World Report

The Nigerian telecommunications market has seen explosive growth, producing some of the highest mobile phone customer revenues in Africa, but there’s plenty of room for more investment

n just four years, Nigeria has gone from being one of the most under-served telecommunications markets in Africa to one of the fastest growing in the world. Liberalisation and the introduction of GSM and fixed wireless services unleashed a wave of investment and the pace shows no sign of slowing. Teledensity has been expanding at a rate of more than 100 per cent per annum, while competition has cut the cost of calls and improved the quality of services. Nigeria has become the second-largest mobile market in Africa after South Africa, with four licensed GSM operators. Growth in subscriber lines has been astronomical, rising from about 450,000 to over 14 million in less than four years. According to the Ministry of Communication, foreign direct investment in this sector increased from $50 million (£28 million) in 1999 to $8 billion (£4.4 billion) by May 2005.

For 2004/2005, GSM market leader MTN Nigeria posted a pre-tax earning of N65 billion (£275 million) on revenue of N199 billion (£841 million). Over the same period, MTN’s subscriber base increased by 123 per cent and it completed a capital investment of over N118 billion (£500 million). The company currently has around 4 million active subscribers on its network. Sharing the spoils with MTN are Vmobile, Glomobile, the mobile arm of Globacom, Nigeria’s second national operator, and Mtel, the mobile arm of national carrier Nitel, which is awaiting privatisation. The government has formalised a shortlist of six bidders for a 51 per cent stake in Nitel and Mtel. The short listed bidders are a Telkom/Vodacom consortium, Huawei/Jacuz consortium, MTN, Orascom, Celtel and Newtel. “We have been able to attract investors to the market and ensure transparency and integrity to the highest possible standards”, comments Ernest Ndukwe, Executive Vice Chairman and Chief Executive Officer of the Nigerian Communications Commission, which is responsible for regulating the sector. “The creation of a stable investment climate and clear regulation has enabled us to win the confidence of both investors and consumers.”

Ernest Ndukwe
Executive vice-chairman and CEO of NCC

‘We need to raise the teledensity of the country by 30 percent’

The huge investment potential that still exists in Nigeria’s GSM market is highlighted by the recent battle for a controlling stake in Vmobile, which provoked a bidding contest between Vodacom and Virgin. The two companies have since decided to make a joint bid. British companies have been slow to show an interest in the Nigerian market so far, but that may be starting to change. In January, the UK-based private equity investor Actis and the AIG African Infrastructure Fund (AAIF) invested US$43.2 million (£24 million) to acquire a major stake in Starcomms, Nigeria’s leading fixed wireless telecom operator.

Despite the massive increase in subscriber lines, Nigeria’s huge population means that market demand is still running way ahead of supply. “There is plenty of room for more investment,” adds Engr Ndukwe. “With a teledensity at the moment of around 8 per cent, Nigeria is still far from being at the comfort zone. It needs to be raised to at least 30 per cent to enable most Nigerian citizens to have good access.”

Plans to accelerate development of a national backbone infrastructure are being finalised. Wire Nigeria, known as the WiN Project, will be aimed at expanding the transmission network across the length and breadth of the country. “We need a lot more investment in the backbone infrastructure,” says Engr Ndukwe. “We’ve come up with a regional backbone project cable the whole country in the shortest possible time. No place should be more than 30 miles from the backbone infrastructure, so that all the hinterlands can be connected with the hope of boosting commerce and trade in those places.” When the project is completed it will be used as a platform for extending the infrastructure into the whole of West Africa.

ICT is an important element in President Obasanjo’s reform agenda. “The President requires us to ensure that ICT facilities are extended to all citizens,” says Engr Ndukwe. “We are looking at developing e-Government, so that our education institutions are properly linked up with international communities and health institutions, and that businessmen in Nigeria have enough capacity to do their business.”

Nitel working to develop network before privatisation

Albert Mashi
Chief Executive Officer of Nitel

‘Privatisation is just a change in style that will make us more efficient’

As it awaits privatisation, Nigerian Telecommunications Limited (Nitel) is striving to meet a series of challenges, according to its Chief Executive Officer Albert Mashi.

“We cannot afford to sit down and wait for a core investor to arrive,” he says. “We need to continue to work, expand and do whatever is necessary to stabilise the network. We also need to expand where it is necessary and where the market is available.”

Nitel’s transmission facilities are used by almost all the operators in the country. The major challenge is to open up more bandwidth for more connection.

“As a carrier, our biggest business is in the area of bringing capacity to the transmission system, and we have been focusing on this,” says Mr Mashi.

“We have plans for the creation of a transmission backbone using fibre, which will be extended in rings all over the country. Once this project is completed, it will bring huge advantages to the whole market. There will be no need for small companies to build their own transmission network, they can just buy capacity from us.

“Whoever invests in Nitel will find that this project has started and is linking the country up properly before other competitors have even entered the market.

“Another challenge is to grow the network by increasing the number of lines,” says the Nitel chief. “The strategy we are adopting here is to use CDMA technology, which can be deployed quickly once we have it because we have infrastructure on the ground. We believe that this is another way we can add value to Nitel before a core investor comes in.”

Established in 1985 and until 2002 the sole national carrier, the Nitel brand inspires confidence among Nigerians, says Mr Mashi.

“If Nitel is able to reach everywhere, they would prefer to use it because they see it as a national asset. Even if it is privatised the name itself is worth something. Privatisation is just a change in style that will make the company more efficient.”