Businessman takes Net-One, Huawei to court

Published: 21 November 2013

A JOHANNESBURG based businessman is taking mobile operator NetOne and Chinese telecoms equipment maker Huawei to court amid allegations of an irregularly awarded multi-million dollar network upgrade deal.

In July this year, Huawei won a $200 million contract to help upgrade NetOne's equipment and cell-towers as part of the telecom firm's migration to next-generation mobile broadband offering LTE.

State-owned NetOne is Zimbabwe's smallest mobile operator with just two million subscribers. NetOne is dwarfed by Econet with over eight million subscribers and Telecel at three million users.

Zimbabwe, with a population of almost 14 million according to the World Bank, has a mobile penetration rate of over 100% says BuddeComm research.

High levels of competition have pushed larger operators such as Econet to spend millions of dollars on upgrading its network in a bid to win over customers. This year alone, Econet has planned to spend $180 million on capital investments for the business, according to its chief executive officer, Douglas Mboweni.

And NetOne is also in a drive to invest further and upgrade its network.

Legal challenge
But Zimbabwean-born Tafadzwa Muguti, who is director and chairman of Harare-based security and telecommunications technology firm Secure Dynamix, has questioned the legality of the NetOne-Huawei network upgrade deal signed in July.

Muguti says because NetOne is a state-owned enterprise and has to adhere to Zimbabwe's procurement act, it is bound to undergo tender processes whenever carrying out deals such as cell-tower upgrades.

Huawei won the $200 million NetOne upgrade contract without undergoing a tender process at all, raising eyebrows among experts in the country's telecommunications sector.

Muguti has decided to take the matter to the administrative court, with proceedings planned to have kicked-off on Wednesday.

Speaking at the Johannesburg offices of the Africapaciti Investment Group, of which he is also CEO, Muguti told ITWeb Africa that amid a situation where his Secure Dynamix business is "losing money" in Zimbabwe, he is nevertheless paying for the court proceedings out of his own pocket.

The first respondent in the case is NetOne. The second respondent is the state procurement board, the third respondent Huawei, and the fourth the Anti-Corruption Commission of Zimbabwe.

Tender process
In court papers, Muguti wants NetOne and the state procurement board to explain how and why Huawei won the contract without undergoing a tender process, despite alleged concerns from the board of over-inflated prices.

Muguti says Huawei originally quoted over $280 million for the project. Muguti adds that even at $200 million, Huawei has charged up to "double" the price of what the project is worth.

If the first two respondents fail to explain how the deal came about then Muguti has called on the Anti-Corruption Commission of Zimbabwe to investigate the matter.

"I've not said cancel the deal; I've not said I don't want Huawei to do business in Zimbabwe. I've simply said please tell us how you arrived at that decision. Because it's my right to know," Muguti told ITWeb Africa at his offices in Johannesburg on Tuesday.

Muguti further told ITWeb Africa that prior to Huawei winning the NetOne upgrade contract, Secure Dynamix was preparing for a tender to be opened up regarding the project so that it could compete as a bidder.

NetOne said in July this year that the $200 million network upgrade contract is specifically related to its Huawei equipment, and that this contract then could only have been undertaken by the same firm.

Furthermore, NetOne at the time said that because there is a lack of local telecoms equipment manufacturers in Zimbabwe, this also helped Huawei to seal the deal without undergoing the tender process.

Sub-contracting
NetOne says Huawei is also expected to sub-contract locals for equipment installation and engineering works.

However, Muguti says LTE is compatible on different systems and that those components could be built into a network, meaning other service providers such as Secure Dynamix are capable of carrying out the upgrades.

Muguti has also questioned whether Huawei is committed to subcontracting locals.

"They are convinced that Huawei will sub-contract to other people. On what basis are you (NetOne) convinced?"

Responding to questions about Muguti's court case, Huawei's regional corporate communications manager East and South Africa, Annette Mutuku, told ITWeb Africa that the Chinese company "secures projects by merit leveraging on our extensive expertise and experience."

"Additionally, Huawei strictly abides by all procurement laws and regulations in each of the countries we operate from, Zimbabwe inclusive.

"Huawei has benefited from fair competition and free trade, and will remain committed to being a responsible long-term investor in Zimbabwe," Mutuku told ITWeb Africa.

Early in November, Huawei announced that it had opened its first support centre in Zimbabwe.

Regardless of Huawei saying it invests in countries such as Zimbabwe, Muguti has gone on to allege that the NetOne-Huawei deal may be flouting the country's indigenisation policy.

Empowerment
The policy requires that all foreign firms in Zimbabwe give up the majority of their ownership to black Zimbabweans.

And Muguti says that because Huawei is a Chinese company and its profits from Africa could be headed to China, this means it may not be empowering local Zimbabweans.

"If an African cannot get work on his own continent, let alone his own country, where is he supposed to go?"

"They need to come to Africa. And all Africans need to realise this is a wake-up call: how many millions of service provisions are going out of our continent to China. Money that's supposed to be going into our businesses as IT people," Muguti told ITWeb Africa.

"If I had the money, I'd take this fight to China," Muguti further told ITWeb Africa.

- itwebafrica.com