Investor confidence dips as monopolies emerge in telecoms

Perceived structural imperfections in the country’s current broadband infrastructure market are causing huge concerns for investors, with many beginning to seek greener pastures outside the country’s shores.

This brings to mind earlier warnings by industry watchers that the broadband infrastructure market as it stands would likely create monopolies and discourage investors.

The industry regulator, the Nigerian Communications Commission (NCC), is expected to establish seven regionally-based Infrastructure Companies (InfraCos) as part of the proposed market restructuring exercise.

These InfraCos, according to the commission, would accelerate the rollout and deployment of a nationwide metropolitan and backbone fibre network on an open access, non-discriminatory, price-regulated basis. 

But observers are of the view that Federal Government’s plans to limit the number of InfraCos to one in each geo-political region is high-handed, constitutes monopoly, and will fail to inspire the required investor confidence in Nigeria, Africa’s largest economy.

According to them, government’s decision to move in this direction is worrisome because existing mobile operators have already made considerable investments in fibre build.

“So, what happens to the likes of MTN, Airtel, Globacom and other Internet Service Providers (ISPs) who have invested millions of dollars in fibre build?” queries the chief executive officer of one of the largest broadband service providers in the country, who pleaded anonymity. 

According to him, there is a need to exercise caution in implementing this new market structure as over-regulation and government interference could send negative signals to existing and potential investors. 

Foreign Direct Investments (FDIs) in telecoms currently stand at $25 billion. The Federal Government is looking at doubling the said investment in coming years in order to support the much-needed expansion of broadband infrastructure across the country. Industry observers say that government’s target is a long shot, considering the quirks inherent in government’s proposed broadband market structure. 

“My investors are already reviewing some of our future fibre rollout plans due to the uncertainties inherent in this InfraCo model. How can the whole of Lagos, for instance, have just one InfraCo? That’s a monopoly, and you know the evils that come with it,” states the CEO in an interview. 

Lanre Ajayi, president, Association of Telecommunications Companies of Nigeria (ATCON), says the intention behind the InfraCo model is laudable. He, however, expresses reservations about the implementation process.

“I have concerns about having just one InfraCo in a geo-political zone. It just creates a lot of uncertainty for existing and potential investors in the market,” he said at the eWorld forum held in Lagos, weekend. 

Such moves by the government, according to Ajayi, could take the telecoms industry back to the ‘dark days’ of NITEL (Nigerian Telecommunications Limited), the incumbent national monopoly, where inefficiency, unproductivity and corruption held sway. 

This creation of monopolies, market observers further add, does not bode well for Nigeria’s target of achieving 30 percent broadband penetration by 2017, in consonance with the national broadband policy. Nigeria currently has an abysmal broadband penetration rate of between 6 and 8 percent.

“I see no reason why the InfraCos should be a monopoly. You simply can’t have just one company, especially when they are going to get a one-off subsidy from the Federal Government,” says Bayo Banjo, president, Nigerian Internet Group (NIG), noting that these InfraCos would be funded through the Universal Service Provision Fund (USPF). 

Observers are worried that the InfraCo model, though adopted with the best intentions, could create an avenue for politicians to come into the telecoms business. 

“What are the modalities for setting up these InfraCos? Do you think that the licensing of these InfraCos will be devoid of political interference, considering that there is a lot of money involved?” Banjo queried at the forum in Lagos.

The only reasons for licence restriction, he says, are in cases involving a scarce finite resource like spectrum, adding, “Do you think the government will give subsidies to these companies without some form of board representation in place?” 

Eugene Juwah, executive vice chairman, NCC, had earlier allayed fears of the emergence of monopolies in the telecoms market.

“It is done all over the world, especially in developed nations, where government will fund private operators to roll out national broadband infrastructure. It is working well in such countries and Nigeria will not be an exception,” the NCC boss stated.

Disagreeing with speculations regarding the workability of the InfraCo model, Juwah, who addressed concerns on dipping investor confidence, said, “In less than 10 years, Nigeria has become one of the fastest-growing markets in the world because of the competition we are creating here.”

According to him, InfraCos are going to compete just like other players. 

“It would be a defeatist attitude to say that the InfraCos might not succeed. I was in London recently to discuss with potential investors who are willing to come to Nigeria to invest, in spite of the challenges we claim to be having in the industry,” he said, adding that studies show that Nigeria continues to remain an investors’ delight.

Telcos are appreciative of the NCC’s resolve to accelerate broadband deployment nationwide through the InfraCo model. But operators say that the regulator is perhaps taking its eyes off the ball. According to them, telcos’ ability to deliver pervasive broadband services to homes and offices is impeded by environmental challenges, some of which are vandalism, multiple taxation, inordinate right-of-way charges, power constraints, etc. 

An estimated N478 billion has been ploughed into the expansion of Nigeria’s international fibre-optic capacity. This has in turn eased the long-standing constraints of high-speed internet connectivity. Analysts say Nigerians are yet to feel the impact of these broadband cables. The internet market is still characterised by the slow and exasperating access to the cyberspace. Insufficient national fibre backbone, metropolitan fibre as well as last mile connections, according to them, have been identified as significant drawbacks hindering better internet service delivery in the country.

Ben Uzor Jr