‘Telecom operators spend N10bn annually to power BTS’
What is your assessment of the Nigeria’s telecoms market and how would you benchmark the industry in Nigeria and other climes?According to the Pyramid Research Report, Nigeria is Africa’s largest mobile market, a unique combination of large subscription volumes and fast growth only matched by the so-called BRIC countries. Mobile penetration stood at 66% at […]
What is your assessment of the Nigeria’s telecoms market and how would you benchmark the industry in Nigeria and other climes?
According to the Pyramid Research Report, Nigeria is Africa’s largest mobile market, a unique combination of large subscription volumes and fast growth only matched by the so-called BRIC countries. Mobile penetration stood at 66% at the end of 2012, from less than 1% in 2001. Annual average subscriber growth over the past five years was about 20%, one of the world’s fastest growth rates over that period.
Nigeria is the largest mobile market in sub-Saharan Africa in subscriber terms and the region’s second largest in revenue terms.
Has this growth impacted on the economy in terms GDP and employment creation?
The direct contribution of Nigerian telecoms operators to the country’s GDP is estimated at around N400bn in 2012. Taxes and regulatory levies are the most important source of direct contribution
from network operators in Nigeria, accounting for about 55% of the direct contribution. By our estimates, network operators pay close to N160bn in taxes annually, with another N55bn paid in various forms of regulatory levies.
In addition, Nigerian operators have paid close to $4bn (N640bn) in license and spectrum fees since 2001. Further, 3% to 5% of Nigerian telecoms services revenues are paid out in wages and benefits for some of the highest skilled jobs in the economy. Other contributions to the economy include payments to contractors, corporate social responsibility (CSR) programs and dividends to shareholders. CSR programs have been of particular significance, with many operators investing a material portion of their revenue on such programs despite not breaking even on their investments.
Telecoms operators also contribute to the economy through their wider ecosystem; the ecosystem includes the entire industry value chain, from contractors for base station deployments and system integrators to resellers of devices. The third channel of contribution comes through multiplier effects and productivity gains from the society at large using telecoms services. The telecoms sector is a major contributor to foreign direct investment in Nigeria, along with the banking and oil and gas sectors. Cumulative FDI in US$45bn; the telecoms sector has accounted for around 35% of that amount, with operators using capital to acquire licenses, acquire or prop up local operations, and expanding their networks. During some individual years (e.g. 2009), the telecoms sector has risen to provide more than half of the country’s FDI.
In real terms, what are telecoms contributions to employment generation?
The contribution to employment has been visible in the volume of new job opportunities created and in the variety of required skillset.
Nigerian operators have created close to 10,000 direct jobs since liberalization, a pace of nearly 1,000 direct, full time equivalent (FTE) positions created each year. On an indirect basis, the total number of jobs created by the telecoms operators hovers between 1m and 3m depending on the estimates.
Very recently, telecoms operators have come under fire from certain public quarters. Front in the burner are issues bordering on Quality of Service. What is your assessment of this situation?
Nigeria’s patchy power infrastructure has long been an obstacle for the country’s telecoms operators. In a country with about 25,000 BTS and a need for around twice that number over the next ten years, the power infrastructure challenge is especially nagging. The power costs of a site connected to the power grid are only about 1/6th those of a fuel-powered site, but only about 10% to 15% of BTS are connected to the electric power grid. The implications of such absence of reliable power infrastructure are far-reaching. Nigerian operators spend around N8bn to N10bn a year in diesel costs to power up their base stations.
Such costs account for about 60% of operators’ network costs. Primarily because of such fuel costs, average network costs in Nigeria are 2x to 3x higher than in a number of other African markets. The multiple taxation of telecoms operators represents another challenge facing the industry. And there are other issues bordering on multiple regulation, frequent fibre-cut, community issues and other problems that are making it difficult for the common man to experience the desired Quality of Service. Recently too, we saw cases of flooding and activities of terrorist groups that adversely hampered Quality of Service.
There are also fears that the move by telecoms pperators to sell off tower sites will result in loss of jobs of thousands of telecoms engineers. Is this assessment correct?
Yes, indeed there are plans by operators to sell off, not necessarily outsource, the towers. It is the trend globally, and as the ALTON Chairman, Engineer Gbenga Adebayo stated, recently that it is meant to allow operators concentrate on their core competences and allow those who are better equipped professionally to manage the towers to do so.
Indeed, the telcos had already outsourced their network operations to experts like Ericsson and Huawei, who in turn outsourced maintenance services like fueling, cleaning and security to local companies known in industry parlance as ISMs.
From the above narrative, it is evident that the eco-system of telecommunications business is growing a wide value-chain, which has Nigerians (locals) at the epicenter. So, more jobs would be created rather than lost, given that the new owners will definitely like to grow their businesses. Regarding the Call Centres, which were outsourced to BPOs, it is an inexactitude to say jobs were lost! On the contrary, the number of people employed in the Call Centre business has grown exponentially by over 300%.
So, rather than create fears in the minds of our Engineers, who will be moving to these Tower Management companies, and disaffection in the hearts of Nigerians, who have been unapologetic beneficiaries of the GSM revolution started in 2001, we should highlight the immense advantages inherent in this strategic business move by the telcos.
There is a lot of cheering stories coming from the telecommunications sector. The sector has attracted over $20b FDI in the past 12 and a half years of the launch of GSM in Nigeria. On another note, the industry is perhaps the only one which has continue to creatively take advantage of a combination of economic factors including technology, competition, outsourcing, and other economies of scale, to drive costs down hence price of telecommunications services and related products like phones and other devices. Telcos have remained consistent in cost reduction and price reduction. Cost of calls, SMS and devices have, conversely, dropped many times over.
Speaking about broadband, what are your thoughts regarding broadband development, especially as it concerns government drive towards deepening Internet access?
In many respects, the Nigerian telecoms market still seems to operate below potential. While strong, mobile penetration is still lower than in a number of other African markets. Broadband penetration remains low at less than 10%, with the government setting a target of 20% by 2017. There are adjacent, yet fundamental, systemic challenges, related to the need to build up a broadband infrastructure reliable enough to provide the platform for a vibrant Internet economy and attract data centres, providers of content and other technology companies. According to the Pyramid Research Report, the impact of telecommunications on the consumer market has been undeniable. Over 60% of Nigerian consumers agree that using mobile services had improved their lives; over 35% stated that mobile phones had “dramatically improved all aspects of their lives”. Around 80% of respondents had seen financial gains from using mobile services, through a combination of savings in communications spend, a reduction in transaction “friction” and the ability to generate additional income by staying connected.
The impact on the business sector is similarly notable. Nearly 100% of medium and large formal sector corporations in Nigeria have some form of Internet connectivity. About 60% provide mobile phones to staff for business purposes; about 70% are using the Internet to access public tender documents, with roughly the same proportion routinely receiving orders for their services via a website. The impact of Internet connectivity has been even more perceptible, further highlighting the positive ripple effects of telecommunications on business productivity and the economy at large. 72% of enterprises stated that Internet access had had a substantially positive impact on their businesses and operations, with another 27% recognizing a moderately positive impact.
Nonetheless, the challenge of building up a reliable e-government infrastructure remains substantial. Connectivity in Nigeria’s 55,000+ primary, secondary and university remains low or inadequate; many of Nigeria’s 1500 or so MDAs and other public institutions (e.g. post offices, hospitals) remain underserved by broadband. How further government is to leverage technology to improve public service provision will hinge in no small part on how aggressively telecoms market challenges are addressed.