NIGERIA: Vodacom in Eye of Stormgeria

Just days before reporting its maiden full-year results as a listed firm, Telkom has thrown a wall of secrecy around the scandal that has rocked cellphone subsidiary Vodacom, the jewel in its crown.

Vodacom management was told by shareholders last week to walk away from Nigeria, where it had just signed a five-year management contract with Vee Networks, formerly Econet Wireless Nigeria.

A senior source at one of Vodacom's shareholders said the shareholders had insisted the board of Vodacom cut its ties with Africa's biggest market as they had become uncomfortable with corruption allegations that were constantly being levelled against the company.

Vodacom is 50 percent owned by fixed-line telephone monopoly Telkom. Europe's biggest mobile operator, Vodafone, owns 35 percent and VenFin, an investment firm controlled by the Rupert family, holds 15 percent.

Shareholders were also concerned that these allegations, which were being forwarded to the US's department of justice, could have led to them falling foul of the US's Foreign Corrupt Practices Act.

This was of special concern to Telkom's US-based shareholder, SBC Communications, which has a stake in Telkom through the Thinthana Consortium with Malaysia Telecoms.

The US act prohibits companies from either directly or indirectly giving anything of value to a foreign official for a corrupt purpose. It does not have to be in the form of money.

The source said the shareholders had decided on a "risk-based assessment" that because of the constant level of attention needed to investigate each allegation of corruption, Vodacom's board should terminate its agreements with Vee Networks.

If found guilty of contravening the Foreign Corrupt Practices Act, firms can face a fine of $2 million (R12.8 million) per violation and individuals can be fined $100 000 per violation, or up to twice the gross gain or loss from the offence plus up to five years in jail.

"In each due diligence investigation no evidence of corruption was found," the source stressed, confirming a statement by Vee Networks and Vodacom on Monday.

But another source told Business Report yesterday that irregular payments had been made by Vee Networks to senior Nigerian politicians.

Andrew Mthembu, Vodacom's former deputy chief executive who had been widely tipped to take over the top job next year, was fired on Monday after the announcement that Vodacom would pull out of Nigeria.

Two of his fellow executives resigned at the same time. They are Willem Swart, who headed Vodacom's operations in the Democratic Republic of Congo and who was running Vee Networks under the management contract, and Robert Pasley, the company's group strategy director.

According to the source close to the Nigerian deal, Mthembu was sacked because he did not tell Vodacom's board that he had uncovered irregular payments made by Vee Networks to the governors of three Nigerian states before Vodacom entered into its management contract.

The source said the politicians had returned their "commissions" after Mthembu threatened to pull out of the deal. But this was not enough for Vodacom's shareholders, who, after an inquiry, recommended that his contract be terminated.

The source said Vodacom was tipped off about the fact that Mthembu knew about the payments by a disgruntled Vee Networks manager who had been sidelined when Vodacom moved in.

Mthembu and his boss, Vodacom chief executive Alan Knott-Craig, have been unavailable for comment since Monday. Knott-Craig was in London on Monday to officially terminate the relationship with Vee Networks.

A note to clients by investment banking group UBS said Telkom management had indicated to it that Vodacom's shareholders had placed pressure on the group to leave Nigeria because of the corruption allegations.

Telkom shares rose 40c to R77.83 in Johannesburg yesterday

AMP Section Name:Technology & Telecommunications

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