Crises in telecom sector: The FDI implications

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In the last couple of months, the Nigerian telecommunications sector has been embroiled in near crisis. Hardly any week passed within the period  without a dispute between the telecommunications operators and one agency of the government.

First it was the National Environmental Standards Regulatory Enforcement Agency, NESREA, going to seal one of MTN Nigeria’s facilities in Abuja, sometime in April, over alleged non-compliance to set standards. Nigerian Communications Commission, NCC, felt that NESREA went too far in exercising that function without recourse to it as the telecoms regulator in the country.

Based on that, the regulator, a few days after, unsealed the facility warning NESREA not to encroach on telecoms territories without clearance from it. However, two days after this, NESREA felt that the onus of setting standards involving the distance an operator should set its BTS from living homes fell within the environmental protection laws, called the bluff of the NCC and re-sealed the facility.

This brought a  stalemate which lasted for several weeks in the industry and put a lot of telecoms subscribers out of service while the tussle lasted.

Financial Vanguard gathered that it took the efforts of some committees in the National Assembly and other top government functionaries to quell the matter, even though a permanent solution was not attained.

Barely a week after this incident, another crisis broke out. The regulator itself fell out with the operators after discovering in May 2012, that the operators did not meet the agreed Key Performance Indicators, KPI, for the months of March and April. The KPI was  set to monitor the quality of service rendered to the Nigerian subscribers.

Four major Operators – MTN
Nigeria; second national operator, Globacom; Airtel Nigeria and; Etisalat – fell under the hammer of the regulator which slammed a collective N1.17 billion fine ($7.3m) on them. The regulator also gave a stipulated time of two weeks for the operators to pay up the fine or risk additional N2.5million penalty that would attract every single day of default.

The NCC said it had arrived at the decision on testing the operators on four parameters – Call Set-up Success Rate, Call Completion Rate, Drop Call Rate and Traffic Channel Congestion. The commission said the telecoms companies have failed to meet  the minimum standard of quality of service.

From the breakdown, MTN and Etisalat were fined N360million ($2.2 million) each, while Airtel and Globacom were fined N270million ($1.7 million) and N180million ($1.1 million) respectively. They were given up till May 25 to pay the fine or get additional N2.5million ($15, 520) daily as contravention charges.

While the regulator believed it was keeping the operators on their toes to comply with the rules and as well provide quality services, the operators felt victimised, arguing that poor service quality was due to poorly developed infrastructure in the country. They  described the NCC action as killing the goose that lay the golden egg.

For as long as the issue lasted, it divided the sector into two parts with some on the part of the regulator and others on the part of the operators.

In a recent chat with a prominent Nigerian ICT stakeholder and CEO of systems network company, Signal Alliance, Mr Collins Onuegbu, he cautioned that the issue of service provision in the country should not be treated as an isolated case since everything works together for a better service provision.

“I would not be in a haste to condemn the operators for poor quality of service because I know that some of the infrastructure they need to get their services to the optimum are not there yet. They are complaining of poor electricity supply, bad road networks, incessant fibre cuts during road maintenance and vandalisation of their facilities among other things. Unless we can all agree that these things are  not so,  we need to be patient with them”

Telecom mast

However, a group of ICT media professionals, under the aegis of ICT Magazine Publishes Alliance, did not see it as just that. The group felt that the operators should pay whatever fine the NCC imposed on them, arguing that the regulator had given enough support and grace period for the operators to standardise their services in the past ten years  The group articulated its views in an advertorial that was published in several newspapers in the country.

However, penultimate week, the news came round that the operators have paid the fine. Confirming the payment, NCC’s Director of Public Affairs, Mr Tony Ojobo, admitted that the operators have paid the fine, adding that it was also resolved that both the operators and the regulator would sit together and look at the KPI once again to fine tune the prescriptions.

Fears over FDI impacts
Although the operators have paid the fine, indications are that they paid grudgingly. Moments before the payment, Chairman of the Association of Licensed Telecom Operators of Nigeria, ALTON, Engr Gbenga Adebayo, cried out against the impact of these disagreements on Foreign Direct Investments in the sector.

For Adebayo, “there is no institution that is insulated against failure. No matter how we feel that the telecom industry in Nigeria is growing, we must also understand that it is fragile and could collapse if not properly managed. That is why I am of the opinion that no regulator, no authority should make a decision and say it is final.

Telecoms itself is dynamic and we should be dynamic in taking decisions concerning it. If the two sides stick to their guns, the regulator at the worst decision may withdraw the operators’ licenses and that would kill the national network, taking us many years behind.

“What many economies of the world are doing today is collaboration to ensure that no development in the sector is lost on their economies. There are so many opportunities in the Nigerian market, that can attract more Foreign Direct Investments. But I am afraid that the way we are going, not only in Nigeria, but in Africa as a whole, there may be some hesitations before investors plunge their investments here now, unless we  quickly address issues together.”

CTO agrees with Adebayo
As if it had read Adebayo’s mind,  CommonWealth  Telecommunications Organisations, CTO, agreed no less. Delivering a paper in Lagos recently, at an event organised by Nigerian Academy of Engineering, CTO’s Chief Operating Officer, Mr Bashir Patel, noted that Nigeria does not have to re-invent the wheel because to grow the technology, sharpen the competitive edge and move from economic growth to economic development, the decision makers at federal, state and local governments, industry, academia and the press need to make a fundamental shift in their thinking.

Patel said that, taking a critical look at the global drivers of ICT growth, African perspective, Nigerian ICT today has  its obstacles and challenges in a lecture titled “Telecommunications Technology and Infrastructure: The Pivot of National Economic Advancement”.

Many other stakeholders also believe that this is not the time for Nigeria to relax on the pillar of being the fastest growing telecoms market in the world at the moment but to brace up to sustain the tempo, especially as everything is going mobile.

Perhaps, their arguments are based on facts about the growth of Nigerian telecoms market which has not been disproved either in Africa or in other global markets.

ECONOMIC IMPACTS OF ICT GROWTH
In terms of growth, Nigeria is ranked the largest and fastest growing ICT market in Africa and among the ten fastest telecoms growth markets in the world. This is as a result of its robustness to return on investments.

Obviously, Nigeria’s telecommunications sector, drives the entire ICT industry. Despite that the International Telecommunications Union (ITU) stated in the Internet World Stats that Nigeria had the most Internet users per 100 people on the continent of Africa in 2009 having grown by 17% in 2008 and 23% in 2009, the penetration is, however, mainly through mobile phones.

Although there are about four computer Original Equipment Manufacturers (OEMs)in Nigeria ( Zinox, Omatek, Beta and Brian computers), only the first two are in active production. However, they also do not have the capacity to service even a quarter of the Nigerian market.  These are mainly why there are no clear cut distinction between telecommunication and Information Technology in the country.

In a chat with technology reporters in Lagos recently, Executive Vice Chairman, (EVC) of NCC, Dr Eugene Juwah, noted that from a private sector investment of about US$50 Million in 1999, the telecommunications industry by end of 2009, attracted more than US$18 billion in private sector investments, including Direct Foreign Investment.

He also revealed that more than N300 billion was contributed to the coffers of the federal government within that time frame, through frequency spectrum sales, enabling government to plough back revenues earned from the sector for provision of development infrastructure at the various levels of government.

CONTRIBUTION TO GDP
The impact of this on the economic growth has become impressive. Telecommunications sector now contributes significantly to the Gross Domestic Product (GDP), which was hitherto dominated by the oil sector. According to Juwah, the percentage share of GDP from the sector rose from 0.06 percent in 1999 to 2.39 percent by 2007. However, it moved up to  2.90 percent in 2008, and 3.66 in 2009. By 2010, ICT had contributed 8.2 percent to the nation’s GDP.

Meanwhile, estimates by Pyramid Research in a 2010 report, pitched the annual revenue from mobile services  between 2% and 7% of African countries’ Nominal GDP while in Nigeria the ratio is close to 4%.

Also the Nigeria telecommunications fact sheet released by the United States Embassy in Nigeria in October 2011, noted that “the ICT sector is the fastest and most robust sector of the Nigerian economy, contributing more than the manufacturing, banking and solid minerals sectors combined”.

The fact sheet also revealed a Service Sector contribution to GDP 2010 chart,showing that ICT contributed 25 percent, while Utilities, 17 %; Finance and Insurance, 20%; Transport 15%; Real Estate and Business services, 10%; Hotels and Restaurants, 3% and others, 10%.

Meanwhile, if statistics on the fact sheet are anything to go by, ICT investment spiked 700% in 2001 and received double-digit growth every subsequent year. A factor that saw investment rising by 31% to $18 billion in 2009.

GROWTH IMPACT ON OTHER SECTORS
Growth in the ICT sector has had significant impact in the other sectors of the economy. The financial sector is perhaps, the one which activities of ICT have impacted positively much more than any other sector in recent times. In commercial banking services, the quantum of transactions is catalysed by ICT, mainly through telecommunications services. It is doubtful if any bank in Nigeria is not a major beneficiary of the telecommunications revolution.

In facilitating banking transactional services, the telecommunications industry has provided the bedrock for the finance industry. Electronic banking facilities such as ATM services, online financial transactions, international credit and debit card facilities, airline ticketing and reservations, are some of the numerous ways that the industry has aided the growth, sophistication, security and quick transactions in the Nigerian financial sector.

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