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Hits Africa stalls as funding dries up

Ex-employees take legal action over unpaid wages and severance packages

Former employees of Hits Africa, a subsidiary of Kuwait-based operator Hits Telecom, are taking legal action against the company over non-payment of several months’ wages and severance packages.

Ex-employees of the company told CommsMEA that Hits Africa – which is headquartered in Bahrain and holds mobile licenses for Tanzania, Democratic Republic of Congo, Equatorial Guinea and Liberia – had failed to pay them and up to 40 other employees since January 2009.

The former employees, who held senior positions including management and director-level posts at the company, decided to take legal action after Hits Africa failed to fulfill a promise to pay the money owed to them by the end of June.

“There were troubles in December and January with late payments, but post January there was nothing at all. I have not been paid since January and I have been working until June,” one former employee told CommsMEA, under condition of anonymity. “I have been left high and dry. They have not even paid for my return ticket home, so I am left stuck in the Gulf and have had to borrow money from family members.”

He added that he had visited Bahrain’s Ministry of Labour and filed a complaint, along with a few other former employees of the company, and that they are now waiting for the case to go to court.

“They had promised to pay us, but they have no assets and I don’t see how we will get paid. The board needs to do something about it,” he added. “If they couldn’t afford to pay us they should have told us back in January rather than keep us going for another five months with no funds whatsoever. This is the thing with this company, they never deliver.”

Hits Africa’s problems appear to have started in the fourth quarter of 2008 as the effects of the financial crisis reached Africa. The company started to face funding problems, including difficulties with a vendor financing deal with Huawei for the network rollout in Tanzania.

Hits Africa had planned to roll out a mobile network in Tanzania by the end of 2008, but has so far only started a limited “regulation launch” to about 140 people in the country, after rolling out about 10% of the intended network.

According to another of the former employees, who stopped working for the company around May, Hits Africa’s plan also floundered owing to management decisions at the boardroom level, which led to a lack of direction at the company.

He said that the company had originally planned to start setting up operations in Tanzania, DRC and Equatorial Guinea simultaneously, but as funding became tighter in the fourth quarter of 2008, the company decided to concentrate on Tanzania.

But when the vendor financing deal for the deployment of the Tanzanian network became mired in difficulties, the emphasis shifted to Equatorial Guinea, which was deemed to have greater mobile potential owing to the country’s oil wealth and limited competition.

“Around February or March, all of a sudden they decided to put Tanzania on hold and channel all interests into Equatorial Guinea. Several members of staff were supposed to go there, but all stopped because they didn’t even have the money to start flying people,” he added.

“They should have honed in on one market, giving one working operation which could have been used to further justify investment from other investors and show that some revenue was coming in. What happened is a text book example of how things should not be done.”

Talaat Laham, CEO, Hits Africa, declined to comment on the state of the company or the issue of unpaid wages when contacted by CommsMEA.

However, Dr Sultan Abdullah Bahebri, Chairman and CEO of Hits Telecom, the parent company of Hits Africa, admitted that the payment of some wages had been delayed but added that the situation had been resolved. He also added that the issue of severance packages was being “dealt with.”

“We had some delays in certain countries but we have already solved and dealt with it […]. We had a delay of three months for a period of time. We have reached a plan to pay everybody the severance compensation.”

He added that the company would be making an announcement regarding a launch in Equatorial Guinea “very soon”.

“The financial crisis has affected everybody […]. The major vendors and also the local banks in Africa and all the African operators are managing the situation with different tactics in order to overcome this crisis.

“We are about to launch so it is a combined challenge but I am sure we will make the necessary steps in order to pass through this difficult time. We are making the tough decisions to make sure we are able to compete and provide good customer service,” he said.

But for some telecom analysts, the African market could be proving more difficult than expected for some of the smaller operators that have limited experience of running networks, particularly amid an economic downturn.

Federico Membrillera, partner at Dubai-based consultancy Delta Partners, said that while larger established companies such as MTN and Zain would continue to perform relatively strongly in Africa, some of the smaller operators might struggle.

“There is a category of operators that were hunting licences right and left with not that much professional experience, not understanding the market dynamics. They were fuelled by cheap resources, with business plans that supported everything. Those guys will struggle,” he said, referring generally to some of Africa’s smaller operators. However, he added that some smaller players with good strategies are performing well in Africa.

Hits Telecom also has investments in South America, Saudi Arabia and Europe, where it gained a presence after launching an MVNO operation in Spain in 2008. Last month, Dr. Bahebri said the company was also planning to enter France, possibly through an MVNO in 2010.

Hits Telecom Holding which is listed on the Kuwait Stock Exchange and backed by Kuwait-based investment house Al Madina Company for Investment, posted a net profit of KD193,000 ($670,954) for the first three months of 2009.

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