Opportunities in Telecoms: Operators Scavenging for More

Nigeria is one of the biggest and fastest growing telecommunications (telecoms) markets in Africa. It has overtaken South Africa to become the continent’s largest mobile market with over 100 million subscribers; however, market penetration is relatively moderate as it stands at 63% at the end of 2012.
The sector is attracting huge amounts of foreign investment. From a private sector investment of about $50 million in 1999, and following the ease of operation in the telecoms sector in 2001, the industry, by the end of 2009, attracted more than $18 billion in private sector investments, including foreign direct investments (FDI). The Nigerian Communication Commission (NCC) confirmed that the current FDI, increased from $18 billion in 2009 to $25 billion in 2012.

The telecom industry in Nigeria is adjudged to be the biggest market in Africa and the eight fastest growing in the world with about 31.83% growth rate. The liberalisation of the telecoms market and strong independent regulator with dynamic operators has led to transformational growth witnessed in the industry. The tele-density, the number of telephone connections in use for every 100 individuals living within an area, has grown from mere 0.73% in 2001 to 80.5% in 2012. Within the space of 15 years, over 3,000 licenses have been issued by the NCC to network operators and other companies offering support services in the telecoms industry.

Players in the Market
The leniency in the telecoms industry in the year 1999 saw the entrance of two GSM (Global System for Mobile communications) operators, MTN and Econet (now Airtel), through a bid arrangement by the National Council of Privatisation (NCP). The two players had duopoly and Nigerians were exploited through high cost of call rate. Later entrants were Globacom and Etisalat who introduced competition through product offering that drove down the cost per call. Within the Code Division Multiple Access (CDMA) market, the key market operators are Visafone, Multilinks Telkom, Starcomms, Reltel, GTE and Intercellular.

Market Share of Operators
Available data from the NCC shows that the subscribers base of the GSM networks are as follows: MTN Nigeria Communications has 47,440,991 subscribers –this gave MTN a lead among the GSM operators, as at the last quarter of 2012; Globacom Limited took the second position in GSM operation with subscriber base of 24,124,716; Airtel followed with a subscriber base of 23,092,195; while Etisalat had 14,912,801 subscribers. MTEL –the mobile arm of NITEL maintained its 258,520 subscribers.

The CDMA section of the telecommunications industry in Nigeria has continued to lose market share to the GSM arm. The Nigerian Communications Commission revealed that in 2012, the mobile arm of the CDMA network had a share of 2.60%, the Fixed/Fixed Wireless CDMA had 0.37% while the GSM network share of the market stood at 97.03%.

With the latest merger of Multilinks, MTS and Starcomms which gave birth to CAPCOM, one would say that a wind of change is blowing in the Nigeria’s telecoms market. The merger has rekindled the hopes of CDMA operators. It has fueled expectations that the CDMA sector in Nigeria will be given a new lease of life. This new development in the CDMA landscape would enable the subsector compete favourably in a GSM dominated telecoms market.

Before now, only Visafone, a product of merger and acquisition involving Cellcom, ITN and Bourdex, is seen to be providing services on a particularly competitive scale. Starcomms which at one time was the pride of the industry later experienced a decline in fortunes. With the birth of CAPCOM, there is optimism that the CDMA subsector would bounce back, offering best-in-class telecoms services to Nigerians. Whether there will be further mergers and acquisitions in the industry in the near future remains to be seen.

Thriving Amidst Tight Competition
The critical question subscribers continue to ask is whether the ongoing price war can be sustained and for how long. Many are of the thought that as the price war continues, it may get to a point when the operators may not be able to sustain themselves and may have to reduce their staff strength, which portends loss of jobs for many. Others believe that it may get to a point when the operators would realise that with a further price cut, they would not be able to sustain themselves and would have to settle for a stable price.

With the intense competition being witnessed in the Nigerian telecommunications industry, dwindling revenue cannot be overruled. A key reflection of this is the industry Average Revenue per user (ARPU), which has dropped to ₦1,000 in 2012 from ₦1,800 in 2000, and is projected to drop further in the coming months. The price war comes with an increasing expenditure as operators spend more on advertisement to announce their new offerings. This, obviously, is another burden which they have to bear as they struggle to gain market share.

On one hand, subscribers in the country are benefitting from the various offerings coming with lots of freebies. Looking back to the early days of the telecoms revolution in Nigeria, one is bound to appreciate the level of competition as an indication of the growth in the industry. One will not easily forget the claim that per second billing was not feasible in mobile telephony but with the arrival of Globacom, per-second billing becomes possible. Almost thirteen years down the line, many Nigerians can now make cheap phone calls, thanks to the stiff competition. Unfortunately, phone call centers are gradually fading away with the availability of lower denomination of recharge cards for as low as ₦100. This again, explains the exponential growth in the telecommunications subscriber base in the country, which has now hit the 100 million mark as more Nigerians prefer to have their own personal lines rather than using public phone facilities.

As subscribers’ base is on a steady rise and tariffs are increasingly becoming low, quality of service happens to be an issue of great concern. Notwithstanding the challenges, operators are on continuous price war as they see this as the master strategy to gaining competitive advantage. With the newly introduced Mobile Number Portability, the war may shift from price to quality. This is essentially good for the growth and stability of the industry.

Fundamental Drivers of the Telecoms Industry
The Nigerian telecom landscape is driven by technology, quality of service, pricing and value added services. Nigeria’s rising middle income consumerism has been implicated as one of the key drivers of change in the telecoms industry. Middle class Nigerians ideally make up the mid value telecoms segment and a significant part of the high value telecoms segment. There would be need to develop a unique engagement model for this class of Nigerians hinged on enhanced personalisation of mobile products and services as well as context based marketing. Recent heightened market activities characterised by price cuts, new product offers and innovative services have broadened options before the customer and consequently raised the ‘Expectation Bar.’

Major operators have been investing continuously in expanding their network. In the last six years, infrastructure deployment in terms of microwave radio, fiber optics and base station have been on the increase. Based on the NCC’s statistics, micro waves deployment covered 39,234km in 2006 while in 2012 it covered over 169,230km; fiber optics covered 3,774km in 2006 now it covers over 22,982km. Base station was not in existence until 2008 with 12,857 base stations but in 2012, it was about 21,043.

Opportunities for Further Investment
The acclaimed telecoms industry growth in Nigeria is not reflective in the services it provides. There is a dearth of infrastructural facilities and this has placed a constraint on the provision of desired services to the existing and potential customers. There is an urgent need to expand the infrastructures in this sector if it is to effectively play its role in the economic, social, political, cultural and in fact overall development of the Nigerian economy and properly integrate it into the international community. Such desired expansion may not be achieved under the present prevailing circumstances where the needed equipment are usually imported with attendant problems of foreign exchange procurement, freighting cost, long delivery period, etc. There is therefore no other realistic option than to encourage and involve local production of these equipment and spares.

Local manufacturing of switching and transmission equipment is required since no single company exists in Nigeria or even neighboring countries for this purpose. Hence, any company that goes into the venture will have its market beyond Nigeria’s economic frontiers. In Nigeria, there are three companies engaged in the production of telecommunication cables using imported copper and other local resources like poly vinyl chloride materials for insulation. There is no company that is currently producing fiber optic cables in the country. The copper cable producing companies are producing only low pair capacity of 50, 100, 200 pairs. There is need for a plant that will produce high pair capacity cables that will enhance massive provision of lines to the teaming population.

The sector is still a virgin land for investors wishing to provide and operate private network links employing cable, radio communications, data services, Internet business and satellite communication, payphone services and cellular radio phone services.