Tight squeeze

Nigeria’s telecoms sector has experienced exponential growth over the past seven years, sprouting from less than one per cent teledensity in 2001 to 40 per cent by August this year. The country’s 55 million subscribers are served by five GSM operators and a fixed line incumbent, as well as several other service providers offering an array of fixed and wireless propositions. With Etisalat having launched commercial services in the country on October 24, Africa’s largest telecoms market is fast developing into one of its most competitive

Etisalat has set a target of garnering a 30 per cent share of Nigeria’s mobile market by 2011, which is ambitious given that it entered the market as a fifth mobile player behind MTN Nigeria, Zain Nigeria, Glo Mobile and M-Tel.

At current market estimates, a 30 per cent share equates to 16.2 million users, however, if one includes the projected growth rate in mobile connections, which stood at 33 per cent for the first eight months of this year, by 2011 the UAE-based operator would have to have added around 38 million users to meet its 30 per cent share forecast. In way of comparison, market leader MTN Nigeria counted 18.6 million subscribers at the end of 2007, representing a market share of 43 per cent. By the end of June this year, MTN Nigeria’s market share represented 39 per cent; Zain Nigeria controlled 32 per cent of the market and Glo Mobile 21 per cent. MTEL plus the other licensed communications operators accounted for the remaining eight per cent market share, according to Zain’s estimates.

With respect to its new entrant status, Etisalat’s chief marketing officer Essa Al Haddad told Nigerian press recently that he is confident the operator could achieve the forecasted subscriber acquisition numbers. Etisalat aims to differentiate itself through the provision of a superior quality of service, customer-centric promotions and leveraging the group’s other operating companies. Haddad believes Etisalat’s customer acquisition strategy will be focussed mainly on connecting the previously unconnected, although churn is also expected to add to the nascent operator’s subscriber take-up.

Hakeem Belo-Osagie, chairman of Emerging Markets Telecommunications Services (EMTS), the company that owns the licence in Nigeria, also remains bullish that the Emirati telco will excel in the complex Nigerian market.

Etisalat launched services in six key cities in October – Lagos, Abuja, Ibadan, Kano, Port-Harcourt and Kaduna – with further cities expected to be added shortly. As it had done to great effect in Egypt, Etisalat began preparing for its launch in Nigeria with an aggressive pre-launch promotion offering up to one million Nigerians the opportunity to reserve their choice of mobile number starting with the prefix 0809, as well as receive a free prepaid SIM card that included free airtime every month for an indefinite period of time.

It was in January 2007 that the UAE’s Mubadala Development Company paid US$400 million for a unified access service licence in Nigeria, offering it access to GSM 900MHz and 1800MHz spectrum. The Nigerian Communications Commission (NCC) introduced a unified licensing regime in March 2006, for the first time allowing operators of wireless local loop operations to roam across wide licence areas.

The award of the licence to Mubadala was part of a wider bilateral agreement between Nigeria and the UAE. Mubadala is a whollyowned investment vehicle of the government of Abu Dhabi and in September 2007, Etisalat entered a strategic partnership with Mubadala that saw the telco becoming the operating partner for the Nigerian telecoms company. Etisalat holds a 40 per cent interest in Etisalat Nigeria and Mubadala has a 30 per cent share, while the remaining stake is held by Nigerian investors.

Etisalat’s chief marketing officer, Essa Al Haddad, says despite being the fifth GSM operator to enter Nigeria, Etisalat is targeting 30 per cent market share within three years

According to Michele Scanlon, principal consultant of Cape Town-based telecoms consultancy, Green Giraffe, the Nigerian market could be confused by the entrance of the Etisalat brand following the introduction of many new cellular brands in recent years.

“In Lagos, at the time Celtel rebranded to Zain (August 2008), there was a mood that the market had seen so many new brands come in recently, that the average consumer was unsure who all these companies were,” Scanlon reveals. “However, Zain orchestrated its rebranding of Celtel phenomenally and CDMA operator Visafone made a huge impact with its exercise earlier this year. I think it is going to be quite difficult for Etisalat to come in, but it will be interesting to see how they take off.”

The introduction of the Zain Nigeria brand to the market at the beginning of August is the Nigerian operator’s fifth corporate identity change since inception in 2001. The operator began life as Econet Wireless Nigeria, changing to Vodacom Nigeria, then to Vee Networks/V-Mobile. The operator was then acquired by Celtel, and finally rebranded to Zain together with the rest of the Celtel operational subsidiaries across Africa.

Earlier this year Nigerian CDMA operator Reltel Wireless (Reliance Communications) changed its brand name to ZOOM mobile. Site acquisition is another early challenge Etisalat is set to face in Nigeria.

“People know the cell phone industry is the most profitable and visible in the country, so when land owners and tribal leaders are approached by operators to acquire new sites, many want to take advantage of the situation,” Scanlon explains. “There is also a lot of corruption. For the existing operators, they have a definite advantage in coverage. They are streets ahead of Etisalat in terms of the number of years they’ve been on the ground and the number of sites they hold.”

MTN Nigeria for example, has continued with its aggressive network rollout during the first half of the year, integrating 758 new base transceiver station (BTS) sites into its network. A total of 494 3G sites were also live by end-June 2008. MTN also stated that 1,200 kilometres of new microwave backbone routes are already in progress and will be completed by the end of 2008.

Thus Etisalat’s Al Haddad sees a definite need to share sites with existing operators in Nigeria.

“We cannot expect that from day one we will achieve the same reach as an operator that has taken the best part of ten years to achieve. It will be challenging.”

A problem that plagues all businesses in Nigeria, and not just those in the telecoms sector, is the lack of reliable power facilities across the highly populous country and the steep associated costs. Telecoms operators can fork out as much as 80 per cent of OPEX in order to power base station sites.

Speaking in Lagos recently, Wale Good luck, general manager of regulatory affairs at MTN Nigeria, maintained that power remains one of the largest concerns for service providers in the country. He said that telecoms operators are extremely infrastructure dependent companies and that initiatives suggested by the Nigerian government, such as privatising the power sector, unbundling the power sector, encouraging more private generation would have a direct impact on operators’ businesses.

Fazal Husain, CEO of Helios Towers, a site solutions company that builds, leases and manages base station sites on behalf of operators, agrees that power concerns and securing sites continue to be a major challenge in Nigeria.

In addition, Nigeria has been plagued by ongoing quality of service issues and network congestion, and the NCC has been looking to penalise operators that do not improve matters in this area. In August for example, the regulator issued a directive to try and improve the situation, which included acquiring equipment to monitor the quality of service of individual operators in order to discipline them appropriately for transgressions.

In fact the NCC actually prevented some operators from selling low recharge denominations and lowering tariffs until they improved their quality of service.

“Number portability has not yet been introduced so consumers still use phone prefixes to know whether they are calling MTN or Zain, for example. It means subscribers not only pay cheaper tariffs if they call the same network, but there is a higher probability that the call will get through without dropping, as dropped calls are very common,” Scanlon suggests.

ARPUs for GSM operators average around US$15. MTN reported its ARPU had risen by US$1 to US$17 at the end of Q308, while Zain stated its ARPU for H108 was US$10, a drop from US$12 for the same period a year earlier.

Some of the CDMA operators, however, are enjoying brisk business, with players such as Starcomms, Multi-Links, Visafone and ZOOM mobile enjoying ARPU levels in excess of US$30 per month. Despite having smaller subscriber bases these wireless local loop CDMA operators have targeted corporate customers with revenues predominantly driven by data. CDMA subscriber numbers have increased tenfold in the eight months from December 2007 to August 2008, to 3.36 million active subscribers.

“Multi-Links has always had a fibre optic backbone. It made that infrastructure investment early on and now this is playing to its advantage in terms of the quality, consistency and data speeds, making it much more competitive,” Scanlon comments.

In June this year, Multi- Links contracted Nortel in a three-year frame agreement to upgrade its cdma2000 network. The first phase of the contract was valued at US$45 million and aims to bring high-speed mobile broadband services to Multi- Links’ growing subscriber base in Lagos.

“Multi-Links has begun an aggressive rollout programme to increase network capacity with plans to provide broadband coverage for 80 per cent of the Nigerian population by 2011 and 100 per cent of the population by 2013,” Multi-Links CEO Justin Ramayia said at the time.

Recently Ramayia announced that Multi-Links had added over 800,000 subscribers since South Africa’s Telkom acquired the operator late last year. At the time Telkom acquired Multi-Links, the Nigerian operator’s subscriber base stood at around 200,000, and barely seven months after the acquisition that number had risen to over one million.

Another CDMA operator, ZOOM mobile, announced in late October that it had extended its network coverage to 25 major cities and more than 350 adjoining towns and villages, through the addition of the cities of Benin and Jos to its national voice and data network.

Estimates of Internet penetration across Nigeria vary from 1.5 per cent to almost seven per cent. Either way, there is massive scope for Internet service providers to gain data customers and tailor services for corporates. One such provider is Gateway Communications, which was recently acquired by Vodafone South Africa, and has launched two broadband products called Airlink and Metrolink, using its 10.5GHz spectrum licence. The NCC has also indicated it will look at auctioning WiMAX licences early next year.

“There are a lot of decent 3G-enabled handsets in the market, but from my own experience in south, east and west Africa, most people prefer to access the Internet through a mobile or PC, not necessarily a small handheld device,” Scanlon comments. “There will be low-cost laptops coming out of places like Taiwan, and I would not be surprised to see operators start to bundle laptops with a mobile Internet service. T-Mobile has done this in Europe, while France Telecom has bundles with the Orange Livebox in some of its subsidiaries in West Africa.”