By Eze Nwagbaraji

Public investment in communication infrastructures is fundamental for economic and social development of any country. They improve productivity across all sectors of the economy and are the communication and transaction platforms for the entire economy.

 Advanced communication networks, such as rural and community broadband arethe primary components of modern innovative ecosystems and over the past decade and half, have emerged as the anchor of meaningful economic growth in both advanced and emerging economies. In the United States, United Kingdom, France, Italy, Japan, Singapore, South Korea, etc. broadband networks have continued to increase the efficiency of public and private investments which depend on high speed communications.

They have become complementary investments to other infrastructures such as buildings, roads, transportation systems, healthcare, and electricity grids, increasing their efficiency levels, assist in conserving energy, enhanced assistance to the aging and ailing segments of the population, improve safety, and adaptation of new ideas and new innovations.

The Nigerian Telecommunications Limited, NITEL, is Nigeria’s prime public owned telecommunications company. It has the largest telecommunications infrastructures across the country and is the dominant wired line telecommunications company in Nigeria. Various attempts at privatizing NITEL made by the National Council on Privatization (NCP) and its Secretariat, the Bureau of Public Enterprises (BPE), have failed, the latest being the $2.5 billion attempt to sell majority stake in NITEL to New Generation consortium. The clog in the NITEL/New General privatization deal is the inability of the NITEL bid owners to raise or fund the initial 30 percent or $750 million down payment required under the agreement between the BPE and the bid winners.

While there are several pontifications and arm chair analysts whose commentaries on the sordid story of NITEL privatization fill the print media and air waves, it is economically germane to review the reasons for privatization of NITEL, the national economic and security implications, and the efficiency arguments surrounding privatizations.

The NITEL saga has unquestionably blown open the inefficiencies inherent in our privatization regimes and the deadbeat structure of the BPE, its inability to adopt well known prudent business theories and doctrines. The

Nigerian Communications Commission (NCC) inability to effectively fashion out a prudent economic argument for and against the crisis surrounding NITEL, raises questions about its efficiency as a prudent regulator of the telecommunications sector in Nigeria.  All private telecommunications companies in Nigeria are apt to pronounce our market as one of the most lucrative markets in the world and several of them roll over each other in attempts to stake a foothold in what is seen as bedrock of profitability in the industry. The primary reasons for these are not unconnected with the apparent inability of the NCC as a regulator to effectively provide effective oversight and even handed regulation of the industry. Efficient telecommunications penetration in Nigeria compared to such countries as Brazil, Singapore, South Korea, Malaysia, etc. remain rudimentary.

Nigerian telecom consumers pay more per capita in telecommunications than in these countries. Estimates from the International Telecommunications Union (ITU) put our consumption at about 40 percent per capita, i.e. for every Naira earned by Nigerians, Forty Kobo go into payment of telephone bills. Beyond this, nearly 95 percent of our telecom consumers are forced into a prepaid telephone system, which makes the Nigerian consumer, the financier of telecommunications companies. It also makes telecommunications one of the most preferred provider businesses in the country. Consumer prepaid products economically shift the risk of the business to the consumer and assures the provider of such services effective returns on his investment. Further, it does not create meaningful incentives for the provider of the service to be consumer focused.

Since the advent of the wireless telecommunications regime in Nigeria more than a decade ago, wireless telecommunications companies have become the largest receivers of consumer deposits of funds for future use (prepaid services). The companies have enjoyed unabashed oligopolistic hold on the market with weak regulatory oversight from the NCC. None of the companies have deemed it necessary to expand their ownership structures by floating their equities in our stock markets, even though some of these companies, by their gross annual sales and receipts, are larger than most of our commercial banks. The Securities and Exchange Commission (SEC), which pursuant to the Investment and Securities Act (ISA) 2007 and the Corporate Affairs Commission (CAC), which through the Companies and  Allied Matters Act (CAMA) 2004, have the mandates to compel corporations with more than 50 shareholders to come to the market as publicly traded companies, making their shares available to the larger Nigerian investing public, have not been able to get any of the wireless companies to become publicly traded. Over the same period, NITEL, which is government owned was completely relegated to the background.

Community and rural telephony in the country remain rudimentary, broadband penetration at both community and urban levels are rudimentary. Virtually all primary and secondary schools in Nigeria are underserved with telecommunications technologies. A major advantage of effective telecommunications penetration is the inherent benefit that primary, secondary, and tertiary institutions gain by being linked to the information highway. Our ability to link our rural communities to telecommunication infrastructures has the added advantage of enhancing
the qualities of life in these communities. After more than ten years of the arrival of private wireless telecommunications in Nigeria and the unfettered protection that operators within the industry have enjoyed, it is now proper to assess the cost-benefit of their continued protection against increased competition, vis a vis the overall benefit to the public.

The economic and widely expressed purpose of pro-competition in telecommunication is to enhance consumer welfare. In effective telecommunications regulatory regimes of such telecommunication markets as the United States, the United Kingdom, France, Japan, etc. limited regulation of telecommunications operators are arguably supported by the self regulating safeguards put in place by operators within the telecommunications industry.

Effective consumer bill of rights that enable consumers exercise effective choices and assert their rights, adequate and accurate information mechanisms that enable the most vulnerable consumers understand the choices they face, fair competitive rate regimes not necessarily collusive, emergency telecommunication facilities that make the companies valuable members of rural and urban communities, etc. are some of the hallmarks of a responsible self regulating industry.

The global economic arguments for privatization of some of government services and or assets is borne out of the understanding that there are some services that are better provided by the private sector because they can leverage efficiencies that government institutions may have challenges leveraging. There are no conclusive economic arguments that governments must privatize all national assets or consign all essential national services to the private sector. Even in such advanced telecommunication markets as the United States, United Kingdom, Japan, etc. the role of the government in providing direct rural telephony has never been compromised
or consigned to the private sector. China, for example has never agreed to the wholesale privatization of its telecommunications industry. Private sector participation is necessary, but the impact of government presence in the market, especially at the rural and community levels, enable these areas of a nation to be effectively serviced because rural telephony in underserved markets are not profitable at the initial stages, hence making them unattractive for private operators.

Privatization of telecommunications in Nigeria has basically achieved the efficiency arguments that are inherent in all the arguments for private sector participation in the provision of telecommunication services.

Because profit is the motive behind the concept of moving private funds into markets, effective private agents are guided by the marginal returns that their investments earn. Further, under competitive market conditions, private and public objectives are closely aligned only when externalities are smaller. This is the only condition that put private operatives into a better advantage. When externalities are large and the pursuit of a private profit agenda is more constrained because of the increasing lower marginal returns on invested private capital as evidenced in rural and community telephony, efficient capital allocation theories require private operatives to stay away from such investments. In such market environments public sector ownership clearly has an advantage.

Accurate understanding of these fundamental market and economic truisms are necessary if those with the responsibility for regulating the telecommunication industry and those with the responsibility for privatizing our national infrastructures must succeed. At the state and local government levels, governments in their quest to advance the economic benefits accruing to their communities must not overlook the importance of their presence in fundamental quality of life enhancing sectors such as rural and community telephony. Government participation is not necessarily an outright ownership and operation of such services. It includes the foresight to understand the limits of governments and where necessary joint investment with private sector operatives to make sure that key rural and community telephony are available to rural and community consumers.

In providing rural and community telephony, provision of the services at the most reasonable and affordable rates is the goal not profits.

The continued quests by both the NCP and the BPE to privatize NITEL are clear admission of their inability to come to terms with the economic theories and realities surrounding efficient private and public investments in the market. Private telecommunication operators in Nigeria are providers of part of the services that NITEL is capable of providing.

For one thing SAT 3, which is the backbone of Nigeria’s communication know how is a repository of NITEL along with the MTel cellular license. The current failed NITEL bid which put 75 percent ownership of the corporation at US$2.5 billion is surpassed by the nearly US$5.00 billion earned by MTN Nigeria last year. Yet MTN Nigeria does not own the level of infrastructure within NITEL.

There are viable prudent economic options available to the NCP and the BPE in handling NITEL. The question of objectives is fundamentally important when addressing issues of performance. If rural and community telephony is part of our infrastructural needs, and the Nigerian Finance Minister, Olusegun Aganga, have been eloquently making the case for a regime of viable and achievable infrastructure system in Nigeria, why is NITEL on the verge of being junked? Prudence requires resuscitation of NITEL as a viable entity, capable of competing in the market with all the other private telecommunication operatives in Nigeria. Public investment in telecommunications is necessary if efficient services must be provided to all Nigerians, especially those who live and work in our rural communities. The importance of government presence beyond regulation in our telecommunications market includes job creation, promoting industrialization, and defending national interests.

The lack of clearly defined goals and objectives and the absence of an adequate reward and incentive system that creates an organizational culture that is less in conflict with economic efficiency are the lead reasons why policy makers engage in the wholesale claim that private operatives are more efficient than public institutions.

 It is important not to deface the demarcation lines between ownership and performance in the case  of NITEL as the grand telecommunication infrastructure in Nigeria.