9mobile as “last chance” for Nigeria’s telecom industry

by | January 15, 2018 12:34 am

There were days when the telecom sector was hailed as a pre-eminent driver of economic growth and development across Nigeria. The telecom industry was at the time, what economists call the “growth phase.” Millions of people took up mobile phones, some for the first time. And though they complained that the tariffs were high, they continued to make calls and other transactions via their mobile phones. The sector, itself, gradually amassed customers, first in the thousands and quickly graduating to the millions.

The growth in subscriber numbers, in turn, created a massive economic spin-off in the economy. Telecommunication service providers became intertwined in just about every legitimate economic activity. They boosted the banking and financial services industry. They created a boom in the property market. They may have been hamstrung by the problems with electricity supply in Nigeria but that difficulty translated to economic value for the power generation companies and its associated value chain with thousands of people becoming gainfully employed. Of course, dozens of businesses associated with the technical and other aspects of the telecom business benefitted immensely. Millions of people became gainfully employed directly or indirectly by this new-fangled industry.

Indeed, telecom was a key anchor in the rebasing of Nigeria’s GDP a few years ago, and its contribution to Nigeria’s GDP was calculated to be close to 10 percent.

But every good thing typically comes to an end and it would seem as if the days of rapid growth of the telecom industry are gone, perhaps for good. Despite year-on-year inflation, for instance, tariffs for voice calls on the telecom networks have remained on the same level for many years. This is compounded with incredible price discounts on call tariffs which competing telecom firms grant customers, in the face of stiff competition, in effect further reducing the tariffs even more drastically. To make matters worse, the increasing pervasiveness of other-the-top (OTT) providers – WhatsApp, Facebook, Skype and the like, means that millions of customers on these networks now choose to make free calls on these data networks, depriving the telecom networks of what would have been critical revenue from voice calls, the “king” of old.

Thankfully, all of the major telecom operators have over the years, invested in data networks and while they have been badly hit by the massive shortfalls in revenue occasioned by OTTs, the scenario would have been far worse had they not. While voice has experienced considerable decline over the years, therefore, the battle ground has gradually shifted to data where networks are increasingly challenged to be creative if they must survive and indeed continue to thrive in the marketplace.

It would however appear that the severe shortfall in voice revenues has set off a chain reaction that is impacting many facets of the telecom business as financial buoyancy has taken a big hit.

Indeed, in real terms, annual revenues of the industry are declining rapidly. Xalam Analytics in its 2017 Report for instance, states that revenues in the industry have steadily declined in dollar terms since 2014. Indeed while revenues are projected to have grown in Naira terms in 2017 over 2016 levels for instance, 2017 revenues are actually 40% percent lower in USD terms than 2014 revenues.

Xalam also reports that capital expenditure (CAPEX) in the mobile sector declined by nearly 40% in 2016 for instance. In the face of inflation and other operational challenges, telecom companies are also finding themselves needing to commit more than they used to, towards operational expenditure (OPEX), creating an additional burden on revenues.

On the whole, the combination of slower revenue and cut-throat competition are eroding margins drastically. The net effect is that not only is the telecom sector retrogressing, it may indeed be in the throes of the early stages of systemic failure.

The signs are clearly manifest. The Nigerian Bureau of Statistics in Quarter 3 for 2017 lists the contribution of the telecom/ICT sector to Nigeria’s GDP as 7.41% which is considerably less than the 9.13% contribution in the same period in 2016. Instructively, in the same period, GDP grew by 1.40% which implies that even while the economy was growing the telecom sector was paradoxically, shrinking.

In addition, data released by the NCC support this position. With subscriber numbers dropping by over 10 million across all networks in the last year, teledensity is in decline. Internet penetration on the other hand, has remained practically on the same spot in the last year or thereabout.

In the area of interconnect payments, the telecom sector is reeling in debt. At the last count, interconnect debt is said to be in the neighborhood of N24billion. “Interconnect,” by the way, refers to payments that are made between telecom operators when calls terminate on each other’s network. For instance if at the end of a month, N5b worth of calls from Operator “A” are terminated on Operator “B,” while N4b worth of calls originating from customers on Operator “B” are terminated on Operator “A,” then Operator “B” would be required to pay “A” N1b in settlement. That there is indebtedness of this magnitude among operators, speaks to the nature of the systemic problem in the telecom industry.

It is these circumstances that make the ongoing sale of 9mobile a fortuitous intervention in Nigeria’s telecom space. Well-managed, it can considerably help to redress the fortunes of the industry and place it on the path to sustainability.
By the way, it is instructive that 9mobile’s sale did not attract global telecom operators of the likes of Vodafone and Orange. This may indeed be a clear reflection of the current fortunes of the telecom industry and speaks volumes on the imperative of ensuring that the company is in the final analysis, entrusted in the right hands.

9mobile, by the way, is the erstwhile Etisalat, the fourth of Nigeria’s telecom operators and by some estimates one of its more aggressive. Etisalat became troubled after it defaulted in its loan repayments to a consortium of creditor banks. It was saved from foreclosure by the prompt intervention of NCC and the CBN. In the aftermath of the crisis, its erstwhile technical partners severed their relationship and with it, taking with them their brand name, Etisalat. “9mobile” was the hurriedly chosen replacement in the face of the embarrassing developments.

The intervention by NCC and CBN has turned out to be a masterstroke in saving the company and the thousands of jobs that would certainly have been lost had the receiver managers, keen only on the recouping of their loans, been allowed to take over the company. It may also have forestalled the onset of a chain reaction of crisis in the telecom sector. For this fore-sighted act, both regulators deserve commendation not only from the telecom industry but also the country especially because of the pivotal role which telecom plays in the overall economy.

Saving 9mobile presents a rare opportunity to stimulate enhanced investment in the sector, from the slowdown of the last few years. Such fresh injection of capital into the economy will enable the company discharge its debts and shore up capacity to provide service. At circa 17 million customers, 9mobile is a potentially vibrant competitor to any of the other major telecom operators. In an age when the digital economy has become an intricate aspect of our lives, such enhanced investment into the economy will help to spark-off the economic multiplier that will gradually shore up the contributions of the telecom sector to country GDP to the circa 10% of yesteryear.

While Barclays Capital, must no doubt be nearing its finalization of its decision as to who among the 5 pre-qualified bidders for this organization should qualify to acquire it, it is important to remind the NCC and CBN of the dire situation of the telecom industry and the imperative of redressing this via the fortuitous 9mobile sale. Ensuring that 9mobile ends up with the buyer best positioned to drive the inflow of foreign direct investment into the economy is vital. We recommend that this should be a key index for the sale.

In this regard, bidders who may be more capable of initiating a Greenfield operation and who show demonstrable capacity to attract foreign capital in so doing would most likely create better value for Nigeria and its economy. They are to be preferred to current telecom operators who are reeling in debt amongst each other and yet suffer from acute under-investment in their networks on account of the prevailing economic circumstances in the country.

Only this way will the telecom industry be reasonably guaranteed a chance to survive and thrive, short-circuiting the doom that seems to hang precariously over the entire sector.

9mobile is indeed, as they say, a “last chance” for Nigeria’s telecom industry and we can only reiterate how critical it is that it is acquired by the right buyer, a buyer who can attract offshore financing to Nigeria. No doubt, this will tie in neatly with the Federal Government’s efforts at promoting improved FDI inflow into Nigeria as an elixir to enhanced economic growth and development in 2018 and beyond.


Osebumere Odia

Osebumere Odia, an economist and technopreneur, writes from: 27B Adekanye Street, Off Lawanson, Surulere. Lagos