Nigeria rises

Despite fierce competition and low ARPU, Nigeria’s operators are optimistic about market growth and data services

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Nigeria rises
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By  Roger Field Published  February 8, 2010 Communications Middle East & Africa Logo

As developing telecom markets go, Nigeria appears to have it all. A young, fast growing population of about 150 million people and oil exports averaging more than 2.3 million barrels a day. But these attributes are also tempered by corruption and poor infrastructure, which in turn has created a tough business environment for most sectors.

While Nigeria has a vibrant telecoms sector, with five GSM operators and about 13 CDMA players, it is most often in the news for the wrong reasons, usually relating to the country's incumbent operator, Nitel.

While Nigeria's four private mobile operators, MTN, Globacom, Zain and Etisalat continue to demonstrate robust growth, Nitel, far from holding a dominant position in the market, is an ailing firm with little market share and an uncertain future.

The company is owned by national conglomerate Transcorp, which bought it from the government's Bureau of Public Enterprises for $750 million in 2006.

The company, which has been beset by intermittent strike action from staff protesting at non-payment of wages, has limited fixed infrastructure consisting of fibre and legacy copper, and has seen its fixed line business decline steadily since the first GSM players started business in 2001.

Indeed, the company now had just 40,000 live fixed access connections in June 2009, down from a peak of 500 000 in 2001, according to data from telecom analyst Onda Analytics.

Nitel's mobile arm, M-Tel, is also suffering. With a meagre 90,000 subscribers, M-Tel is by far the smallest GSM player, lagging way behind its four rivals, market leader MTN, Glo, Zain, and Etisalat, which had 27.3 million, 15.9 million, 14.4 million, and 1 million subscribers in 2009 respectively, according to Onda Analytics.

Nitel, which is soon to be privatised, made news headlines again in January, with potential investors unable to conduct due diligence owing to staff strikes which led to restricted access to key sites. This in turn led the BPE to extend the deadline for the investors to make proposals for the company until February 5, from a previous deadline of January 22.

According to local press reports, fourteen companies have expressed an interest in Nitel, including MTN Nigeria; Etisalat Nigeria; Brymedia; Finetek.com/Ericsson consortium; Omen International; Fugar Technologies and MTI Consortium. Others are Telefonica Consortium; Globacom Nigeria; Conau; Dansacom Technologies Ltd; Adison Consulting; AF21/ Spectrum Consortium and Foneama.com.

Nitel's assets have been split into six parts for the purposes of the sale. These consist of fixed line telephony under the Nitel name; SAT-3; a national fibre-optic transmission backbone; a CDMA network; GSM network M-Tel; and Analog System (TACS), according to African news site 234next.com.

Despite being involved in various parts of the telecoms sector, Nitel has made little traction and its potential also seems limited. "It has really got nowhere while there has been huge growth in the market in the past few years. Everyone else has capitalised, but they [Nitel] have been left behind," says Daniel Jones, partner, Onda Analytics.

"Nitel has been plagued by mismanagement for years. There hasn't been the investment from a big operator, and that is the problem. They are up against some pretty stiff competition in MTN, Zain, Etisalat and Glo, which is almost more of a national operator than Nitel," he says.

Jones adds that one of Nitel's few "plus points", its Sat-3 cable, which allows it to resell services to other operators, could also be undermined in the coming years as more undersea cables reach Nigeria.

"That asset is useful at the moment but it is very time limited. In a few years there will be much more competition for international capacity to make that redundant almost."

CDMA players

Nigeria is also marked for its large CDMA sector, with some 13 CDMA operators in the country. These players, which include the likes of Visaphone, Multilinks Telkom, Starcomms, and Reliance Telecom, have a combined subscriber base of 8.6 million subscribers, according to Onda Analytics.

While most of these companies started as fixed wireless players, their licences were upgraded in 2007 to include mobile services, providing yet more competition to the country's GSM players.

"They are still far off the GSM operators in terms of subscribers but there has been some growth there," Jones says. "There is so much competition that it looks like there has got to be some consolidation between them.  On top of having five licenced GSM operators, they can't all survive."

To this end, Jones also thinks that the GSM operators are likely to continue looking at cost cutting measures including network sharing and outsourcing. This was something that Zain pursued last year, when it outsourced the operation of its network to vendor Ericsson.

Operator's perspective

For Nigeria's four GSM players, growth has been rapid in recent years, but that rate of growth now looks set to tail off, according to MTN and Zain.

"Growth has been phenomenal in the last couple of years. While the growth will not be as fast as it has been in the last few years, there is still a lot of growth and there will be expansion into other markets like data," says Akinwale Goodluck, MTN Nigeria corporate services executive.

Emeka Oparah, manager of CSR and PR at Zain Nigeria says that growth was "very strong" in the beginning but has slowed in recent years as penetration and competition have increased and tariffs have dropped. He says that average ARPU is about $10 "at the best of times."

On top of this, Oparah says that one of the main challenges that operators face in the country is power supply. He says that most of the company's base stations are powered by diesel generators, which creates logistical and security problems, in terms of getting diesel to the sites, maintaining and protecting them.

In a bid to counter this cost, Zain has been introducing hybrid base stations powered by a combination of solar power and diesel, according to Oparah.

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