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24May2018

Intense competition leads to price war amongst Nigeria’s telecommunication operators

Nigeria has an actively competitive fixed-line sector which is being driven by market liberalisation. At the moment, there are 16 fixed wireless operators most of which are providing service using only fixed-wireless technology. While few of the top operators have been competing head on with the GSM operators by providing full mobility functionality, the competitive landscape has been too tough for others who continue to survive on the fringe. The stagnating national incumbent Nigerian Telecommunications Limited (NITEL) has been unable to compete as only a minority of fixed-line subscribers are associated with its platform. Till date, several attempts to privatise NITEL and reposition it for competition have failed.

Intense competition in the mobile and fixed-line segments has driven prices down. Nevertheless, the 2009 prices of a monthly fixed-line subscription (US$9) and prepaid mobile subscription (US$11) were only average compared with other Sub-Saharan African countries. By 2010, there had been significant tariff reductions due to lower interconnection rates introduced by the regulator. This, combined with the depreciation of the Naira, should make ICT services more affordable. It however exerts substantial pressure on the average revenue per user (ARPU) of the firms in the industry. The situation has forced the mobile network operators (MNO) to develop new revenue stream such as 3G mobile broadband, mobile payments/banking etc. The effects include the big mobile players displacing existing small niche private telecom operators (PTOs) through product/price differentiation.

Despite rapid expansion and intense competition, some inefficiency remains

Nigeria still faces a substantial market-efficiency gap in the mobile market. While the current level of GSM signal coverage is impressive, certain areas in the country are yet to be covered due to the cost of providing and maintaining telecommunication infrastructure which, according operators cannot be easily recovered. Their argument is based on the low income earning capacity of the dwellers in these areas and the dwindling ARPU. Simulations, including infrastructure outsourcing and co-location among others, however suggest that the GSM signal can be profitably extended to the entire national population. It is puzzling that coverage is not greater, given that with nine mobile operators, Nigeria arguably has the most competitive mobile market on the continent. The price of mobile licenses, coupled with the challenge of extending infrastructure in a large country, however, pushes up operators’ costs. The absence of electricity in rural areas further inflates the costs of network rollout.

The downward pressure on the industry ARPU is creating substantial room for the growth of the telecom infrastructure space. The industry has come to realise that outsourcing the ownership and management of mobile towers and other telecom infrastructure to infrastructure companies could save them substantial costs considering the high cost of installation, security and provision of power to base stations. Telecom infrastructure firms own, manage, and lease space on their mobile towers to telecom companies, helping to bring down costs, expand coverage, accelerate technology rollouts and improve the quality of service for subscribers. This subsector has also attracted substantial investment into the sector and by extension the economy.

Even cheaper communication experience is available on the fibre-optic network

Nigeria has also made great progress in the development of a national fibre-optic network by harnessing private sector investment. Nitel's monopoly on fibre bandwidth via the SAT-3 system ended in 2010 with commercial operations of Globacom’s Glo-1 and MainOne cable. Many African countries have pursued publicly sponsored national fibre-optic backbone networks, some of them quite expensive and of relatively low quality. Nigeria, on the other hand, has taken full advantage of the scale of its market. By liberalising the market for fibre-optic infrastructure, the country has seen substantial private sector investment in this area, leading to the development of a solid backbone network interconnecting the major cities. Multiple parallel cables have been laid on the highest-traffic routes, which has resulted in intense competition and lower costs.

Evidently the private sector will not of its own accord extend cables into smaller towns and rural areas where a business case does not exist. But by first allowing the private sector to develop the major components of the backbone, the government can limit the use of public funds to areas where no other solution is possible, thereby saving significant fiscal resources. The same is applicable to the rural telephony initiative which is yet to effectively take off.

Data transfer through the internet has just been made easier

The price of internet access remains high, but can be expected to fall with the arrival of new submarine cables. Internet access is relatively expensive considering that Nigeria has access to the SAT-3 submarine cable. But NITEL has had a de facto monopoly over the international gateway. The launch of the Main One undersea fibre-optic cable in 2010, with landing stations in Nigeria and Ghana, was forecast to reduce wholesale prices by 50%. The arrival of additional submarine cable projects along the West African coast has placed downward pressure on costs. If costs effectively fall, Nigeria could emerge as a leading regional bandwidth supplier. According to the World Bank, evidence from across Africa suggests that only when there is competitive access to submarine cable infrastructure are the full cost advantages felt by consumers.

Building competence in ICT equipment manufacturing will help the sector further

Although the country possesses limited capacity to manufacture and assemble ICT equipment and devices, there is a huge market for ICT equipment in Nigeria which is dominated by companies that have established channel partnership with global manufacturers. Some of the global manufacturers have also established increased presence in Nigeria. This includes Microsoft, Google, LG, Nokia, etc. There is also an increasing grey market for ICT equipment, devices and peripherals, including software development. 

  • Written by The Analyst
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