ADCG, the Africa Development Consulting Group, has published the Nigerian Telecommunications Industry, a Survey. This is an in-depth analysis of the structure of the industry and the rapid developments taking place in the sector. It is an essential guide for banks, investors and emerging service providers needing a broader perspective of the telecoms sector in Nigeria. The ADCG can also provide specific information on the telecoms sector on request.
Telecommunications is generally referred to as the “infrastructure of infrastructures” to underscore its importance in the general development of a society. Telecommunications is seen as a tool, not an end in itself, and it is considered a most crucial factor in the information revolution. It increases the capacity of many sectors of a modern economy to deliver effectively the services essential for equitable and sustained development. Nigeria must exploit modern information technology to enhance sustainable development. For instance, the Internet can make meaningful contribution to development by supporting education, health care, farming and small-scale industries.
Opportunities abound in less developed country, like Nigeria, to exploit the connection between telecommunications, and socioeconomic development. Telecommunications is a leading growth industry and currently one of few major public utilities in developing countries that have the potential to generate enormous benefit.
What are the trends in global telecoms industry that are becoming more and more challenging? What obstacles stand between Nigeria and the numerous possibilities offered by improved telecoms infrastructure? What business opportunities abound in the Nigerian telecoms industry for investors?
According to the International Telecommunication Union (ITU), Europe has the highest number of telephones per hundred inhabitants (i.e., highest teledensity), estimated at 31.95, while the average for the Americas is 27.92. On the other hand, much of the world’s population does not have access to telephone. On the average, excluding South Africa, Africa has 1.67 telephones per 100 inhabitants, with the average at 0.29 in Sub-Saharan countries. Some 35 of the world’s 49 least telecommunications-developed countries are in Africa. Nigeria’s teledensity is about 0.4.
In the last few years, a global telecommunications market has developed. This development is partly attributed to the increased importance of international trade and investment in the world economy, and is spurred by the liberalization of telecommunication sectors in many countries. As at 1994, there were an estimated 703 million telephone access points worldwide; these include 648 million fixed lines and 55 million wireless cellular subscribers. The growth of cellular subscribers outpaced that of fixed lines at 61.3% over the previous year, compared with fixed line subscribers, at 6.7%. The number of new cellular subscribers exceeded fixed line subscription in most developed countries. Asia is the fastest growing telecommunications area, with China contributing almost a quarter of the world’s new fixed lines. More than 38 million subscribers were connected to the fixed network, more than twice as many newcomers in 1986. Another 19 million were connected to mobile networks in 1994.
According to the 1996/97 World Telecommunications Development Report, international telephone calls increased from less than four billion minutes in 1975 to more than 60 billion minutes in 1995, representing a growth rate of 15% per year. Correspondingly, international telephone revenues increased steadily from US$32.9 billion in 1990, to US$43 billion in 1992 and US$52.8 billion in 1995. The 1995 figure for international telephone revenues represents about 8.7% of global telecoms service’s market.
Revenue from global telecoms equipment and services in 1994 was estimated at US$672 billion, an increase of about 9.1% over the previous year. From this total, telecoms service revenue was US$528 billion (more than 78%), while the remainder was global revenue from equipment. The value of global telecoms trade (equipments and services) was estimated at US$96 billion in 1995.
A glaring feature of the international telecoms market is the growing incidence of alliances, mergers, seen as a move toward consolidation in readiness for the global deregulation. One essential feature of the global strategies of telecoms companies is aggressive expansion and entry into new, emerging telecoms markets.
the aim to develop a telecoms network that would specifically serve the telecommunications and broadcasting interests of African countries and ensure effective global connectivity. The Africa ONE telecoms network seeks the integration of RASCOM’s satellite plans and PATU’s terrestrial network with Africa ONE’s submarine fibre-optic cable, which would connect all 42 coastal population centers, landing centers, and provide connectivity to the undersea global telecoms system.
The Nigerian Telecoms sector comprises the Federal Ministry of Communications (FMOC), as the supervising authority, the Nigerian Communications Commission (NCC), as the regulatory agency, and NITEL plc, currently the only authorized carrier. It also includes private commercial operators offering telecommunications services like private network links, fixed and mobile cellular services, voice mail and paging services. There are also telecoms equipment vendors and manufacturers. The sector is evolving through the policy of guided deregulation and presents tremendous potentials for investment. The FMOC, as the supervisory agency through the NCC, sets goals for the overall development of the sector, monitoring performance and improving the regulatory environment. The major player in the telecoms market is NITEL plc, the only authorized carrier.
On March 17, 1997, the number of private telecoms companies licensed by the NCC to provide telecoms services in Nigeria was about sixty one. Thirty eight of the companies were licensed in 1996 while the remaining twenty-three companies were licensed on March 17, 1997. Most of the companies are based in Lagos and each of the companies is licensed to provide one or more of the following services: Internet, Value Added Service (VAS), Paging, Pay phone, Repairs and Maintenance, Voicemail, Cabling and Community Telephony Services. In addition, some are licensed to provide private network links and public mobile communications services.
Over the years, NITEL has not been able to meet the telecommunications requirements of the modern sectors of the economy, typified by oil and banking. These companies have, therefore, built up substantial private networks for the internal use of the component companies or corporations. There are more than 13 private network providers.
- Oil Sector: The oil industry has, by far, the largest private telecommunications networks in the country, with substantial investments in radio. The single largest network belongs to Shell Petroleum Development (Nigeria) Company Ltd., (SPDC), followed by Mobil and Chevron. The Nigerian National Petroleum Corporation (NNPC) also has considerable telecommunications investments. Many companies that support the oil producing industry also employ their own telecommunications networks. The largest and most notable among them are Haliburton and the Schlumberger Group. Schlumberger and Cable & Wireless have jointly established a telecommunications services company, Omnes Communications Nigeria, as part of the global collaboration.
- The Banking Sector: The need for modern banking has spurred banks to improve their telecoms network. A number of banks offer electronic banking, some through VSAT. Also, the Central Bank of Nigeria (CBN) has been studying the feasibility of a VSAT-based WAN to connect its offices throughout the 36 states of the Federation. In addition, public service organizations have traditionally set up their own transmission networks in the past, where NITEL was not able to meet their needs: these include the broadcasting organizations and news distribution agencies. In news distribution, the News Agency of Nigeria (NAN) operates a network of HF radio data communication for news-gathering and distribution, but has now entered into a contract with Matra Marconi Space France F.A. for a (fixed) satellite distribution network. Also, the Nigeria Police Force commissioned its first nationwide WAN security communication in mid-January 1997. This is an integrated system incorporating mobile radio, fixed line, and computers. The radio is essentially Motorola. Other closed-user groups include construction contractors (on HF), diplomatic missions, and private security companies.
The telecoms sector in Nigeria was deregulated by law in Nigeria vide the Nigerian Communications Commission (NCC) Decree No. 75 of 1992. The Decree established the Nigerian Communications Commission, NCC, as an independent regulatory body. The broad objectives of the Commission include creating a regulatory environment for the supply of telecommunications services and facilities and promoting fair competition and efficient market conduct, among others. Four prominent institutions have been identified as very crucial to the success of the Nigerian deregulated telecommunications industry. These institutions are expected to cooperate with one another and to streamline their operations in the best public interest. The institutions are Government, Ministry of Communications (MOC), National Communications Commission (NCC) and Nigerian Telecommunications plc (NITEL).
The public telecommunications network is structured into four levels: The first level, the international level, consists of three digital and one analog satellite earth stations, with current capacity of 7500 international trunks to other countries. The second level of the PSTN hierarchy consists of six (6) digital secondary switching centers, while the third and fourth levels representing infrastructures for regional traffic and local traffic, is made up of 49 primary centers and 195 local exchanges.
As at 31 December 1994, there were 264 NITEL telephone exchanges in Nigeria. The installation of the exchanges was made possible with the cooperation of some telecommunications companies like Siemens, Ericsson, ITT and Motorola.
NITEL has commenced the modernization of its networks with the digitalization of its exchanges, and the installation of optic fibre cables networks and digital satellite circuits. The digitalization process continues; the fundamental carrier and switching systems in telecommunications are becoming digital. No further analogue facilities either of switching or transmission trunks, have been lately installed or are being planned for future installation.
Digital switching systems are gradually taking over the entire network, and the network accessibility and call completion rates have been on the increase. Also, in line with modern practice, optic fibre technology is being introduced to LDC transmission systems. Optic fibre links have been installed among all the exchanges in Lagos in a ring circuit, with spurs available for large subscribers. Long distance fibre optic trunks are currently under consideration, with some links already installed by NNPC, the national oil parastatal. With regard to digital Satellite, two modern digital international gateways were installed in Lagos (Victoria Island) and Enugu each with dual antennas in 1992.
Operation of the public mobile cellular network commenced in 1992/93, with two mobile cellular services, a national one (NITEL) with about 10,000 subscribers and a Lagos service (MTS) with some 2,500 subscribers. A joint-venture agreement between NITEL and Digital Communication Limited (DCL), an American private company, gave birth to the Mobile Telecommunications Services (MTS) Ltd. The MTS and NITEL provided analogue E-TACS mobile cellular telephone networks and some value-added services such as voice mail and pager services from the three switches at Lagos (Lagos and South-West), Enugu (South East) and Abuja (North). In 1995, MTS shut down its operations on account of a dispute between it and its partner, NITEL, over MTS’s non-payment of interconnection charges. Current operators of mobile cellular services include M-Tel. More private licenses have been granted for regional operation.
With the goal of increasing the number of connected lines from the present level of about 405,073, (according to the 1996 Ministry of Communications digest of statistics), to 1 million telephone lines in the next two years, it is quite obvious that NITEL would not be in a position to finance the objective alone. Hence, the need to seek financial assistance from multilateral donor agencies. Several negotiations took place in the recent past for external funding. For instance, the World Bank entered into agreement with NITEL, with the guarantee of the Federal Government of Nigeria, for over a $225 million loan for a telecommunications project in 1990. The major objectives of the project were to support strengthening of the institutional and policy framework, facilitate commercialization of NITEL and improve the access to and quality of telecommunications services. The loan agreement was canceled. Other projects include the Nigerian Telecommunications Improvement Plan (NTIP). This project was financed with $200 million loan arranged by the ITT for the provision of 74,000 lines in the South West Zone. Work started during the 1st quarter of 1993 and was expected to be completed by the 3rd quarter of 1994. The project also included the renovation of exchanges. The first phase of the plan has been completed. The second phase began in 1997. In 1993, a European Community grant of 10 million ECU was negotiated for manpower development and training in support of the commercialization programme of NITEL Plc. It was suspended at the wake of political sanctions on Nigeria, following the annulled 1993 elections.
There are other projects to improve NITEL’s transmissions systems. These include modernizing of existing analog transmission systems with digital radio. Also all new transmission radio circuits are now digital. Increasingly, fibre-optic cables are being deployed in the transmission system. A number of projects have been undertaken by the Ministry of Communications to modernize NITEL’s transmission system and exchange system. Most of these projects, including fibre optic links and microwave transmissions systems, are being handled by Siemens, a major telecoms equipment supplier to NITEL. Most of these projects are expected to be completed in 1997. Some of these include the fibre-optic submarine cable system and other fibre optic projects and the digitalization of an international earth station.
Over the years NITEL has been striving to improve on its performance which, by international standard, is poor. The market for telecoms services and facilities in Nigeria are yet to be fully exploited. The level of unsatisfied demand has been increasing. NITEL generates its revenue from services such as telephone, telex and telegraph, leased circuits and facsimile. In 1996, NITEL reportedly generated an income of 16 billion Naira. From NITEL’s figures, a significant proportion of this revenue, more than 60%, is generated by telephone traffic. As a result of the commercialization drive, NITEL’s revenue base has been rising. The substantial increase in NITEL’s gross revenue from 998.83 million Naira in 1989 to 2,214.80 million in 1990 reflected directly, the significant increase in tariff levels effected to make NITEL more financially viable. Domestic tariffs were substantially increased in 1990. Call charges for telephone and telex were increased by 800% and 1600% respectively. Rental charges for both services were increased by 300% over the same period. Earlier in 1988, a 600% tariff increase was made to adjust for changes in the exchange rate of the Naira.
In 1995, NITEL’s revenue increased to an estimated level of 18,997.850 million Naira. With a rising revenue base, NITEL became more positioned to finance capital expenditure from internally generated revenue. An estimated 12.5 billion Naira telecoms investment in the period 1984-1993 was financed from internally generated revenue. The evolving, increasingly competitive telecoms sector now offers opportunities for NITEL to increase its revenue base and exploit more opportunities. This is reflected in growing revenue and profit performance. However, the picture, historically has not always been the same.