Wed Dec 28, 2005 4:30 PM GMT

A Bureau of Public Enterprises (BPE) spokesman said Egypt's Orascom Telecom and Newtel, a little-known company, would bid for Nitel -- a short line-up for one of the most high-profile measures in the government's programme of free-market reforms.

Nigeria, one of the world's fastest-growing telecoms markets, has attracted keen interest from foreign investors, but most of the growth has come from private mobile operators while loss-making Nitel is predominantly a fixed-line business.

The BPE official did not say why South African fixed-line operator Telkom or Chinese equipment vendor Huawei Technologies, which were both still in the running for Nitel earlier this month, were no longer involved.

Analysts speculated that confusion about whether the package on sale would include SAT-3, an underwater cable that is Nitel's key asset, may have scared off investors. The BPE has said all along that SAT-3 was included but the Communications Ministry has said the opposite.

Celtel, Africa's number three mobile operator which is owned by Kuwait's MTC, said on December 1 it had lost interest in Nitel because it would have to take on the heavily overstaffed fixed-line business, not just the mobile arm Mtel.

The following day, South Africa's MTN said it had withdrawn from the bidding to instead focus on launching in Iran, although the BPE said MTN was ruled out anyway because it could not take on Mtel and keep its existing mobile licence. MTN is the number one mobile operator in Nigeria.

Analyst Bismarck Rewane of Financial Derivatives Ltd. said that as well as the uncertainty surrounding SAT-3, the Nitel privatisation process had been undermined by a change in Nigerian telecoms licensing rules scheduled for early next year.

"With the unified licensing regime coming in which allows firms that have mobile networks to also run fixed-line operations, how much is Nitel really worth, versus setting up your own fixed-line network?" he said.

Analysts say Nitel is inefficient, overstaffed and lumbered with outdated and neglected infrastructure and unquantified pension liabilities. SAT-3, the gateway for international calls and Internet connections, is the firm's most valuable asset.

In 2003, Nitel posted a loss of 19 billion naira and a debt of 15 billion naira.

The number of telephone subscribers in Nigeria has jumped from 500,000 in 1999 to over 17 million now on investments of about $10 billion, according to the sector regulator -- but most of the new lines are mobile ones.

With a population of 140 million and a telecoms usage density that remains among the lowest in the world, Nigeria's potential for further growth in the telecoms sector is substantial.

But analysts say Nitel's problems are likely to dash any hopes the government had of making big financial gains from the sale.

It is not the first time Nigeria has tried to sell Nitel. In 2002 a $1.3 billion sale collapsed when the winner failed to come up with the cash. It would have been Africa's biggest privatisation had it gone through.