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A Special International Report
Prepared by
The Washington Times
Advertising Department - Published on September 30, 1999
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Sponsors (1) Federal Ministry of Finance
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Telecom industry calls for investment
Anyone who has ever visited Nigeria knows its telecommunications system is less than adequate. With only 800,000 lines serving a population of more than 110 million, making a call can be a frustrating experience. But for potential investors, the opportunity to expand Nigeria’s telecommunications is enormous, especially now that deregulation is getting under way.
Though Nigeria has moved slowly in the past, the new government is committed to picking up the pace. Telecommunications has much room for rapid growth. While the country lagged, the world’s telecommunications sector was moving at an alarming pace. This means, however, that Nigeria will be able to take advantage of some of the newest wireless telecommunications technology for fast and effective connections.
As part of President Olusegun Obasanjo’s strategy to create an enabling environment for business, his government has committed itself to opening up the sector to private investment and delivering phone lines to all subscribers who want them. According to 1994 International Telecommunication Union figures, the country has only 0.34 telephone lines per 100 people; a mismatch that leaves huge potential for international investment.
Signs of the expected massive inflow of foreign investment are already in evidence. One U.S. company, IDM Satellite, has begun an investment of $100 million as part of a joint venture agreement with BT Limited, a wholly-owned Nigerian information and communications technology provider, to provide Internet links to corporations, research houses, schools finance institutions and the oil sector.
Cisco Systems, which has an alliance with Lagos-based Iteco Nigeria Limited, has also said it will work with Nigerian telecom firms to implement technology that will enable data transmission over the country’s conventional voice networks.
Competition
The government’s deregulation will allow new national carriers to come and compete directly with Nigerian Telecommunications (NITEL). Between 1985 and 1992 NITEL held a monopoly on the market, ending with the industry’s partially deregulation with the introduction of the Nigerian Communication Commission (NCC). The NCC’s role was to create an enabling regulatory environment for efficient supply of telecommunications services and facilities. Endowed with the power to issue licenses to private operators, the NCC was also intended to facilitate private entrepreneurs’ entry into the market and to promote fair competition and efficient market conduct among all players in the industry. NITEL was not covered by the deregulation decree and therefore does not fall under NCC jurisdiction.
Though the NCC was established in 1992, it was not until 1996 that any licenses were issued. Among the new issues were one for a mobile phone card system, and one for community telecommunications. Several more licenses were awarded in 1997. In addition, awards were granted for installation of terminal equipment, repair and maintenance activities, private network links, payphone and cabling services as well as Internet, e-mail and voice mail.-
Overall, over one hundred licenses were granted to Private Telecom Operators (PTO) to offer a wide range of telecom services to national subscribers. According to the Obasanjo administration, however, many were issued indiscriminately. It intends to rectify the situation by revoking some. This has been criticized by operators, however, and the government is said to be weighing its options carefully. Many of the licensees have not yet commenced operations, and of the existing local operators, some charge even higher rates than NITEL, whose rates are already higher than those in other African countries.
Current policy direction appears to favor four operators to offer Global System Mobile (GSM) telecommunication service and two network carriers to operate alongside NITEL. AT&T and MCI as well as Germany’s Siemens have all displayed interest in investing the estimated $1.2 billion it would take to get a second carrier off the ground. Both AT&T and Siemens have long relationships with NITEL as suppliers or contractors.
The government is still seeking the best solution to the problem. Previous administrations pursued inconsistent policies which negatively impacted the level of foreign investment coming into the sector. The new administration is eager to ensure it makes the right decision the first time by adopting a clear policy.
To that end, the president and the Ministry of Communications sponsored a policy review workshop in July where professionals were invited to deliberate on and suggest steps to be taken to create an efficient telecommunications system in the country. Attendees recommended full-scale liberalization, and the government has now appointed a telecom policy committee headed by Vice President Atiku Abubakar to review the recommendations.
“I don’t know if you could ask for better than that,” said Eyo Ekpo, a partner with The Law Union, who attended the conference on behalf of one of the licensees. “We have a government that is actually willing to move forward.”
Among the expected goals of the telecommunications policy, according to the African Telecom Think Tank, is rapid development of the communications infrastructure so as to roll out some 1 million lines annually over the next 5 years. This would be achieved largely by encouraging foreign investment in both fixed and cellular markets by foreign operators and investors, with a particular focus on encouraging teamups with local investors. Emphasis will also be placed on promoting efficient, effective and affordable communications services for all sectors, including the rural communities.
Privatization
Once the new national carriers come on line in the next few years, competition is expected to hack away at the barriers that formerly kept the industry from developing. NITEL, known for its inefficiency, mismanagement and exorbitant rates, is going to have to clean up its act to compete, and with plans for privatization looming large, the race is on. A recent slashing in the cost of acquiring a phone line indicates that they are already taking notice.
NITEL is just one of the state-owned enterprises being put on the block in the third phase of the country’s privatization and commercialization program. The government intends to divest itself of 60 percent of its interest with 40 percent sold to core group investors and the remaining 20 percent sold to the Nigerian public. M-Tel, the government-run mobile service provider is also slated for privatization.
M-Tel currently runs an antiquated analog system with moderately poor technical quality and below average grade of service. With only about 20,000 lines in operation, there is a huge gap between supply and demand and a tremendous opportunity for investors to invest in GSM technology.
“What we are going to do in the case of NITEL is what is called a partial privatization, and this decision is irrevocable,” said Alhaji Mohammed Arzika, Minister of Telecommunications. To try to get NITEL ready, the government said it intends to do a comprehensive valuation audit and management cleanup. It may also begin by privatizing management.
It is likely the government will follow the South African privatization model, setting targets for prospective investors in terms of the number of lines connected, the capacity, nature of services and phones. “You will probably get service to the people almost from the beginning,” Ekpo said.
In the last couple of years, NITEL has made strides in turning its network around. When it took off as a commercial entity in 1985, it had a network of 250,000 lines. At the time all the exchange and transmission lines were analog. Today, most of the transmission lines are digital; the company now has three international digital gateways in Lagos, Enugu and Kaduna; and the network has grown to about 800,000 lines.NITELalso has introduced an Internet gateway during the course of the last nine years through internal financing.
Minister Arzika said recently the remaining analog system will be phased out in most commercial areas and, instead of being scrapped, will be taken to rural areas. NITEL is already working on its Universal Telephone Service (UTS) whereby subsidized service will be provided in those areas.
“The Universal Telephone Service is a subsidized service to rural areas,” the minister explained. “It will be funded from profits made by NITEL and we are also working out a percentage element, whereby a percentage of the development of the telecom sector will go to rural areas.”
One option for rapid progress in rural telecommunications development currently under review is wireless technology. “You can put a small site in the village which will give them universal access,” Ekpo explained. “Over time their economy improves, partly because they have communications, so you can then build another, and another. “Until it makes sense for people to have a phone at home, wireless is the classic solution to providing affordable, easy, fast service in rural areas.”
Encouraging steps have also been taken at NITEL to deal with some of the sticking points it had with the PTOs who accused the company of dragging its feet over interconnectivity agreements. July bills received by PTOs showed that it has started implementing the reviewed interconnectivity pact signed in early May.
Based on the new agreement, for all local calls within a city or town NITEL and the PTOs will collect 50 percent each of the subscribers payment; for transit traffic, the ratio will be 40 percent for originating parties and 30 percent for transmitting and terminating parties; while national traffic – all trunk calls – will be shared with 70 percent going to NITEL, 30 percent to the PTOs.
According to Ekpo, the real leap forward will come when NITEL is regulated by the NCC. As a state-owned company, NITEL does not currently fall under any regulatory body. The problem, however, is that bringing NITEL under NCC jurisdiction would require a massive upgrade of the NCC’s capabilities, since while the carrier operates in thirty-six states, the regulator only operates in three.
“If tomorrow you say NITEL will be regulated by the NCC you have the problem of human resource capacity,” Ekpo explained. “How do you regulate someone that is 30 times your size?” One answer would be to build up regulatory capacity with the assistance of agencies like the International Telecom Union, the African Development Bank or the World Bank.
“I believe that within the next year or so we will see a situation where NITEL will have been sold, we will be close to appointing a second carrier and will probably see an NCC that is better established with more staff, better trained and has more powers,” Ekpo said. “Investors need to take advantages of the opportunities now.”
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Table of Contents (1) It's a new dawn over Nigeria |
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