Indeed, although a new tender for the 51% stake in Nitel has yet to be scheduled, there is already interest in the ailing operator. Globacom Limited’s COO, Mohamed Jameel, told local press that Nitel’s infrastructure makes it an attractive company, and that Globacom is eager to revive the network.
The revocation of the sale came on June 1, when state officials announced that Transcorp, the local company that paid $500m for its controlling stake in Nitel in 2006, had breached its contract and that the government would re-assume control of the operator. The government cited a number of concerns, including the failure to invest sufficient capital and to retain a technical partner, a drop in market share, and a decline in fixed-line and mobile subscribers.
According to the government, Transcorp had not been able to pay staff salaries in recent months, causing M-Tel workers to strike. The workers only called off their seven-month strike in early June, after the government stepped in. The non-payment may have been a result of Transcorp’s alleged underinvestment in the operator. The government claims that Transcorp failed to invest NG8.9bn ($57.4m) in the first 100 days of the takeover and that it has accrued debts of N17bn ($110m). British Telecom (BT), Transcorp’s original technical partner, also cited a lack of funding as its primary reason for withdrawing from the operator in 2007.
In addition to the financial difficulties, Nitel/M-Tel’s market share has dropped from 15% to 0.03% over the past year. Fixed lines are losing subscribers worldwide as mobile telephony has taken off, but the drop from 500,000 to 100,000 in three years is unusual, despite the broader trend. Even more worrisome is the decline in mobile subscribers, down from 1.3m to a few thousand. Considering that Nigeria’s mobile phone market is growing rapidly, up 23% in 2008, according to analyst estimates, M-Tel’s inability to retain customers makes it an outlier.
Increased competition accounts for some of the decline, with MTN Nigeria, Zain’s Celtel Nigeria Limited and Globacom jockeying for the majority of subscribers, but estimates suggest that there is a significant number of potential new subscribers. The Nigerian Communications Commission (NCC) reported that the total customer base reached 62.99m at the end of 2008, but with a population of over 140m, according to the government’s most recent census in 2006, there is room for growth. Telkom, a South African company seeking to expand its operations in Nigeria, calculated that Nigeria’s penetration rate is just 30%, compared with 76% in South Africa. This figure may be on the low end, but even taking possible discrepancies into consideration, there is potential to attract further subscribers.
One of the biggest hurdles to deepening penetration, however, is Nigeria’s lack of infrastructure. To address this problem, the government will redesign its current telecommunications policy, according to Dora Akunyili, the minister of information and communications. The new policy will focus on rural infrastructure development and connectivity. At present, there are not enough base stations to support the number of users, leading to network congestion problems. Ernest Ndukwe, the executive vice-chairman of the NCC, has suggested that operators share the existing stations, of which he estimates there are 14,000 for GSM operators and 2400 for CDMA operators, while approximately 40,000 more are rolled out across the country. He expects the new stations to be rolled out in 2010.
While these small-scale developments will certainly boost connectivity, the biggest improvements will likely be seen in 2010 and 2011, when two new undersea cables begin operations. The Nigeria-based MainOne Cable Company began construction on its 14,000-km, 1.92 terabits per second (Tbps) cable in early 2008 and plans to connect West Africa to Europe, North America and Asia. The submarine cable project will reduce the cost of telecoms services in Nigeria by between 10 and 20%, according to Funke Opeke, the chief executive of MainOne. The first phase, which will cost N250m ($1.6m), is set to open in 2010. A year later, the 14,000-km West Africa Cable System is projected to launch operations. The $600m, 3.84 Tbps, undersea cable will land in Lagos en route to connecting Cape Town and London, and will also significantly increase telecommunications capacity while easing prices.
In line with these advancements, Nigeria’s telecoms revenues should increase from the $8.4bn earned in 2008. As the country works to diversify its economy from its dependence on oil and gas, which have been particularly hard hit during the global financial crisis, and the benefits of infrastructure improvements start to materialise, telecoms, and the Nigerian economy, will reap the rewards
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