N600bn Broadband income Entangled in Telecoms Structural Frailties

Structural frailties in Nigeria’s telecommunications industry are causing the nation huge economic losses, especially amidst government’s failure to properly implement the National Broadband Plan (NBP).

The broadband plan is expected to facilitate nationwide deployment of metropolitan and backbone networks on an open access, non-discriminatory basis.

The GSMA, a body representing the interest of operators globally, had predicted that the country’s broadband market would have a direct revenue impact of N600 billion by 2016, only if the Nigerian government can create the enabling environment. Industry observers say that the said target remains unattainable because the current market structure is vertically integrated.

This implies that some players provide both passive, active and retail services on one hand, while providing passive and active (or part active) infrastructure to other players who they compete with in the retail segment, on the other hand, with no price caps at the interconnecting layers.

This has given rise to price regimes that negate the objective of increasing broadband penetration in Nigeria, according to them. This structure, which has served the country well in terms of penetration of mobile services, has faced limitation in terms of increasing availability and penetration of high speed broadband services.

This situation is rather worrisome, industry watchers say,  because the Nigerian economy is in dire straits in view of the raging revenue crisis, amplified by the steep decline in oil prices and widespread corruption, which is already dampening government finances. Eighteen out of 36 states of the federation are technically bankrupt, according to reports.

Many of these  states can no longer pay workers salaries.

Given broadband’s potential to generate revenue for economies, Matthew Wilsher, chief executive officer at Etisalat Nigeria, is of the view that government has failed to put in place policy and regulatory interventions to address the challenge of market imbalance in order to exploit the huge prospects of broadband for income generation.

Wilsher also points out that studies have shown that broadband has the potential to drive GDP growth in excess of N400 billion between 2014 and 2018.

With the creation of  an enabling environment to foster pervassive broadband infrastructure deployment, “Jobs will be created and young people can feed on their intellectual property (IP). “Small businesses will spring up across the country. Creative people will come up with new solutions that would take Internet services to the hinterland.”

“Government at all levels can generate huge revenue from taxing new businesses that would spring up as a result of improved internet connectivity”, said Usen Udoh, senior director, high communications, Accenture Nigeria. Since the liberalisation of the telecoms sector in 2001, government has generated over N300 billion from frequency spectrum licensing, making it a significant revenue earner. The telecommunications sector has so far attracted over N6.4 trillion ($40 billion) in investments, 13 years after the sectors’ deregulation and liberalisation, according to the Bureau of Public Enterprises (BPE).

Market observers are however suggesting that investors are already raising questions about the country, in view of its harsh  economic climate and the telecoms industry’s structural imperfections.

Wilsher further said broadband deployment involves considerable amounts of fixed cost, explaining that struggling telecoms operators who are unable to attract the volume of reasonably priced, long-term funding required to deploy and operate broadband infrastructure profitably, are leaving a major broadband investment deficit.

“The resultant shortfall is underlined by Nigeria’s ICT investment as a percentage of Gross Domestic Product (GDP) ratio of 2.6 percent while the average for peer countries is 5.5 percent”, he added. Funke Opeke, chief executive officer at MainOne, has stressed the need to sustain the broadband policy initiatives introduced to promote open access and manage spectrum more effectively to continue to drive economic growth.

“Nigeria needs to move up the value chain beyond dependence on natural resources, and into the labour-intensive service economies and implementation of the broadband policy will enable this”, Opeke added. In a paper presented at the 2015 Commonwealth Broadband Forum in Abuja recently, Willsher said interventions by the regulator to ensure a more equitable distribution of value in the telecoms  industry, introduction of active network sharing, the refarming of the 800MHz spectrum, release of the digital dividend spectrum for use by the industry and easing up of access to foreign exchange by operators, were some of the critical policy and regulatory actions required to improve broadband accessibility and affordability.

“Mobile broadband penetration stands at 10.1 percent, while the average for peer countries in Africa is 30 percent. Peer countries have an average smartphone penetration of 26 percent, while Nigeria’s smartphone penetration averages 12 percent”, he said.

In terms of mobile broadband affordability, measured by the percentage of average GDP per capita required for broadband access, the Internet Society estimates that Nigerians spend 9.8 percent of their average GDP per capita to access broadband, while the average for peer countries is 4.3 percent”.

Ben Uzor