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Elon Musk’s Space-X could transform internet services in Nigeria

Elon Musk’s Space-X has potential to revolutionise Nigerian ISP community

Slow internet service and long buffering periods have driven many Nigerians to ‘wits-end’.

In the most remote parts of Nigeria, reliable internet is still hard to come by. About 42 million Nigerians still don’t have access to broadband.

The end of that era, however, draws near as the US-based space exploration company founded by Elon Musk (SpaceX) says it is working to pursue all necessary licences needed to bring the Starlink Satellite internet services to Nigeria.

Starlink is still in beta but already has over 10,000 customers. The majority of these Starlink users are in rural or remote areas, such as farmlands or wilderness, with limited access to terrestrial broadband options as well as a few with no access altogether.

The fledgling service is expected to be a cash cow for SpaceX, bringing in as much as $30 billion a year (that is more than 10 times the annual revenue of its existing rocket business).

SpaceX plans to launch over 40,000 Starlink satellites over time, but currently, only about 1,300 satellites have been launched.

Starlink is the company’s capital-intensive project which is intended towards building an interconnected internet network with thousands of satellites, known in the space industry as a constellation, designed to deliver high-speed internet to consumers anywhere on the planet.

Addressing Nigeria’s Real Internet Issues

Starlink’s value proposition is to provide better internet coverage to rural areas with poor coverage, but there are bigger issues than just coverage that need to be resolved in Nigeria.

It has long been argued that in Nigeria, the internet usage gap is a bigger concern than the internet coverage gap. While projects like Starlink might increase internet coverage, they do not immediately solve the problem of usage.

Read Also: Elon Musk’s SpaceX eyes internet market in Nigeria

The biggest factors responsible for the internet usage gap in Nigeria are affordability of handsets (mobile devices) and data, as well as low literacy level. Starlink does not address these issues and they pose a major risk to the success of Starlink in Nigeria.

Financial Implications for the Average Nigerian

Bringing it home, Starlink is, however, currently too expensive for Nigerians and will need regional price adjustments to be more widely accessible.

The Starlink hardware costs US$499 and the monthly subscription is US$99. Unless there is a regional/geographical price adjustment, Starlink is too expensive and will not be able to achieve its mission of providing internet to low network remote areas in Nigeria.

Using MTN as a proxy, MTN Nigeria‘s annual Average revenue per user (ARPU) in 2020 came in at NGN10, 200 (US$25). Although data spend is not evenly spread across the client base and a small percentage of the client base accounts for a large percentage of total revenue, according to MTN executives, the data points to how low the data spend is in Nigeria.

Additionally, the majority of Nigerians, especially those living in remote areas, cannot afford the internet at US$99 per month given that the minimum wage stands at NGN30, 000 per month (US$73).

It is also important to note that those that will be able to afford it are highly concentrated in urban areas. In Nigeria, the rural poverty rate is 52.10 percent while the urban poverty rate is at 18 percent.

For Starlink to be more widely accessible, it needs to make price adjustments for Nigeria as well as most African countries as a whole and/or change its strategy to focus on urban households and businesses.

5G Rollout- Potential Involvement for Starlink

One of the unique selling points of Starlink is the internet speed, which is more than 20 times faster than the regular 4G network (300 megabytes per second (Mbps) vs. 12Mbps).

For effective comparison, the 5G network comes close to it in terms of speed. Based on the current trajectory, it seems like Starlink will be commercially available in Nigeria earlier than 5G.

So far, 5G is only commercially available in South Africa and mass commercial rollout will not begin in Nigeria until Q4 (Fourth Quarter) of 2022, while it is still at the testing stage in Kenya.

It is clear that Starlink cannot compete with internet service providers in Nigeria on the basis of affordability just yet. However, the rollout of pan-African 5G might make it part of the service infrastructure. 5G connectivity uses a small cell network and comes with concerns over network congestion.

The remedy is a backhaul; an infrastructure that connects cell sites to main data centres. This is where Starlink satellites come in as they are able to serve as a wireless backhaul for the 5G small cells.

Implications for Internet Service Providers

Overall, we do not see Starlink as a potential threat to incumbent internet service providers in the short-to-medium term.

However, a number of factors will determine who wins the game in the long run. Specifically, the extent to which purchasing power improves in Nigeria if the cost of Starlink and/or incumbents reduces due to technological advances, as well as regulatory support (or obstacles).

Despite the low short to mid-term threat, the prospect of Starlink will put more pressure on incumbent operators to deliver high-speed and quality networks to their high-net-worth customers in the long run.