Against all odds

Nigeria promises to be a telecoms powerhouse, but corruption and crime are stifling growth.

Few countries around the world could lay claim to a faster growing mobile market than Nigeria, where mobile penetration rates have rocketed from 0.73% in 2001 to 33% in March this year, making it the largest country by subscribers in Africa, ahead of South Africa.

In June this year, the number of mobile subscribers in the country stood at 49.6 million, up from 42.9 million in January - a growth of 6.7 million subscribers in only six months.

Such a rise, coupled with low a penetration rate, in global terms, is why operators, manufacturers and investors are keen to become involved in Nigeria.

Kuwait-based Zain has been operating in Nigeria since 2001, when the network was known as Celtel. More recently Vodafone, through its South African subsidiary Vodacom, has been sounding out investment opportunities and Etisalat will become the latest network to begin operations in the country when its MVNO launches this month.

Milan Sallaba, partner, Oliver Wyman, thinks mobile penetration will continue to boom, reaching about 50% sometime in 2010 and tapering off at around 70-75% by 2013.

"The entry of new players will increase competitiveness of the market going forward which will help maintain the current growth trend," he says. "In short, over the next five years we will likely see a doubling in penetration again compared to today's percentage level in the mid 30s."

It is not just in mobile communications that rich rewards are promised; according to the International Telecommunication Union (ITU), Nigeria currently has an internet penetration rate of 7.2%, with 10 million users: above the average across Africa, which is 5.3%, but still some way short of the worldwide average of 21.9%.

Security concerns

Despite the obvious opportunities in Africa's most populated country, there is a crowded market place to contend with, as well as a number of well-documented security and logistical issues.

For some, the questions surrounding security are too big to ignore. Abdul Hameed Al Sunaid, CEO of i2, which has a presence in 22 countries around the world - including Iraq - says it is enough to deter him from expanding into the country.

"It's a concern for everybody. It's very unstable, very difficult to operate. The country has security issues. We cannot go in there by ourselves, so we need to find a very good local partner. First of all we have to make sure that it is safe."

It is not only the safety of employees that is a concern to operators, but also the cost of running a network in a country that is prone to power cuts and instability.

For Frost & Sullivan ICT analyst, Spiwe Chireka, power cuts are the most significant of all barriers. "Lack of electricity has seen most operators reporting that fuel costs (for generators) have become a significant proportion of their costs. Furthermore, there is the issue of anti-social elements such as communities refusing operators access to sites and thus delaying maintenance work on networks by weeks and sometimes months at a time."

There have also been problems with vandals targeting network infrastructure, with suggestions that contractors working on behalf of networks were behind the cutting of cables, prompting calls for ten year jail terms for those caught in the act.

Role of the regulator

With all of these issues to reign in, the role of the NCC has been to act as peacekeeper as well as regulator, with executive vice chairman Ernest Ndukwe cast in the role of local sheriff.

The seriousness of the problem affecting network's infrastructure has not been underestimated by the NCC boss, who was quoted in the Nigerian press warning that if the vandalism continues, there could be "a total collapse of telecommunications infrastructure and quality of service, setting Nigeria back by several years."

The rate of growth, level of competition and introduction of new technology does suggest that the NCC has performed its duties well; however some analysts say that the NCC is not doing enough to push down the high broadband prices in the country, which Sallaba says is the major reason why broadband has not shown very impressive growth in Nigeria. But Chireka says fines imposed on MTN and Celtel are a good example of what regulators elsewhere in the continent need to be doing.

"Given that quality of service is one of the major issues facing the industry, I would go as far as to say the NCC may have set a precedent for the other regulators," she says.

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Last month, Nigerian business conglomerate Transcorp was told publicly by the NCC to improve the operational capability of Nitel's mobile division Mtel, with Ndukwe quoted as saying he was "unhappy about the degrading fortune of the company".

Sallaba is scathing about the problems facing incumbent fixed-line operator Nitel, which was privatised two years ago. "Nitel has been plagued by years of mismanagement and corruption. The workers went on strike for nine days in June 2006 over allegedly months of unpaid salary, and the strike took place just before the government was planning to finalise the privatisation of the company.

"The privatisation was completed in 2006 but the new buyer, Transcorp, has not been able to significantly improve the performance of the company. The workers again went on strike in April 2008, apparently again on issues related to non-payment of salaries."

Sallaba explains that any stoppage at Nitel has a severe impact on the entire industry in Nigeria, because most of the telecom operators use Nitel's network to some extent.

"We would expect to see some further structural changes being implemented before the labour situation stabilises to the benefit of all," he adds.

Since the NCC's warning, Transcorp has signaled its intention to improve its network and the supply of power to it, and last month, a Russian investment company expressed an interest in acquiring a stake in Nitel and its wireless subsidiary Mtel.

Etisalat's ambitions

Etisalat said that it will begin operations in Nigeria this month, and it faces stiff competition from some well established rivals who are already bedded into the market place, with two operators in Nigeria responsible for 67% of the customer base. One of those, MTN, can claim 18.5 million subscribers. Etisalat has set itself the target of one million subscribers.

Etisalat Nigeria's vice president for marketing, Wael Ammar, is buoyant about the opportunities presented by the Nigerian market. He says that Etisalat has invested "in excess" of US$1 billion, in addition to the license fee which cost $400 million.

"Our core network implementation is largely completed in the seven cities where we will initially be launching commercial services," he says.

"We have also completed installations of business and operational support systems and our first-class data and call centre facilities in Lagos are fully operational. In addition interconnect to major operators has been achieved."

"We view Nigeria as a very exciting market and the potentials are enormous. It fits strategically into Etisalat's core strategy for market selection due to the opportunities presented by low penetration and a high population."

Sallaba thinks that Etisalat's ability to introduce state of the art technology may help it get an advantage over the more established players, but he thinks the UAE-based operator could face some sizable problems.

"Particular challenges for Etisalat will be to attain comparable coverage immediately, to remove all the bugs from the network quickly, to put in place a capable customer service organisation, and to compete in the absence of number portability," he says.

Ammar acknowledges the potential pitfalls of launching in Nigeria, but says Etisalat should be well prepared. "As with each green field operation, each market presents its own set of challenges and Nigeria is no different," he says.

"We are doing our best to deploy the infrastructure necessary to support the quality of network services we want to provide and this will be on an ongoing basis."

Network congestion

One area that Etisalat will need to pay close attention to is network congestion, a serious problem for operators in Nigeria.

Although Chireka describes it as a "good problem", as it suggests demand for services is high, only those with enough funds to expand capacity to meet the demand will be able to protect their customer base, and avoid incurring the wrath of the NCC.

"On the cost side, running and maintaining a network in Nigeria is more expensive than, for instance, in a city state or a concentrated emirate, where base stations generally can more easily be connected to the power grid and do not have to be diesel powered," Oliver Wyman's Sallaba says.

"Retail prices in Nigeria to some degree do reflect comparatively higher running cost. On the revenue potential side, Nigeria has a scale advantage due to its large population which equally would have to be factored in and should allow for a decrease in per minute prices over time, particularly as penetration increases further."