banks, none of the banks had ever financed a mobile cellular company. So there were no reference points, no experience at all, and we challenged – in fact, I remember in the early days when we were in need – we went to a lot of local merchant banks and said: We need finance for 17 base stations.

“So they added them up and calculated it and said: My goodness, this is too much. How many customers? Well, we said, we’ll probably start with 1,000 and rise. They said: No, no, no, no, no, why don’t you start with two base stations and let’s see where that goes? We said: No, the cellular business doesn’t work that way.” ….

“And some people even believed that Net One, which at that time was sitting on about 15,000 customers, and they were all contract customers, and their handsets were expensive, they said: Look, the market that is left out there is no more than 3,000 to 4,000 customers”

The license for Econet to operate was officially signed by the Ministry only in July 1998. Ironically, Econet, as part of a consortium, was awarded a telecommunications license in Botswana (February 17, 1998) before it got one in Zimbabwe. It had been a long road from the time Masiyiwa first approached PTC way back in 1993. When Econet officially opened its doors, it had 30,000 subscribers who were eagerly waiting to be connected.

To be continued tomorrow:

Editor’s note: We have decided to publish this series in the public interest. This should not in any way be viewed as endorsing Econet or authenticating the veracity of the study.

Part One

Part Two

Part Three

Part Four

Part Five

Part Six

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