LOOKING FOR RIGHT POLICIES AGAINST DISTRESS IN THE NIGERIAN TELECOM SECTOR
Despite the rosy picture painted around the Nigerian telecommunications revolution, there is a hidden fact which everybody seems so afraid to mention - the fact that much distress could also sweep the sector away faster than liberalisation revolutionised it. Asst. Hi-Tech Editor, PRINCE OSUAGWU, in this report looks at the distress in the sector and the ability of NCC's new infrastructure sector to provide succour.
There are indications that more acquisitions are likely to happen in the Nigerian telecommunications sector. This is following a deepening distress that continues to plague the sector. At the moment, many telecommunications operators, particularly in the Code Division Multiple Access, CDMA sub sector, are barely managing to keep afloat. To put it bluntly, many operators are in distress, in a market that is still far from saturation.
Acquisition in the CDMA sector
The fortunes of the Nigerian CDMA operators experienced a nosedive shortly after the GSM operators opened shop in August 2001 and since then, while the Global System for Mobile communications, GSM operators keep increasing in number and financial record, their CDMA counterparts have been depleting in both numbers and bank balance.
Although things began to look bright in 2006 when their regional licences were upgraded to Unified Access Services Licences, the operators could not sustain the tempo and from a position of strength in terms of the number of operators, there are today, just about only two active CDMA operators, Starcomms and Visafone.
From the official statistics released by the NCC at the beginning of the year, the CDMA operators lost 17 percent of their total subscriber base between January and October 2011, translating to about 1,069,485 lines in number.
The regulator said that at the opening of business in January 2011, the CDMA networks had pooled together a total of 6,186,442 telecoms subscribers from their various networks.
However, the figure kept experiencing consistent decline, slipping to 5,116,957 active lines at the end of October, 2011 from a loss of an estimated N10 bn in revenues This represented a monthly revenue loss of N1 bn. This scenario increased the calls for consolidation in that sector.
Meanwhile, there are strong indications that Multilinks, MTS and a few other CDMA operators are on the raider of a foreign investor who is straightening out talks to acquire them.
The Executive Vice-Chairman of the Nigerian Communications Commission, NCC, Dr Eugene Juwah, hinted on it when Vanguard engaged him in a chat at the recently concluded Mobile World Conference in Barcelona, Spain.
Also, strong inside sources at one of the topmost CDMA operators hinted at the weekend, that the operator may be evaluating two options of either allowing a rich investor to come in and inject sizeable sum in the business and apparently take a majority share, or succumb to outright acquisition.
Rosy as the fortunes of the Nigerian telecommunications sector may be, these developments are obviously going to tell on its steady growth.
Chief Executive Officer of a prominent CDMA operator in Nigeria agreed that things are not actually as rosy as they seem. Although he preferred anonymity, he, however, made startling revelations: 'Without mincing words, some operators are in distress in this sector. Many people do not realise it and the earlier people face up to this, the better for the sector and the country as a whole.'
He added that 'it is not until an operator collapses finally that it is in trouble. When a company is not able to meet its obligations to its bankers, its fellow players, its staff and customers, it is clearly in trouble. It is not simply that a company has borrowed from a bank.
'You cannot do this business without borrowing. But the moment you are not able to manage your debt portfolio well, or you begin to default in the servicing of the debt, you are going down. And it gives me no pleasure to say it, but the truth is that there are many in that position today. Forget about the razzmatazz.'
How EMIS paved way for distress in the sector
Traditionally, the story of telecom revolution in the country always begins with the liberalisation of the sector in 1999. This followed with the auction of the GSM licences, which saw giant telecommunications outfits like MTN and the then Econet wireless (now Airtel Nigeria) rolling out services.
There is also the account of later entrants, Globacom, Etisalat and probably with a few additional accounts of Starcomms, Visafone and others in the CDMA sector.
However, the account of the telecommunications sector may not be complete without those companies that went under and why they went under.
For instance, among the earliest private telecommunications operators in Nigeria soon after the deregulation of the sector, was EMIS. A telecommunications company that probably had the best marketing war chest of the entire lot at the time, dominating the airwaves and nearly every inch of space in Nigeria's leading newspapers.
It was headquartered in an impressive edifice, painted in bright colours on Ajose Adeogun Street, in highbrow Victoria Island. During working hours, expensive cars were parked in every available space in front of the edifice. Smartly-dressed security officials mounted sentry at the gates.
Beautiful ladies in smart business suits welcomed visitors at the reception. It was the darling of many well-heeled individuals and prosperous corporate bodies who at that time, could no longer tolerate the poor services and arrogance of the state-owned national telecommunications carrier, NITEL.
Early signs of distress
Suddenly, signs began to appear that all was not well with this once promising company. The hustle and bustle at the company's premises started to ebb. The cars started thinning out. Today, many people do not remember EMIS again, even on the street where it reigned in its royal opulence a few years ago.
This company's case was perhaps the earliest sign to observers that an operator could indeed play in Nigeria's potentially huge telecommunications market and fail to make impact. It was the earliest vindication of the school of thought that playing in a market with huge pent-up demand for service did not equate with rapid growth and profitability for a telecommunications operator.
Why are some companies in distress when others are profiting?
Interestingly, many of the telcos experiencing growth challenge or are barely managing to keep afloat are companies that had the proverbial first mover's advantage. Many of them preceded the GSM operators, who largely are enjoying soar-away success at the market place. This creates a challenge of identifying why some companies are making success of their investment in the telecom sector while others are in clear distress.
Industry stakeholders are, however, divided on the possible reasons. Many attribute the factors to defective business model, poor corporate governance, lack of access to funding, while others heap the blame on lack of management competence and hostile operating environment, among others.
For instance, former Executive Vice-Chairman of the NCC, Engr Ernest Ndukwe in response to this issue some years back, identified corporate governance as a very important factor that could make the difference between success and failure for a telecom company.
For him, that could determine the difference between running profitably or at a loss.
Indeed, other analysts opined that it is no coincidence that the most successful companies in the telecom sector in Nigeria today have very strict corporate governance principles that almost render their workings mechanical and somewhat bureaucratic.
But for a former NITEL staff, Chief Atitebi Ajao, a successful telecom business rides on the back of a successful business model. 'Your business model may make the difference between success and failure. Many private telecommunications operators adopted wrong business models which in my opinion, resulted in losing their first mover's advantage they had over the GSM operators.
'They rolled into the market with terminals costing as much as N250, 000 per unit. They probably calculated that the number of few rich people who could afford the services were sufficient. Indeed, many people in the urban centres were buying the terminals and the operators were making brisk business. For years, the services they provided were beyond the reach of millions of Nigerians and that cannot be sustainable.'
According to him, it took the arrival of the GSM operators to show the deficiency of the PTOs' models. 'The GSM came with a totally different business model focused on capturing wider categories of Nigerians at launch. They invested more money and built much larger capacity networks and launched service at roughly N40,000, which covered terminal and line. You witnessed the crowds that besieged their premises. The PTOs responded by slashing their prices, but you see, they were then playing catch up and have done so ever since.'
Unfavourable operating environment
There have also been talks about unfavourable operating environment. The Chairman of the Association of Licensed Telecom Operators of Nigeria, ALTON, Engr. Gbenga Adebayo had consistently cried over the huge burden the operators had to bear doing business in Nigeria.
He had advocated a strict penalty for vandals of telecom equipment and facilities to protect telecom investments. His prayers also included that the three tiers of government should harmonise the levies operators pay in carrying out major services rather than the brazen duplication of taxes and levies which bog down growth of the sector.
The general cry of the operators is that the Nigerian government focuses more on making the operating environment better than it is.
According to a recent report, about N39.1 bn was expended on alternative power supply by telecoms companies in Nigeria last year alone. Another N3.5 bn was expended on providing security for their installations.
In a more favourable operating environment, many of the companies struggling currently will be doing very well. But they argue that in an environment where the bulk of cost goes into providing utility services that companies in other markets take for granted, one needs to be extra good to survive and be profitable.
Corporate Services Executive of MTN, Mr Akinwale Goodluck in a recent chat with this reporter, also alluded to this fact.
He agreed that the regulator has been proactive with way it has handled the sector so far, but also lamented that the operating environment would become increasingly difficult with more government agencies rolling out more obstacles against the operators on a daily basis. Goodluck noted that MTN has paid over N546 bn as taxes to various organs of government since 2001.
So hostile has the Nigerian operating environment been described that an estimated 45 per cent of players in the ICT sector closed shop in the last few years according to the president of Association of Telecom Companies of Nigeria, ATCON, Mr. Titi Omo-Ettu.
Perhaps with the growing concerns and calls for government to encourage telcos with a successful business model, the NCC disclosed recently that it has developed an infrastructure sector which would open up the sector more and create a more enabling environment for investors to do business in Nigeria.
In fact, the NCC EVC, Dr Eugene Juwah took the crusade of the new sector to the Mobile World Congress in Barcelona, urging more foreign investors to take advantage of the new development and join the existing investors to build a Nigerian market good to be described as home for telecom investments.
For him, the commission is also focusing on developing broadband for employment creation, from a policy and implementation standpoint. This is also while looking at killer applications for broadband because essentially the development of applications and the building of infrastructure must go hand in hand in Nigeria.
Juwah strongly put it to every potential investor he met that 'today we are introducing a different business model where you will have incentives that would ensure adequate returns on investment for those who are interested in real investment in the sector.'
But whether this sector would give the operators the required support to survive and run profitably, only time will tell.