The Evolving Telecommunications Sector

The Evolving Telecommunications Sector

For some days last week, I imagined that we would have to discuss the controversial NITEL “Revocation” announced by the Minister of Information and Communications, instead of our continuing focus on business outlook and industry conditions across key industries and sectors. But since it appears the revocation was actually a non-revocation and the whole mis-adventure has (hopefully) been laid to rest, we can usefully deploy our energies reviewing the evolving telecommunications sector in Nigeria. Co-incidentally, NITEL is itself a part of that industry, even though unfortunately an increasingly marginal part thereof. Fortunately I had the opportunity of expressing my views on the revocation saga on Channels Television’s Sunrise programme last Monday.

The summary of those views is that creating the impression that any transaction concluded by the former regime is a potential candidate for revocation is not good for the Nigerian economy. The other point is to stress the increasing appearance that this regime may not be totally convinced of the merits of a private-sector led economy. The Nigerian telecommunications sector proves that a mix of private sector capital and management, a sustainable industry structure and revenue model, free competition and sensible regulation, all encompassed in appropriate legislation may be the answer to the infrastructural deficiencies that Nigeria currently faces. If we recall for how many years NITEL laboured only to provide Nigeria with about 450,000 telephone lines by May 1999;

If we remember the cost (in time and money) of acquisition of those scarce lines in the NITEL days; if we recall that we have since gone from those miserable 450,000 lines reportedly to over 38million telephone lines by July 2007 (and probably over 40million by now) just seven years after the digital mobile license auctions without any significant government spending (rather government has received over $1billion in license income, and a lot more in taxes, rates, duties and changes); if we note that tele-density has now increased from just 0.4 per 100 persons to 24 per 100 in the same period; it all just illustrates the self-imposed economic retardation that our policy makers often impose on the rest of us.

In spite of the evidence from the telecommunications sector, (and other fully or partially private-sector funded sectors such as banking, upstream petroleum, aviation, broadcasting, education etc) we insisted in the power sector (and some even insist ridiculously concerning funding of sports) that only government spending would solve the problem in the power sector. Now $5billion…$10billion….or $15billion later (depending on whose figures you believe), our power generation figures have actually declined and the economy continues to suffer from an acute energy crisis. But then that is another story. The Obasanjo regime clearly got it right in telecommunications, and we now need to extend the lessons from that sector to other areas of infrastructural development.

The Nigerian telecommunications industry is now engaged in a race for market share. Of course this is the only time when 100 percent of the market will not have been taken. After this era, to gain market share, you will have to take it from other players. The industry space has been spiced up by two significant developments-the end of the exclusivity period that the initial GSM licensees of 2001 enjoyed-which led directly to the grant of a new GSM license to Mubadala (EMC) which has now selected Etisalat as its operator. The other is the advent of unified licensing and the award of unified licenses to several operators, including new ones like Dangote Group’s Alheri Engineering and existing (so-called) Private Telecommunication Operators (PTOs) such as Starcomms, and Reltel Wireless. Some operators have also begun to upgrade their networks to be able to provide third generation (3G) or 3.5G services.

The entry some years ago, of a better-resourced and strategically-focused player-Celtel, by acquisition of V Mobile also meant that the industry front-runners MTN and Glo have had to face competition on more fronts. The erstwhile PTOs who have found that their competitive ability may have been eroded by the bigger entrants have not folded their arms in frustration. Multilinks has found a suitor-Telkom of South Africa, by no means a minnow in the game, and Intercellular is tying up with Sudatel, which is demonstrating some ambition across Africa. Others where ownership has not changed hands have enjoyed better access to local and international financing enabling them to acquire the unified licenses and scale-up their operations.

Visafone has the financial muscle of Zenith Bank and the entrepreneurial vision and execution ability of Jim Ovia behind it and is claiming an ambitious roll-out in multiple locations across the country. And someone just pointed out to me that Visafone does not have to seek new locations for cell cites and masts-it can locate them in Zenith Bank branches all over the country! Recent developments also make it clear that sooner than later NITEL/M-Tel will be transferred to a competent technical partner, most likely another regional or international player. And Aliko Dangote is not accustomed to playing a marginal role in any industry he gets involved in, meaning Alheri will also have some big things under their sleeves. And doesn’t NIGCOMSAT now have a mainstream telecommunications license?

What does these all mean? Intense or at least intensifying competition is imminent in Nigerian telecommunications! What I described earlier as a race for market share will more accurately resemble a scramble and fierce battle as the evolving scenario fully unfolds. Higher levels of investments-in infrastructure, fibre-optic or satellite links and competences and skills-will be required. Meanwhile complaints about service quality and network problems mean that capacity in existing served locations have to be strengthened. All these as margins (Average Revenue Per user-ARPU) should begin to drop and as the demand for value-added services begins to rise. Fortunately however I believe telecommunications demand has proven to be deeper and more robust than anyone ever imagined so average industry profitability in our view should remain acceptable, in the short and medium term.

But most certainly many executives in the sector will grow a little bit more white hair, and should take their regular medical check-ups more regularly. Their jobs have just become tougher and more stressful. But perhaps also more rewarding and fulfilling.

Agbaje is Senior Consultant/CEO of Resources and Trust Company (RTC), a Strategy, Consultancy and Business Advisory Firm.