Ensuring Sustainable Growth And Quality Of Service In Nigeria’s Telecom Industry

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By Taofeek Lawal

Nigeria is the largest mobile market in Africa in subscriber terms and the region’s second largest in terms of revenue. This assertion is further reinforced by the recent data from the Nigerian Communications Commission (NCC) which suggests that the nation’s telecommunication sector has so far contributed approximately N15 trillion to the Nigerian economy since the industry’s liberation and the inception of digital mobile communications nearly 17 years ago.  It therefore goes without saying that telecommunications is a key sector that continues to contribute to economic growth and, in the light of recent events, is one that can lift the nation out of the recession doldrums.

In quantitative terms, the telecoms sector has created over 2.5 million jobs over the past 10 years, and its positive impact is felt across all industries, along with its abundant potential to revolutionize businesses from multinational corporations to small and medium scale enterprises as well as their respective ecosystem.

The industry continues to be at the forefront of providing mobile banking services that help deepen financial inclusion, bypass brick and mortar challenges by providing access to e-learning platforms which facilitate training, research and development, while not forgetting the pivotal role it plays in delivering healthcare services to rural regions via telemedicine and text message counseling, amongst many other services.

Interestingly, until June 2016, the telecoms sector was growing rapidly and accounted for 9.8 per cent of Nigeria’s Gross Domestic Product. Sadly, this growth has been stifled and the sector is at a critical juncture in its evolution. This stagnation, which can be attributed to a number of factors that have come together at once, has the ability to materially impact the industry and undermine its potential to drive economic growth and stimulate the Nigerian economy as a whole.

Structurally speaking, the current weakness in the Nigerian economy has given rise to lower consumer purchasing power and continues to place pressure on the industry and its operators. Furthermore, Nigeria’s weakened currency has made the importation of much needed telecom equipment into the country extremely difficult, and the installation of more base transceiver stations, upgrading of existing towers and service capacity expansion too expensive to conduct on a large scale. Operators are now constrained and must either defer or delay the upgrade and expansion of their networks while customers are beginning to feel the impact of this challenge. Signal quality has been affected, incidences of dropped calls have increased, and overall customer service quality has declined. It must be stated emphatically that Nigerian consumers have every right to demand more and should never have to settle for poor network quality or services.

Further compounding matters for the industry is the growing rise in the adoption of over the top (OTT) services, that has seen consumers move away from traditional voice (cellular) services and switching to data bundle packets, which enables them to use services provided by the likes of WhatsApp, Skype and Facebook to make phone calls inexpensively over broadband connectivity. This new model requires massive investment into telecom tower network densification, as new 3G and 4G technologies are rolled out. These network upgrades can only be done if there is adequate financing and a suitable business case.

Moreover, industry key stakeholders would agree that there is an ongoing data bundle “price war” between telcos and ISPs, with all parties engaged in a frantic race to deliver cheap gigabytes of data, for rock bottom prices. At face value, this appears to be a positive development on the surface, and these prices appear good for the consumer in the short term, but when critically examined, in the long run, this price war will put many operators out of business, as these current bundled offerings are priced well below their actual costs to network operators. Startling statistics from Research ICT Africa reveal that the price of data has decreased by over 65% over the past two years, squeezing margins and pushing smaller mobile network operators to the brink of collapse.

Matters Arising

Artificially low data prices are designed to drive out competition. This type of practice is called “predatory pricing” in respect of which there are restrictions in many parts of the world. These pricing wars never work out well for consumers, as they typically result in initial temporarylow service prices, just long enough to force out the competition.

Then, without warning, the few remaining players take over market share and suddenly double, or even quadruple prices, as they are the only remaining game in town. It’s easy to identify anticompetitive pricing, as we know what it costs the telecom industry to secure internet bandwidth.

A good example of healthy competition which has led to improved quality and product service offerings is mobile phones. The competition between Apple and Samsung and others has forced all parties to constantly launch new and improved products. Competition leads to fair market pricing which has enabled mobile phones to be purchased by the masses. The current problem in the telecoms sector is that we don’t have fair market pricing -the price of data bundles in Nigeria is presently amongst the lowest in Sub Saharan Africa.

While market forces drive the industry, governments and regulators must shape the mobile economy by setting the policies and regulations that will deliver a healthy, competitive and sustainable mobile sector alongside consumer protection for all citizens.

The Way to Go

Given the tremendous potential that the industry has to help jump start and stimulate the Nigerian economy at all levels, it is imperative that the government provide adequate support while regulators, playing their role as arbiters, must establish a level playing field for all stakeholders.

Association of Telecom Companies of Nigeria (ATCON) President Olusola Teniola noted in June, “Without a review of the data services provisioning market structure, there is a serious risk of market failure with the resultant ripple effect. Current evidence suggests that with inflation at 17%, input costs at a per unit per Mb level, that retail data prices available on the market are unsustainable even with economies of scale, hence a serious distortion exists that needs immediate regulatory intervention.”

While the principles of business and competition thrive in a free market economy as ours, it must also be noted that the artificially low prices are having a negative effect on investment and growth within the sector. The implication of this quagmire is that both big and small mobile network operators are currently overburdened in their attempt to mitigate the current challenges which are resulting in squeezed margins. Moreover, lack of direct access to foreign currencies also means that the smaller firms struggling to survive. In sum, reduced competition creates a lose-lose situation for all operators, as well as the public.

– Lawal wrote in from Abuja