• Thursday, February 22, 2024
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Telcos’ focus shift from minutes to bytes

90% of local telecom operators face shutdown in next 5 years – Expert

Frustrated beyond words, Yinka Lawal-Craig almost slammed the internet dongle in her hand on the ground. “Why do I have to pay so much for internet service?”, she queried. “ I can’t even get any work done with the kind of snail-speed service being delivered by my operator.” Craig’s response is a reflection of the growing frustrations of the vast majority of Nigerians currently using Internet service. Considering Craig’s temperament, I thought it best to refrain from providing answers to her relevant questions. “With the massive investment in submarine cables systems, nothing has changed ,” she fumed.

In all honesty, things have changed. With the advent of the cables, the cost of international capacity needed to drive Internet hungry services, had dropped from between $1,500 to $200 Mbps (Mega bits per second). In view of this cost reduction, Nigerians are yet to feel the impact in terms of cheaper broadband services. For an undergraduate, making do with a meager monthly allowance of about N10, 000, Craig had to forfeit a huge portion of the allowance to purchase 4GB (Gigabytes) of mobile data. This would enable her to sift through huge volumes of knowledge resource available on the internet.

Falling voice revenues

With mobile penetration reaching saturation point, and as profit margins on voice calls and SMS taper off, mobile broadband is expected to drive continued revenue growth for telecommunication companies this year, riding on the back of rising smartphone acquisition, and sustained efforts by government to enhance broadband availability, industry observers have said.

Proceeds from voice-oriented services have steadily declined due to regulatory and competitive pressures, as exemplified by the price wars which swept across the industry four years ago. The entry by Etisalat and Airtel Nigeria increased price competition significantly, according to industry participants.

Current GSM calls per minutes average N30 – N40 ($0.18-0.24), said Avneesh Bagga, chief operating officer of McDorsey Service Company Nigeria, a local handset company, sin a recent report. By comparison, NCC data show that off-network peak period tariffs stood at N42 ($0.26) in 2008 and N36 ($0.22) in 2009, while on-network peak tariffs averaged N36 ($0.22) to N26 ($0.16) respectively for the same years. Further price  reduction have been seen in the telecoms industry due to the arrival of Mobile Number Portability (MNP). MNP enables mobile phone users to switch service providers when they want, and still keep the same phone number. With the constant decline in revenue generated from voice services, Mobile Network Operators (MNOs) see data/internet service as a new growth opportunity.

Read also: Forget security, it was V-Day that postponed the presidential election!

Data service to the rescue

In 2014, MTN, the nation’s largest operator by subscriber base with 60 million customers, said non-voice revenues, including data service, Enterprise Business, Value Added Services (VAS), digital services contributed about 20 percent to the firm’s total revenues. “In 2015, we intend to grow these new revenue streams. The future of the Information Communication industry is in full scale digital services with the evolution of technology and convergence”, said Funmi Onajide, general manager, corporate affairs, MTN, in an interview with BDSUNDAY. “Voice service is now viewed as the most basic service and it has become commoditised. Digital services are the new growth area and the battle ground for competition”, she further added.

According to reports by Pricewaterhouse Coopers (PwC), the country will experience a sharp decline in ARPU (Average Revenue per User) , from US$20.60 in 2013 to US$8.68 in 2018. But interestingly, Nigeria, Africa’s most population country, will see the fastest growth rates for Internet access revenue in the next five years. Nigeria, followed by South Africa and Kenya, will experience the fastest growth in revenue, with spend on services increasing at a CAGR of 24.6 percent from US$1.7 billion in 2013 to nearly US$5 billion in 2018. If data service is the next revenue stream for telecommunications operators, does that explain why it is so expensive?

High cost & complexities

The majority of Nigerians still have no access to affordable broadband internet, five years after the landing of four submarine cable systems, due to the enormous cost and complexities inherent in distributing international bandwidth capacity across the length and breadth of the country, according to BDSUNDAY investigations. The dearth of requisite internet infrastructure, including long distance transmission fibre, metropolitan networks and last mile connectivity, necessary for bandwidth distribution means that Nigerians pay more for broadband internet services when compared with their counterparts in other developing African countries and economies.

Fixed-line broadband subscriptions cost an average of 39 percent of average income, with the same figure for mobile broadband bundles hovering around 13 percent, according to recent report by the Alliance for Affordable Internet (A4AI). “Broadband remains out of the reach of average Nigerians because fiber needed to move bandwidth around is limited and mainly found in some cities and capitals”, said Lanre Ajayi, president, Association of Telecommunications Companies of Nigeria (ATCON). “In places where fiber does exist, they are mainly proprietary networks. The cost of accessing them is highly prohibitive and discriminatory”, he said in an interview.

Investment

Nigeria, Africa’s largest economy by GDP, needs to spend $5 billion per annum on Information Communications Technology (ICT) infrastructure over the next 10 years, mostly on fiber, according to the National Infrastructure Master Plan (NIMP). The purpose of this massive investment is to facilitate e-governance, e-health, e-education, and to enable Nigerians employ themselves on the back of the myriad of opportunities availed by the internet. Broadband availability would also enable retirees contribute to the economy by working from home through the internet, and allow skilled diaspora Nigerians contribute to national development. Beyond that, industry watchers say broadband will lower the cost of real estate as people will be able to work from anywhere, without necessarily converging in urban areas and needing to commute.

There are four active cables carrying an installed capacity of over 19.2 terabytes, with a combined capacity of about 340 gigabyte, which is a massive increase in capacity available to drive bandwidth dependent services. MainOne, the 7, 000-kilometre cable, is valued at $240 million. The 10, 000-kilometre Glo-1 submarine Cable costs $800, 000 to build. Industry analysts place the worth of NITEL’s SAT 3 at about $600 million, while MTN’s West African Cable System (WACS) costs about $600 million.

Industry analysts told BDSUNDAY that 95 percent of the capacity on these infrastructure were redundant due to the lack of distribution and last-mile connections needed to move available bandwidth capacity across the length and breadth of the country. Still highlighting the high cost of broadband in the nation, in 2013, Nigeria, Africa’s largest economy by GDP, was ranked 142 out of 169 countries by the International Telecommunication Union (ITU) for the affordability of a fixed-broadband Internet connection. The country was also ranked 99 out of 126 countries for a prepaid 500MB mobile broadband connection, behind Kenya, Ghana and Tanzania. With the advent of the cables, the cost of international bandwidth capacity dropped from between $1,500 to $200 Mbps (Mega bits per second).

But interestingly, Internet Service Providers (ISPs) have been unable to translate that cost reduction on the wholesale side to the consumer. This is largely because the cost of moving internet traffic from Lagos to Abuja, market observers say, is four times higher than the cost of transporting the same level of traffic from Lagos to London. “When compared with developed markets such as the United Kingdom (UK), the transmission cost of moving traffic from location to location is almost nothing, since you do not need to move the bandwidth capacity 7,000 kilometers away from the tele-house”, said Kazeem Oladepo, general counsel for MainOne, in an interview. Telecoms companies’ investments in network expansion initiatives, specifically fibre deployment rose 20.56 percent by the end of 2013, amid rising complaints by users over shabby data service delivery rendered by operators.

Regulatory intervention

The regulator is already looking at removing such obstacle with the licensing allocation of InfraCo (Infrastructure Companies) licences for Lagos, the commercial nerve centre of the nation, as well as the North Central zone, said Ajayi, in an interview with BDSUNDAY. The telecoms regulator is expected to license InfraCos to assist in the rollout of critical Information and Communication Technology (ICT) infrastructures in all the six-geopolitical zones of the country. Eugene Juwah, executive vice chairman, NCC, in a recent industry forum in Lagos recently, informed that the licensing of other five InfraCos for the remaining geo-political zones of the country would be completed before the end of the year.

Though, the nation ended 2014 with an 8 percent ebroadband penetration in 2014, the NCC boss said the InfraCos are expected to drive internet penetration and accelerate the attainment of the National Broadband Plan (NBP), which seeks 30 percent broadband penetration by 2018. Juwah however pointed out that these InfraCos will also be granted pioneer status as part of the incentives to boost their interest in investing in such areas or zones that may look highly unattractive.