Land of opportunity

The Nigerian market remains one of Africa's greatest mobile opportunities. With a 140 million-population base, the sheer size of the market has attracted interest since the first licence opportunities arose back in 1999. Michele Scanlon assesses the opportunities that remain in the market going forward.

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By  Published  September 30, 2006

The Nigerian mobile market celebrated five years of GSM service in August 2006, and in spite of the continual subscriber growth and seemingly insatiable demand for mobile services, the market has only reached 15% penetration with almost 22 million active customers.

The market continues to be demanddriven with operators using the extent of their footprint as competitive differentiators.

There are four GSM operators with nationwide licences, all of which are currently undergoing some form of change of management or ownership.

Alongside the GSM players, 16 public telephone operators (PTOs) offer regional fixed wireless services using CDMA or DECT technology with a handful emerging as possible strong competitors in the mobile arena.

 

MTN Nigeria


In July, Ahmad Farroukh was appointed the CEO of MTN Nigeria taking over from Sifiso Dabengwa.

The operator has maintained market leadership since launching its GSM900/1800 network in August 2001 in terms of coverage and subscriber numbers.

It has successfully captured the lucrative corporate market, which has helped sustain its ARPU levels
that are the highest in Nigeria.

In its interim report for the six months to end-June 2006, MTN Nigeria reported it had 45% market share with 9.636 million customers generating ARPU levels of US$18, and an EBITDA margin of 56%.

Its market share a year previously in June 2005 was 51%, and the operator attributes its declining market share to increased competition especially from Globacom and V-Mobile (now branded Celtel Nigeria).

A key element of MTN's success has been its network infrastructure strategy featuring an aggressive rollout and the building of its own microwave and fibre optic transmission backbone, known as 'Y'ellobahn'.

At June 2006, the network provided coverage to 73% of the population, up from 64% at December 2005.

CEO Farroukh reiterates the operator's pledge to provide coverage to 95% of the population by the end of the licence year.

Farroukh moved from Areeba Ghana where he led Investcom's largest African network, and was responsible for many of Investcom's other African properties.

MTN Group acquired Investcom in May 2006, and Farroukh's appointment is seen as a strategic move forming part of the integration of Investcom's six African networks into the MTN Group.

In light of increased competition, and diminishing market share, MTN Nigeria is entering a new operational era, and in order to bolster its position, the operator obtained a unified licence in August 2006 permitting it to extend its service to fixed wireless services.

It is the first mobile operator to opt for a unified licence.

Additionally MTN has hinted it may acquire a PTO, as well as applying for a 3G licence by the end of this year should one be offered.

Globacom

Globacom entered the Nigerian market as the fourth GSM operator and second national operator in August 2003.

It is an aggressive competitor appealing to the massmarket with its youth-orientated brand and low tariffs.

On its third anniversary at the end of August 2006, Globacom claimed it had 9 million customers, thought to include non-active customers.

Globacom has positioned itself as a wholly owned Nigerian network operated by Nigerians for the Nigerian population, calling itself 'the people's network'.
The major shareholder of Globacom is Conpetro Limited, a Nigerian Petrochemical Company, and is run by Mike Adenuga in his capacity as chairman.

Adenuga is currently embroiled in a political dispute resulting from an investigation by the Nigerian Economic & Financial Crimes Commission (EFCC) into Globacom's shareholding structure and financing position.

The investigation has already led to the brief detainment of Adenuga, and the possibility of its shares being appropriated by the state.

Globacom is also rumoured to be losing large numbers of staff, many of who are moving to the recently branded Celtel Nigeria.

Nigeria's vice president Atiku Abubakar may also be impeached to explain alleged wrong doings regarding the source of funds for the initial deposit of US$20 million for Globacom's licence in August 2002, and whether Abubakar is a shareholder as alleged.

This political crisis is expected to continue in the lead up to Nigeria's presidential elections in April 2007.

Against this unstable background, reports emerged in the Nigerian press last month that South African operator, Vodacom is discussing a possible purchase of a 51% stake in Globacom.

Like Celtel, Vodacom has long harboured ambitions to enter the Nigerian market and its previous three attempts to enter through the acquisition of V-Mobile have been thwarted at every turn.

Vodacom has not commented on the speculation, but continues to express interest in entering Nigeria, which could also be through a PTO.

Globacom chief operating officer, Mohammed Jameel, has also dismissed reports of a potential take-over by a foreign investor.

Celtel Nigeria

Celtel Nigeria commenced GSM operations in August 2001 as Econet Wireless Nigeria (EWN) competing head-on with MTN for customers.

EWN's unstable history includes shareholder disputes and lack of funding.

However, despite these obstacles the operator has grown its network aided in part by vendor financing arrangements, developed a strong consumer brand as V-Mobile, and attained recognition for its customer service.

At June 2006, the operator reported 5.535 million customers placing it in third position behind Globacom.

The operator is at last reaching some form of ownership and financial stability with new shareholder, Celtel International having acquired a 65% stake of the operator in May 2006 for US$1.005 billion.

Celtel International has committed an additional US$700 million over the next two years in order to revamp Celtel Nigeria and improve its business processes.

Celtel International had been a losing bidder for the original GSM licences, and had previously attempted to enter the Nigerian market through acquisition, including bidding for state telco Nitel, which owns mobile operator Mtel.

With the new owner has come a new management team and brand.

Celtel appointed, Adebayo Wasiu Ligali as CEO.

Ligali is a Nigerian with fast moving consumer goods experience, and Celtel International has also begun to bring in experienced managers from its other regional networks including Norman Moyo heading up marketing, moving from Celtel Zambia.

Celtel International has been swift to rebrand V-Mobile, changing the name, logo and tariffs in a matter of months

Mtel

Mtel launched its GSM service in October 2001, as a subsidiary of state-owned operator, Nitel.

Mtel has suffered from inadequate funding and weak management, which have thwarted its attempts to evolve to become a fully competitive fourth operator.

Figures from the Nigerian regulator suggest the operator had 1 million customers at March 2006 placing it in fourth position, a long way behind V-Mobile.

Mtel has been at the mercy of the Nitel privatisation process awaiting fresh investment. Various attempts at privatisation have been raised since October 1998 without success.

However, a privatisation programme was concluded in July 2006 when the Nigerian government agreed to sell 75% of Nitel including the Mtel subsidiary to Trans-National Corporation (Transcorp), an emerging Nigerian industry conglomerate for US$750 million.

As an industrial conglomerate, Transcorp has little telecoms experience and is seeking management partners, possibly on an equity basis.

It has been in talks with BT to be a technology partner, and with Etisalat of the UAE as a potential equity and management partner.

However, just as Mtel finds new funding and new owners to help it belatedly morph into a competitive player, questions are emerging over the stake held by Nigerian president Olusegun Obasanjo in Transcorp.

Ndi Okereke-Onyuike, chairman of Transcorp confirmed media reports of the president's holding of a stake in Transcorp (allegedly of between 200 and 600 million shares) after the EFCC visited the company's offices last month.

The ensuing investigation is unlikely to help Mtel achieve its immediate goal of securing resh funding to help expand its network to provide coverage on a par with its competitors.

It is unknown when it will receive such funds.

Public Telephone Operators

In February this year, the Nigeria Communication Commission formally opened unified licensing after the end of GSM's five-year exclusivity period expired.

Under terms of the unified licences, existing PTO players may opt to become wireless providers subject to certain financial and operating criteria.

Since then, two tranches of operators have been licensed in May and August respectively.

These include three of the largest PTOs, namely Intercellular, Multi-links and Starcomms, which control 40% of the 780,000 base at December 2005.

MTS, which enjoys a 17% market share of the PTO market has yet to apply for a unified licence.

These previously regional players have offered services mainly in Lagos, the economic centre of Nigeria and home to 15% of the country's population.

Now they are set to begin expanding services nationwide competing more openly with the GSM operators.

The competitive threat of the unified licensed PTO operators is yet to be felt in the market, but these operators are actively seeking capital injections from private equity firms and are approaching regional investors as possible suitors looking for an entry into the Nigerian telecoms market.

The Nigerian market continues to grow beyond investors' expectations in terms of subscriber additions and return on investment, and appears likely to continue to do so for the foreseeable future.

As the market remains under penetrated compared to some of Africa's regional benchmarks, investor interest remains extremely high, and more change is foreseeable as other players continue to pursue entry.

The author is principal consultant at Green Giraffe, an independent telecoms consultancy offering research and advisory services into emerging markets and prepaid services, with a special focus on Africa & the Middle East.

Michèle can be contacted at michele.scanlon@greengiraffe.cc or +27 72 122 6594.

“A key element of MTN's success has been its network infrastructure strategy featuring an aggressive rollout and the building of its own microwave and fibre optic transmission backbone”


“Globacom has positioned itself as a wholly owned Nigerian network operated by Nigerians for the Nigerian population, calling itself 'the people's network”


“A privatisation programme was concluded in July

From Econet to Celtel


Celtel International has already gone about rebranding V-Mobile Nigeria to Celtel Nigeria, and has pledged to invest US$700 million in the next two years in order to improve network operations and capacity in the under-invested operator.

The enthusiasm with which Celtel is embarking on its entry into Nigeria is reminiscent of a football substitute taking to the filed of play after a lengthy spell on the bench.

His overriding sense is to have an impact on the game, with his performance intended to allow him to rise up the ranks and become a fully integrated member of the team.

"Nigeria is such an important market that it deserves the best operators there," comments Terry Rhodes Celtel International's co-founder and chief strategy officer.

"The investment we are making in Celtel Nigeria is in the network, distribution, rebranding, products and everything else to completely revamp the operation" Celtel Nigeria's five-year history has been a fairly torrid time, though given that the operator counter more than 5.5 million subscribers at the time Celtel announced the acquisition of its stake in the operator, it has done relatively well despite the odds.

In 2001 when Celtel was an independent operator, it participated in the auction to acquire a GSM licence in Nigeria, but withdrew from the process when bids reached US$280 million, believing this to be too expensive. The last bid by Celtel was US$248 million.

"We were tantalisingly close at the time," recounts Rhodes.

The operator that has now become Celtel Nigeria began life as Econet Wireless Nigeria (EWN).

However, following a protracted shareholder disagreement regarding Econet's management of the operator and its 5% equity stake within the operator, in 2003, South Africa's Vodacom attempted to gain a controlling stake in (EWN), though it was successfully blocked from doing so by Econet Wireless International (EWI), on the basis that EWI had not been offered its preemptive rights to the shares.

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