In the West African nation of Togo, the government and second mobile operator Atlantique Telecom Togo (ATT, a unit of Etisalat) are locked in a high-stake, “pay or else” poker game reminiscent of Benin’s negotiation with its mobile operators two years ago. As in Benin (and more recently, in Senegal), the Government of Togo (GoT) has suspended the operations of the operator, subject to full payment of the license fee under the government’s terms.  

- The GoT is asking for $45m (XOF 20bn); at a top level, the amount is not outlandish. As the GoT has noted, it is consistent with recent license valuations in Benin and Cote-d’Ivoire. The problem with the Togolese license is that it is stripped down to near-nothingness. The proposed license does not include an international gateway (a must for profitability) or direct interconnect (it would require ATT to connect to other mobile operators through state-owned Togo Telecom); it is not technology neutral (ATT would need to buy more licenses to offer broadband services), and includes no tax holidays. Without those elements (which were included in other markets), Togo’s license is worth only half as much as is requested in a best case scenario, for an operation that by our estimates, will see 1.5m-2m subscriptions at best and low ARPUs over the long term.

- Another sticky point is the fact that the GoT requires the entire license fee to be settled by the end of 2009; the general practice in the region is for the operator to pay for a portion (typically 50%) of the license at renewal, with the balance settled over a 2-3 year period, so as to avoid the impact on the balance sheet of the one-time capital outlay. The government has already allocated the money in its budget, and Ministers are now under pressure to deliver it.

- According to Togolese Press Agency Savoir News, Etisalat has made a counterproposal  including alternate offers ranging from $20m to $45m, with variations based on the features of the license and the possible licensing of  a third mobile operator. The payment schedule is bound to remain a bone of contention, but Etisalat is handling the issue just right in our view. We expect the parties to ultimately reach an agreement, but the entire episode has been rather damaging and wholly unnecessary.