Powering up: With internet uptake rising, local players are increasingly optimistic

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Over the past decade Nigeria’s ICT industry has grown to become one of the largest and most dynamic in Africa. According to the Nigerian Communications Commission (NCC), which regulates the telecoms sector, at the end of the second quarter of 2012 total mobile internet subscribers topped 30.9m, accounting for the majority of the country’s 48.4m internet users. With the sector expanding at an average annual rate of around 30% in recent years, according to Omobola Johnson, the minister of communication technology, and alongside a huge domestic market, high mobile demand and a vibrant, if small, start-up community, Nigeria has become an increasingly popular investment destination for multinational ICT firms to set up shop. “Demand for IT solutions is visible everywhere. There is increasing pressure on traditional sectors like education, agriculture, health care and transportation to keep pace with technology developments,” Aniedi Udo-Obong, the CEO of Audax Solutions, told OBG. While the government has taken a prominent position on driving basic penetration, encouraging usage and familiarity, and reducing operational hurdles, private operators have been influential in expanding local content and buttressing demand, particularly on the corporate side.

REGULATION: A number of government entities are involved in the regulation and development of ICT in Nigeria. In recent years the industry has been regulated by the Federal Ministry of Communication Technology (FMCT), which was launched in 2011 and put in charge of several previously independent entities, including the NCC and the National Information Technology Development Agency (NITDA). While the FMCT is responsible for creating top-level ICT development strategy, both of these sub-agencies remain largely independent, as do the other government entities that fall under the FMCT’s umbrella, including the Nigerian Postal Service (see analysis).

The NCC, recently rebranded as part of the introduction of a new five-year plan (see Telecoms overview), has a mandate to develop, maintain and enforce a regulatory framework for the telecoms sector in line with international best practices. NITDA, meanwhile, works with the Ministry of Science and Technology (MST) and other government agencies to plan and implement ICT development initiatives. As well as managing Nigeria’s top-level domain – .ng – NITDA oversees a number of projects in conjunction with the private sector (see analysis).

The FMCT also oversees two government-owned companies. Galaxy Backbone was established in 2006 with a mandate to develop and operate a nationwide broadband network to serve government facilities. The Nigerian Communications Satellite Company, meanwhile, operates a geostationary satellite that provides voice, data and navigation services both for government agencies and for private sector clients.

BY THE NUMBERS: According to the International Telecommunication Union (ITU), the UN’s ICT arm, as of June 2012 Nigeria was home to 48.4m internet users in total, up from 45m at the end of 2011, 24m at the end of 2009 and just 5m at the end of 2006. The most recent figure is equal to a penetration rate of 28%, and represents 29% of total internet users in Africa, making Nigeria the largest internet market on the continent by volume. Mobile internet subscribers have accounted for a majority of internet users in the country since late 2011. As of June 2013 nearly 70% of Nigerian internet subscribers accessed the web via a mobile device, according to StatCounter, a Dublin-based digital analytics company. The remaining 30% of internet users in the country logged on via a desktop or laptop PC or a tablet computer.

MAIN PLAYER: MTN Nigeria, the local subsidiary of the South African MTN Group, is the country’s largest mobile network operator (MNO). As of the end of the first quarter of 2013 MTN had around 22.7m active mobile internet users, according to the NCC, which is equal to 66% of total mobile internet subscriptions. This figure included both 2G and high-speed 3G and 3.5G subscribers, the former of which outnumber the latter by a factor of around three-to-one, according to MTN. Airtel Nigeria, which is owned by the Indian firm Bharti Airtel, counted approximately 6.2m mobile internet subscribers as of the end of March 2013 – equal to just under 18% of total mobile data users. In the same period Etisalat Nigeria, which is owned by Abu Dhabi-based operator Etisalat, had around 4.9m mobile internet users, while Globacom, a privately-owned local operator, had less than 660,000 internet subscribers, representing 14% and 2% of the total, respectively.

DEVELOPMENT STRATEGIES: The establishment of a dedicated ministry to develop the country’s ICT industry in 2011 was widely considered a major step forward among private sector players. “The new ministry is a positive development,” Chuks Ulu Udensi, Dell’s country manager in Nigeria, told OBG. “It has introduced many ambitious plans.” Since the FMCT was established, it has launched two major development strategies – the National ICT Policy (NICTP), a final draft of which was approved in principle by the Federal Executive Council in August 2012; and the National Broadband Plan (NBP) approved by President Goodluck Jonathan in June 2013.

The NICTP, which runs through 2017, lays out a series of goals for the sector on an annual basis. By the end of 2013, according to the final draft version, the FMCT is soon to release a local content plan, with the goal of supporting domestic manufacturers and service providers and addressing QoS issues with local OEMs by mandating recapitalisation and encouraging collaboration and shared warranty, return/repair services. Also key is establishing an environment that includes stronger intellectual property regulation.

By 2015, under the NICTP, the FMCT aims to create a Computer Emergency Readiness and Response programme to protect the country against cyber threats, and introduce mandatory ICT training throughout the education sector. Targets for 2015-17 include boosting local production of PCs to 50% of the domestic market; expanding radio coverage to 100% of the country; and increasing broadband penetration by a factor of five over the 2012 rate of 6%. The NBP, meanwhile, was developed to build upon and clarify this last goal of the NICTP. Both strategies were developed with Vision 20:2020 – Nigeria’s long-term economic planning document – in mind.

INTERNATIONAL CONNECTIVITY: As of mid-2013, the country was linked to the global internet backbone via four submarine fibre-optic cables, all of which come ashore at or near Lagos. The South Atlantic 3-West Africa Submarine Cable ( SAT-3/WASC) system, which runs from Portugal and Spain down the west coast of the continent to South Africa, became the first international submarine cable to come ashore in Nigeria when it began operations in 2001. The cable was funded by a consortium of firms, including France Telecom, AT&T and Nigerian Telecommunications (NiTel), the state-owned operator that had a monopoly on telecoms in the country until the market was liberalised in 2000. When initially installed the SAT-3/WASC cable had a capacity of 120 Gbps, but a 2009 upgrade increased that to 340 Gbps.

In July 2010 the Main One Cable Company became the first privately owned firm to operate a submarine cable in West Africa when it activated the 7000-km Main One cable, which stretches from Portugal to South Africa and comes ashore in Nigeria and Ghana. The cable provides bandwidth of 1.92 Tbps, and was financed by Main One, a number of Nigerian banks and a handful of international investors.

Less than 12 months later, in late 2010, Globacom activated its 9800-km Glo-1 cable, which connects Nigeria to the UK with additional landing points in Ghana, Senegal, Mauritania, Morocco, Portugal and Spain. The 2.5-Tbps link effectively doubled the total bandwidth capacity on offer in Nigeria at the time.

Finally, in May 2012 the 16,000-km West African Cable System (WACS) came on-line, linking more than 10 African countries to the UK. The 5.12-Tbps system was funded by a consortium of 11 African telecoms operators, led by the MTN Group. With this in mind, the South African firm’s subsidiaries across Africa – including MTN Nigeria – are expected to be long-term beneficiaries of the new capacity.

Another new submarine cable, the African Coast to Europe (ACE) system, is under construction and is expected to reach landfall in Nigeria before the end of 2013. Financed by a consortium of 17 operators and headed by the French telecoms firm Orange, the 17,000-km line will use wavelength-division multiplexing technology to run 6000 metres below sea level from France to South Africa, serving 23 countries upon completion. For the first time, a number of landlocked countries in Central Africa, namely Mali and Niger, will receive services from an underwater cable. In addition, Equatorial Guinea, Gambia, Guinea, Liberia, Mauritania, Sao Tome & Principe and Sierra Leone will also be connected by a submarine cable for the first time. The ACE cable system is expected to have a total capacity of 5.12 Tbps. A number of additional ongoing submarine cable projects could come onshore in Nigeria in the following years as well, including the South Atlantic Express cable, the WASACE cable and the South Atlantic Cable System.

TERRESTRIAL NETWORKS: Despite the fact that nearly 10 Tbps of bandwidth is now sitting on Nigeria’s coastline and more is on the way, the country’s terrestrial fibre-optic networks remain underdeveloped. Consequently, much of the bandwidth currently available has gone unused. According to Funke Opeke, the CEO of Main One, as of the end of 2012 Nigeria’s submarine capacity utilisation rate was less than 10%. This translates to total broadband penetration of 6%, according to FMCT data from mid-2013. Strengthening last-mile connectivity is considered to be one of the most pressing issues currently facing the ICT industry. A variety of local players operate terrestrial fibre-optic networks, including the MNOs MTN and Globacom and a handful of other internet service providers and broadband wholesalers, including 21st Century Technologies, Suburban Telecom and Phase3 Telecoms.

According to Eugene Juwah, the executive vice-chairman and CEO of the NCC, as of mid-2013 an estimated 30,000 km of fibre had been laid in Nigeria in total. However, most of the existing terrestrial fibre is centred in Lagos and Abuja, where, as a result of a lack of infrastructure sharing across the market, multiple cables operated by different companies serve the same high-traffic areas. Consequently, each individual terrestrial network remains largely underutilised. Additionally, many Nigerians – particularly in remote rural areas – live outside the coverage areas for high-speed mobile broadband services, and must rely instead on other technologies, such as satellite and microwave radio, for example. The NBP represents the government’s most comprehensive effort to date to address this issue. The plan acknowledges that “for the foreseeable future, wireless technology will continue to play a dominant role in broadband infrastructure for Nigeria, particularly the last mile”. With this in mind, the document lays out a number of short-, medium- and long-term targets for broadband expansion. By 2015 the FMCT hopes to have increased wireless broadband penetration to 21% and the total coverage area to 60% of the country, up from 6% and 35%, respectively, as of early 2013. By 2018, the final year of the NBP, the FMCT has targeted penetration of 42% and coverage of 80%.

By 2020, which is the target date for Nigeria’s long-term economic development strategy, the FMCT hopes that these figures will have jumped to 76% and 95%, respectively. The large-scale network expansion and capacity increases required to reach these targets will be undertaken by the private sector, with support from federal, state and local governments.

HARDWARE: Foreign brands dominate Nigeria’s PC market. According to the FMCT, major multinational ICT hardware manufacturers such as Acer, HP and Dell currently account for 70% of sales, while a handful of indigenous brands make up the remaining 30%. Major local PC manufacturers and assemblers include Zinox Computers, Omatek Computers, Brian Integrated Systems, Inlaks Computers, Veda Computers, Beta Computers, Pragmatic Technologies and Geniac Computers, among others. According to the FMCT, as of July 2012 local PC manufacturers were producing around 130,000 units on an annual basis, and the average cost of a low-end laptop was N50,000 ($315).

Unlike many more developed markets, in which most users upgrade their hardware every two to three years, in Nigeria both desktops and laptops are often used for five years or more. As a consequence, the after-sales services segment is considered to be an integral component of the local PC market, and the majority of new computers are sold under warranty.

“The market for hardware support services is growing, although more competition is arriving from Asia, with China and India providing both the products and services,” Karam Chaktoura, the managing director of Integrated Power Technologies, told OBG. “The Asian companies have taken a large share of the small IT services market, undercutting the market on price, but with a big compromise on quality and continuity. However, there is still demand for top-tier support for medium-sized and large projects.”

In recent years many of the local companies have called on the government to increase its commitment to supporting the Nigerian ICT manufacturing segment. Computer & Allied Products Dealers Association of Nigeria (CAPDAN) represents the majority of dealers and entrepreneurs at the Computer Village in Ikeja, Lagos. Computer Village is often used as a marketplace where traders offload fraudulent products. One of the areas in which CAPDAN can help is in formalising this market by monitoring the activities of its members trading in the Village, assessing the quality of incoming goods and providing support services. In 2012 the state announced that only the five accredited local original equipment manufacturers – Omatek, Zinox, Brian Integrated Systems, Beta and Veda – had been selected to supply hardware to the FMCT’s Student Computer Ownership Scheme, which was structured to make computer ownership easy and affordable to students via instalment payment plans provided by banks.

“Engineering training is critical for after-sales services – a critical step in the supply chain in Nigeria where computer owners use their machines far longer than in the West,” Florence Seriki, group managing director and CEO of Omatek Ventures, told OBG.

SOFTWARE: In recent years Nigeria has lost around $1bn annually to foreign software imports and related costs, according to the National Office for Technology Acquisition and Promotions, which falls under the MST’s oversight. Most PCs in Nigeria run Microsoft’s Windows operating systems, for example. “We are all consumers when it comes to the local software market,” Emmanuel Bamiyor Iwegbu, the managing director of local technology solutions company ICT Convergence, said. “Everything is imported.”

This is in part a result of the fact that enforcement of intellectual property, as in many emerging countries, is difficult. According to the Software Alliance, a trade organisation that represents a number of the world’s largest software developers, Nigeria loses an estimated $517m to the illegal software market on an annual basis. Microsoft, which is thought to be among the hardest hit by software piracy around the world, works with the NCC and local law enforcement agencies to deal with this issue in Nigeria.

Supporting local software development in an effort to jumpstart the indigenous market has become a priority for both public and private sector. The FMCT has launched several programmes in partnership with the private sector with this in mind, including the IT Developers Entrepreneurship Accelerator initiative and the Techlaunchpad programme, both of which aim to identify and support Nigerian ICT entrepreneurs. “The local content market is fledgling now, but it will eventually be huge,” Udensi told OBG.

In particular, local developers are now focusing on the mobile applications market, which has grown considerably over the past decade, in line with the rapid rise in mobile data subscriptions over the same period. “In Nigeria, mobile apps not only complement websites but compete with them,” Johnson Dunmoye, the CEO of web solutions firm Websoft, told OBG.

Providing companies with the requisite software is one hurdle, getting them to use it effectively another. “Fewer than 50% of organisations are getting value for their enterprise software spend,” Austin Okere, the group CEO of Computer Warehouse Group, told OBG. “The challenge is in implementation. Training is needed for each firm or department linking in to the software.” Overall, though, the prospects for the segment look bright. “The potential for growth in the software market is very promising,” Uzo Nduka, the CEO of Domino Information Company, told OBG.

E-GOVERNMENT: Over the past decade Nigeria has made a number of government services available online, including parts of the passport application and vehicle registration processes, and some components of new business registration. While Nigeria is well ahead of many African nations on e-government, it lags behind much of the rest of the world. In 2012 it was ranked 162nd of 190 countries in the UN’s E-Government Development Database, a drop of 12 places from 2010. According to the UN, investment in e-government programmes in the nation has fallen off since the mid-2000s. This is expected to change under the NICTP, which aims to “develop frameworks and guidelines, including interoperability and e-government frameworks, for the enhanced development and use of ICT in the government”.

Government-owned firm Galaxy Backbone, which oversees the state’s data network and other digital services, is increasingly considered to be a key driver of ICT acquisition and use within the government. Under the 1-GOV.net project launched in 2008, the firm has worked to consolidate the federal government’s online presence on a single digital platform. As of mid-2013 the company’s network of fibre-optic cable and satellite links provided broadband services to around 350 ministries, agencies and other federal entities in 4000 locations throughout Nigeria.

Galaxy Backbone has also deployed government-wide messaging and collaboration solutions across most federal ministries, departments and agencies (MDAs) to improve internal efficiency and effectiveness of government. There is an ongoing initiative – Getting Government Online – across MDAs through a Council of ICT Heads for MDAs constituted by the ministry to drive adoption of technology in government, standardise and achieve 100% web presence for federal ministries, and promote the use of electronic messaging solutions across government.

Part of the effort to change the e-government landscape is the ministry’s launch of a one-stop government services portal in 2013 to provide access to online services offered by MDAs. By 2014 more government services, such as online business pre- and post-incorporation services and e-payment, will be brought onto the portal to improve access to government services and increase efficiency in the delivery of public services. “Improving IT usage by the public sector should have an impact on transparency,” Kingsley Eze, the CEO of Tenece, told OBG.

DATA HOSTING: As the number of Nigerian ICT users has grown in recent years, demand for data storage and hosting – including cloud computing services, which allows users to remotely access data and applications on the internet – has jumped substantially. Companies in a variety of areas, most notably financial services and energy, have driven expansion in the data hosting market. Telecoms companies are significant players in this service provision, as at the moment most of the business is merely “infrastructure as a service” as opposed to “platform as a service” or “software as a service” – in other words, leasing rack space as opposed to leasing computer space.

Banks and oil and gas companies require high-speed, secure digital storage facilities. Many run their own in-house data hosting services, though in the long run it may make more sense for them to outsource this to one of the plethora of new third-party operators setting up shop in Nigeria.

The Lagos Datacenter, which is being constructed as a joint project by the Dutch firms Venema Advies, ICT room and Zwart Techniek, aims to provide disaster recovery and data backup services to major corporates. It also eventually envisages being the largest data centre in Africa, with a total capacity of 7.5 MW and 5000 sq metres. Globacom, which already runs one data facility in Lagos, recently announced a second centre, the latter of which will be Nigeria’s largest data centre in terms of capacity on completion. This move signifies the growing presence of telecoms operators in the data centre industry and the lure of attractive returns from providing infrastructure. Other companies that have built and are operating data centres or are in the process of doing so include CommuniGate Systems, AppZone, Inlaks Computers, Internet Solutions West Africa, Resourcery and TTC Technologies. Additionally, most of the major global ICT players, such as Microsoft, have marketed their cloud services heavily in Nigeria in recent years. “Our cloud service, which was launched in late 2012, is our primary focus right now,” Olayinka Oni, the national technology officer at Microsoft in Nigeria, told OBG.

Furthermore, with the growth of the Nigerian ICT industry, the development of local internet exchange points could curb the amount of Nigerian data exchanged through international links. Further uptake of local connections is in large part dependent upon the success of national drives for greater local content creation, web hosting and improved broadband.

“The government can support the cloud computing industry by developing a robust national cyber security policy,” said Olusola Teniola, CEO of IS Internet Solutions, a company of Dimension Data Group. “Such regulation is a key building block for a cloud industry and would go a long way towards reassuring Nigerian businesses to host data onshore.”

OUTLOOK: The sector faces major challenges. The broadband penetration rate remains low, at just 6% as of mid-2013 according to the FMCT, despite the fact that four submarine cables link Nigeria to internet trunk lines in Europe, making it among the best-connected countries in sub-Saharan Africa in terms of available top-level capacity. The low penetration rate can be attributed to a lack of last-mile fibre-optic connectivity, particularly outside heavily populated urban areas. Other hurdles to ICT development include the power supply and security issues, both of which are major contributors to the relatively high cost of broadband and other ICT products and services.

Both the government and the private sector are working to overcome these issues. With the long-term goal of developing a knowledge-based economy and boosting ICT’s contribution to GDP, the FMCT and other official entities have introduced a number of potentially transformative development plans. Under the NBP the ministry aims to boost mobile broadband penetration to 76% and mobile broadband coverage to 95% of the country’s area. The economic implications for growth of this magnitude are considerable.

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The Report: Nigeria 2013

IT & Telecoms chapter from The Report: Nigeria 2013

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