OVERVIEW OF NIGERIAS TELECOMMUNICATION SECTOR

ValueFronteira Limited - December, 2009

42 Olowu street, Ikeja Lagos Nigeria Web: www.valuefronteira.com Email: fronteira@valuefronteira.com

OVERVIEW OF THE NIGERIAN TELECOMMUNICATION INDUSTRY

The Nigerian been driven by revenues from the oil and gas sector; The recent growth explosion in the Telecommunications industry is a clear indication of successful diversification; Access to ICT increasingly determines access to wealth and income, thus, improving the quality of life for all; The industry has evolved from the use of telegraphs in the 1970s and early 1980s, fixed telephones in the 1980s and 1990s and mobile telephony since 2000; Since then the Nigerian Telecommunication has been tagged the fastest growing sector in Africa.
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OVERVIEW OF THE NIGERIAN TELECOMMUNICATION INDUSTRY II

Nigeria is Africas largest telecom market with active subscribers of over 65.3 million in mid 2009 surpassing South Africas 45million subscribers; In the past eight years, the telecommunications sector in Nigeria has grown at the fastest rate; Between 1997 and 2000 subscribership hit about 1 million before the issuance of (GSM) unified license in 2001; While GSM subscribers are in the range of 58.3 million, CDMA subscription in Nigeria grew from just 380,000 in 2007 to more than 7 million in 2009; The market grew by 23% with total industry revenue of US$8.42billion.
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OVERVIEW OF THE NIGERIAN TELECOMMUNICATION INDUSTRY III

With mobile penetration at 42%, revenue is expected to increase to US$11.14billion by 2013 at a forecast annual growth rate of 5.7%; Nigerias tele-density grew from 0.73% in 2001 to about 48% in mid 2009; The current market installed capacity is 120.92 million.

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COMMUNICATION AS A GATEWAY TO NATIONAL DEVELOPMENT [EMPLOYMENT CREATION]

More than 12,500 persons are directly employed by the telecom operators; Millions of Nigerians, through the umbrella call centres, are indirectly employed through the network of dealers and vendors; This network also includes the thousands of cybercafs that have mushroomed all over the country in response to industry growth; The industry now accounts for about 3% of GDP (from about 0.7% in 2001). The multiplier impact of these developments is positive on alternative employment creation.
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COMMUNICATION AS A GATEWAY TO NATIONAL DEVELOPMENT - [INVESTMENT OPPORTUNITIES]

Since 1999, Nigeria has demonstrated the highest potential for ICT investment in Africa; The NCC reported 64 million SIMs in operation at the beginning of January 2009, with 23 million new subscribers signing up in 2008; This growth of 55% in 2008 alone has encouraged a flurry of local and multinational investors into the industry; In 2007, Telecommunications attracted the most private participant investment in Africa (86% of total); Nigeria claimed the dominant share of the $9.5 billion (reportedly the highest since 1990) at 28% ($2.66 billion) followed by South Africa at 11% ($1.045 billion).
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COMMUNICATION AS A GATEWAY TO NATIONAL DEVELOPMENT - [GROWTH DRIVER]

Telecommunications infrastructure investments are correlated with economic growth (based on research done on 21 OECD countries). For instance, investments in communication infrastructure has significant growth effects: for OECD countries it is about 0.59% (on average) (Source: Roller and Waverman 2001) Roeller, Lars-Hendrik, and Leonard Waverman
2001, Telecommunications Infrastructure and Economic Development: A Simultaneous Approach

American Economic Review 91 (4): 909-23)

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INFORMATION AS A GATEWAY TO NATIONAL DEVELOPMENT [LINK TO THE WORLD]

ICT development ensured that the internet is not a preserve of the wealthy in Nigeria;
Consequently linked large numbers of Nigerians to the world markets (e.g. job markets) and resources (e.g. information);

ICT development resulted in the exponential increase in the number of telephone lines, etc; ICT development led to the licensing of many Private Telecommunications Operators Operators (PTO); ICT development resulted in the drop in price for internet usage from about N750 per hour in 1997 to about N200 currently; Entrepreneurs now predicate the growth of their businesses on ICT through input processing, advertisements, capacity development etc.
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THE REPORTING STRUCTURE OF THE NIGERIAN TELECOMMUNICATIONS INDUSTRY

Federal Government

Ministry of Communication

Nigerian Communications Commission

Telecom Service Operators

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THE FEDERAL GOVERNMENT

The role of Government in the telecom industry includes: Setting the overall direction for telecommunication development; Ensuring policy consistency of telecommunication with natural policies; Enacting necessary laws and taking the measures promptly in support of the National Telecom Policy

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MINISTRY OF COMMUNICATIONS
The ministry formulates broad telecommunication policies. Among its specific functions are: Proposing policy options and recommending to government such measures as legislation and fiscal incentives; Monitoring the implementation of government policy in the industry; Establishing policies for promoting universal access to communications in Nigeria; Liaising with the National Assembly on telecommunication matters.
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NIGERIAN COMMUNICATION COMMISSION (NCC)

As the independent regulator of the telecom industry, its major functions include to: License the telecom operators; Assign and register frequency to duly licensed operators; Facilitate private sector participation and investment in the telecom sector of the Nigerian economy; Establish and enforce technical operational standards and practices for all operators including the imposition of penalties.
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TELECOMMUNICATION SERVICE PROVIDERS

These providers offer telecommunication services in the area of telephony service, Global System of Mobile Communication Services (GSM), fixed wireless access and VSAT; The top players in the industry include MTN, Zain, Etisalat, Globacom, Mtel, Multilinks, Reltel and Visaphone.

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SHARE OF SERVICES (AS AT JUNE 2009)

Fixed Wired/Wireless 2% CMDA 11%

GSM 87%

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MARKET SHARE OF MOBILE OPERATORS (AS AT JUNE 2009)

EMTS, 2.176 M-Tel, 0.44

Zain, 24.74

MTN, 46.19

Globacom, 26.87

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PROFILE OF KEY PLAYERS IN NIGERIANS TELECOMMUNICATION LINE

Deregulation in the Nigerian Telecommunications system in 2001 gave way to private involvement which in turn led to emergence of major players in the field. These include MTN, Globacom and Multilinks

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GLOBACOM
Brief Profile
Globacom Limited is a privately held company and the Second National Operator (SNO) in Nigeria. Started operation in August 29, 2003 in Nigeria. Occupies a market share (percentage of total subscription) of 26.87% of the major mobile telecommunication operators in Nigeria (NCC, June 2009) and Employs about 2500 staff. Offers multifaceted telecommunications services like mobile, entertainment, long distance carrier and Internet service provider services. Over 25 million subscribers. Coverage extends outside Nigeria to some West African countries like Benin Republic, Ghana and Ivory Coast Reputation of being one of the fastest growing mobile service providers in the world. . The official sponsor of the Nigerian Premier League, Nigeria National Football Teams, Nigeria Football Federation (NFF), and the Confederation of African Football African Player of the Year Award.

Milestones
One million subscribers in over 87 towns in its first year of operation Over 22 Million subscribers in the first quarter of 2009. Running on 2.5G platform at inception as against the norm then which was based on the 2G technology (2nd Generation mobile technology) platform In 2004 it became the first operator in Africa to launch gateway switches outside the continent to carry international voice and data traffic. Made world-wide history by building the worlds first submarine optic fibre cable (Glo 1) to be built by a single individual company. This created stronger links to the world and cheaper and improved services. Reputation as the largest roaming coverage for voice and data in Africa

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MTN
Profile
MTN Nigeria is part of MTN Group, an South African-based multinational mobile telecommunications company. Commenced operation in Nigeria in 2001 with brand promise everywhere you go Five core values of Leadership, Integrity, CanDo, Innovation and Relationships. Prides itself on its ability to make the impossible possible. Occupies a market share of 46.19% of the major mobile telecommunication operators in Nigeria (NCC, June 2009) Offers multifaceted telecommunication services like cellular network access and business solutions. Coverage extends to some other African countries like Botswana, Rwanda and South-Africa. Overriding mission is to be a catalyst for Nigerians economic growth, development. Helping to unleash Nigerians strong potential through the provision of world class communications, innovative and sustainable Corporate Social Responsibility.

Milestones
The first GSM network to make a call following the Nigerian GSM auction conducted by Nigerian Communications Commission in 2001 and the first Nigeria GSM company to establish operations in Nigeria. The first GSM network in Nigeria to have adopted an additional numbering system, having exhausted its initial subscriber numbering range- 0803 Established the MTN Foundation which is the arrowhead of MTNs social investment drive and helps in deploying various programmes designed to reduce poverty and foster sustainable development in the areas of Education, Health and Economic empowerment

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MULTILINKS
Profile
Multilinks was incorporated in 1994 as a limited liability company and licensed to operate and provide telecommunications services deploying CDMA (Fixed Wireless) technology. In May 2006, the company was licensed to provide and operate Unified Access Services in Nigeria. Its scope of operation was expanded to include provision of Digital Mobile Services, Fixed Telephony Services, International Data Access service and National Long Distance Services Became a wholly owned subsidiary of Telkom SA in January 2009 after being acquired by Telkom (Proprietary) International Limited. Has a vision of becoming Nigerians ICT Service provider and employer of choice. As one of the major players in the CDMA telecom market, it controls the second largest market share (source: Isaac Fadeyibi, May 23, 2009). Renowned for its voice, internet and data services.

Milestones
The first to introduce the CDMA 2000 1X Technology Was recognized as the Best broadband internet provider by Nigerian Information Technology and Telecommunication Awards (NITTA) in 2009 Was recognized as the Best National Fixed Telecom Operator 2008

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12/15/2009 The Nigerian Telecommunications Industry The Nigerian Telecommunications Industry

INDUSTRY ANALYSIS

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OWNERSHIP STRUCTURE
Company MTN ZAIN GLOBACOM ETISALAT MULTILINK Foreign Component 79% (MTN Group 76%, IFC (3%) 65.7% (Zain Group) N/A 60% (Mubdala Holdings Ltd 30%, Mycynth Cooperative 30%) 100% (Telkom Group) Local 21 % 34.3% 100% 40% N/A

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SERVICES PROVIDED
MTN Caller Tunez Reloaded MTN Loaded MTN Google SMS MTN Backup MTN Sim Plus MTN Share & Sell MTN Family & Friends MTN Call Me Connect 4 Life MTN Fast Mail MTN Voice Mail
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ZAIN Blackberry Voicemail Roaming Conference Calling Call Forwarding SMS (Text Message) Call Me Back Me 2 U One Network Call Barring Call Waiting

GLOBACOM Glo Premium Prepaid Classic Easy Share Glo Profit Max Special Postpaid Plus Classic Plus N2009 Glo Easy Talk Glo Caller Tunes Glo MMS 3G Handset Parameters Glo 3G Tariff

MULTILINKS Mobile Tariff Fixed Wireless Tariff BZO Plan CUG (Closed User Group) PBX Solution Blue Broadband Service EVDO Router IX Data Service

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RECENT MILESTONES
Regulator's (NCC ) policy impact on Telecom Industry in Nigeria on selected indicators. 65.3

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23 12.5 8.42 10.3

% annual growth rate Revenue ($US Billion) Mobile penetration rate(%)

Market share(%)

Subscribers(Million) Foreign investment ($ Private investment US Billion) ($US Billion)

The annual growth rate increased from less than 8% in 1999 to over 23% in 2009; the total revenue accrued grew from less than $500 million to over $8.42 billion in recent time; the fixed & mobile penetration rate grew from less than 5% in 2000 to 42% in 2009; market share also increased to 42%; the total number of subscribers grew from less than 500,000 in 1999 to 65.3 million in 2009; and investment in the industry grew from $50 million to over 22.8 billion.
Source: www.ncc.gov.ng

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RECENT MILESTONES II
Growth profile of the Telecomm subscribers in Nigeria (in million).
62.99 65.3

42.7 34

19.5

0.5

0.6

2.3

4.5

7.2

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

The growth of the Nigerian Telecommunication industry from as low as 0.5 million customers in 1999 to 65.3 million in 2009 is believed by experts to be as a result of the effective reforms in the industry in recent time.
Source: ITU reports on ICT in Nigeria.

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RECENT MILESTONES III

Annual telecomm market growth rate across Africa(%)
20% 17% 23%

13% 11% 11.50%

4%

5%

5%

5%

6%

7%

7%

Cameroon Sudan

Ghana Ivorycoast Tanzania

Kenya

Algeria

Ethiopia

DRC

Uganda

Egypt

S/Africa

Nigeria

Nigeria remains the leading market in the Telecommunication Industry in sub-Saharan Africa. It has market growth rate of 23% against 4% in much smaller sized Cameroon.

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RECENT MILESTONES IV
65.3
Telecom subscribers in selected African countries (million)

42.4

22.8 16.2 10.5 4.19

Cameroon

4.2
Ivory coast Ghana Kenya Morocco S/Africa Nigeria

Nigeria is a leader in terms of number of active lines subscribed across Africa as a result of effective policy implementation by the regulatory authority, NCC.
Source: ITU 2009 report on ICT in Africa

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REGULATORY IMPACTS
Telegrowth: Tele-density growth: The NCC is committed to triple the present tele-density growth through effective policy reforms and project implementation; NCC: Issuance of Digital Mobile Licence (DML) Auction by NCC The issuance of licences facilitated a phenomenal expansion of telephone lines in Nigeria, from about 500,000 connected lines in 1999 to over 65.3 million subscribers.; (ISP): The issuance of licenses to the Internet Services Providers (ISP Through this, the establishment of an Internet Exchange Point in Nigeria and the initiating a class licensing regime to simplify authorization processes for Cybercafs and Tele-centre, the spread of internet access was further encouraged; Investments in the Telecommunications Sector: Prior to the licensing of the Digital Mobile Sector Operators, private investment in the telecommunications sector was just about $50 million. Between 2001 and now, the sector has attracted over $22.8 billion, of which $12.5 billion is from direct foreign investment and $10.3 billion from private investors. Nigeria has thus become one of the most desired investment destinations for ICT in Africa; individual: Revenue to Federal Government and private individual Over $8.42 billion has been accrued from the industry with the Federal Government earning over $2.5 billion from a range of licensing fees alone and other revenue between 2001 and 2009. Import duties and taxes from the telecom industry have also contributed substantial revenue to the Government which in turn can be reinvested into the industry;
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REGULATORY IMPACTS
Rates: Review of Tariff Rates Competition has led to more easily available services at affordable prices. Prior to the advent of digital mobile services in 2001, cost of subscription to Mtel analogue mobile services was over N60,000. Presently, GSM subscription has fallen to almost zero. The introductory tariff minute call on GSM network can be as low as about twenty five Naira (N25) per minute on-net (mobile to mobile) and some operators offer additional discounts through various initiatives; Consumer Protection policy: The NCC remains the sole agency of government that provide a regular policy platform to encourage the consumers to publicly voice their complaints in fulfilment of its mandate for consumer protection and empowerment through the initiatives such as: Consumer Outreach Program (COP), Customer Care Centre, Support for Consumer Advocacy Groups, Collaboration with Consumer Protection Council (CPC), Consumer outreach program (COP) and The Telecom Consumer Parliament (TCP); Provision: Promotion of Universal Service Provision In order to ensure that telecommunication services are extended to rural areas, the Commission has supported and promoted a number of initiatives through the Universal Service Provision Fund like: Community Communications Centre (CCC), Schools Universities Access Program to Digital Life Style (SUAP2DLS), Rural Broadband Internet (RUBI) Access, Accelerated Mobile Phone Expansion (AMPE) Project and Backbone Transmission Infrastructures. These programmes further enhance economic growth.
Source: International Telecommunications Union Report on ICT in Africa, 2009 and Ndukwe, 2009

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CHALLENGES OF THE TELECOMM INDUSTRY

Weak and inadequate Infrastructural base despite the huge income accrued in the recent past; High Telecom Facilities disparity between urban and rural areas; Shortage of long term investment capital in Nigeria; Limitation of enabling laws and regulations; Unreliable electric power supply; Local and foreign interconnectivity bottleneck as well as poor quality services; Shortages of skills; Poor customer service management; Problem of vandalization by restive youths in some part of the country.
Source: International Telecommunications Union Report on ICT in Africa, 2009 and Ndukwe, 2009.

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CROSS COUNTRY ANALYSIS: TELEDENSITY

Nigeria South Africa India Rising increase from 5.11% in 2003 to 36.98 % in March 2009. In the rural area tele-density increased from 1.49% in Mar 2003 to 15.11% in March 2009 and in the urban areas it is increased from 14.32% in Mar 2003 to 88.84% in March. Brazil Mobile line density: 84,61 Phones/100 Hab (as at July 2009). Land line Density: 22.798 Phones/100 Hab (as at July 2009)

Rising Nigerias 100 lines for every teledensity has 1000 inhabitants. grown from 0.4% in 2000 to about 50% as at Nov, 2009.

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CROSS COUNTRY ANALYSIS: RANKING

Nigeria South Africa India
India's telecom market is now the largest in the world based on the number of new monthly subscribers added.

Brazil
Ranks 2nd after Chile, in Latin America's telecom penetration. One of the fastest growing telecoms market in Latin America .

Fastest growing Fourth-fastest growing communications telecoms network mobile market in Africa. market in the world. Largest and most developed telecommunications network in Africa, including the latest in fixed-line, wireless, satellite and cellular technology.

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CROSS COUNTRY ANALYSIS: MARKET STRENGTH, SUBSCRIBER BASE, PENETRATION & INTERNET USAGE
Criterion Nigeria South Africa Mobile telephony India Mobile telephony Brazil Mobile telephony 525.65 million mobile phone connections as at Oct 2009. 34% of the population 198,739,269 population (2009) 67,510,269 (Latest) Strongest Mobile telephony telecoms market Number of mobile 67 million as at February, 2009 phone connections/Subsc ribers 7.4% of the Internet penetration population. 149,229,090 population (2009 census Bureau) 11,000,000 (2009) Number of internet users

51.9 million as at Over 488 million March, 2009 subscribers as at end of october, 2009. 9.4% of the 7% of the population. population. 49052489 (2008) population (2008) 1,156,897,766 population (2009) 4,590 , 000 (Dec, 81,000,000 (2008) 2008)

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CROSS COUNTRY ANALYSIS: INDUSTRY CHALLENGES

Nigeria Weak Infrastructural base. South Africa India Relatively low telecoms penetration in the rural areas, compared to the urban centers. Brazil Telcoms monopoly of the public switched High Telecom Facilities South African disparity between urban telecoms market. and rural areas. Restricted access to Shortage of long term telecoms services. investment. Epileptic power supply. Local and interconnectivity bottlenecks. foreign Shortcomings in IT education but which are complemented for by outsourcing and IT user companies and Unavailability of local service providers application and through extensive content, as most of training programs. the content available on website as of today is in English.

Poor quality service.

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CROSS COUNTRY ANALYSIS: DRIVERS OF GROWTH

Nigeria Growth of the mobile telephony. Growth in the GSM (Global System for Mobile telephony) market. Good regulatory framework. Deregulation of the industry. South Africa India Brazil Growth of the mobile Growth of the mobile Large population. telephony. telephony. Improvement infrastructure. in

Liberal policies of the Government Easy market access for telecom. A fair regulatory framework Affordable prices.

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CONCLUSION: INDUSTRY PROSPECTS I

With global businesses moving to Nigeria, and pressures from local businesses, government, educational institutions, etc, the demand for reliable and modern ICT infrastructure will transform Nigeria into a major market for Communciations equipment and services in technology areas such as Digital transmission systems (including microwave, satellite and optic fibre)
African Banker, Nigeria: A Compelling Telecom Growth p. 13, Issue 10 , 4th qtr 2009).

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CONCLUSION: INDUSTRY PROSPECTS II

ICT is seen as a major driver to accomplish the Vision 2020 goals; Kano State, for instance, is using an ICT Park as a launching pad to boost investment within the state; Nigerias central location on the continent, has the potential of her being the ICT hub for the West African region; There is a huge potential to further provide ICT coverage for the predominantly unserved rural areas, thereby increasing teledensity; Increased private sector participation will attract improved and advanced services, financial resources, innovation and new technology.
Source: African Banker, Nigeria: A Compelling Telecom Growth p. 13, Issue 10 , 4th qtr 2009

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REFERENCES
www.ncc.gov.ng.com (2008); Roller and Waverman (2001) Roeller, Lars-Hendrik, and Leonard Waverman (2001, Telecommunications Infrastructure and Economic Development: A Simultaneous Approach American Economic Review 91 (4): 909-23); International Telecommunications Union Report on ICT in Africa (2009) and Ndukwe (2009); African Banker (2009). Nigeria: A Compelling Telecom Growth p. 13, Issue 10 , 4th qtr

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RESEARCH TEAM
Martin Oluba, Ph.D (Argentina), DBA (Switzerland); Ngozi Edeagu, BSc (Nigeria); MSc (Oxon); Jide Adesina, BSc (Econs); ACA; Bisi Olugasa, BSc (Agric Econs); MSc (Nigeria); Victor Umoru, BSc (Econs); Morenike Olojo, BSc (Econs)
Victor Umoru led the rest of the team in developing this report. Kindly contact him at victor@valuefronteira.com for further enquiries

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