Is NCC’s $273m 5G licence overvalued?

The Nigerian Communications Commission (NCC) is getting ready to auction the second two slots of spectrum in the 3.5GHz band before the end of 2022 to boost the deployment of fifth-generation (5G) services in Nigeria.

Telecommunications companies that are interested in the licences face a reserve price of $273.60 (N119.4 billion). Experts say that given the current economic climate in the country which is not favourable to telecommunication operations, the price of the licence does not reflect new realities.

The commission may have derived the reserve price from the final bids of the first two slots of licences which led to the emergence of MTN Nigeria and Mafab Communications as winners.

While 5G network deployment may be capital-intensive and often constitutes a barrier to the pace of deployment, some countries have devised an affordable plan for operators to still accelerate the pace. In India, for example, following industry recommendations, the regulators dropped the reserve price for mid-band 3.3-3.5GHz by 36 percent, from $64.17 million per MHz to $41.31 million per MHz.

In the case of South Africa, investors were allowed to bid for either lower spectrum bands or higher bands, which meant that those without the financial muscle for the big spectrum settled for the lower bands. Out of the six winners that eventually emerged, Vodacom and MTN were the two that got the big bands, while Rain, Telkom, Cell C, and Liquid Telecom got lower band spectrums.

Prior to the first auction, telecom operators in Nigeria had expressed dismay at the reserve price of $197 million set by the commission and recommended that it be reviewed downwards in consideration of the harsh economic realities. The NCC went ahead with the reserve price pegged at $197 million. The auction eventually concluded at $273.60 million.

However, Airtel Africa lost out of the auction because it couldn’t bid higher than $270 million. Segun Ogunsanya, CEO of Airtel Africa, had said that the telco pulled out of the bid because it wanted to monitor the market and explore affordable 5G services to meet the broadband demands of its subscribers.

After losing the 5G licence in Nigeria, its largest market in Africa, Airtel acquired additional spectrum in Kenya at $40 million to extend its operations and enable its 5G rollout plans in the East African country. The telco has yet to commence 5G rollout in any country in Africa, an indication that it may be taking its time to pick what works for it and may not be too eager to break the bank on the fifth-generation technology.

“Airtel recently lost money, so I do not see them rushing to be part of the bid in Nigeria at the new reserve price by NCC,” said an industry executive who will not want to be named.

Nonetheless, Airtel’s half-year financial report gives hope to the NCC that the telco could return as a bidder. The company saw 18.3 percent total revenue growth in Nigeria for both mobile services and mobile money services. This contributed significantly to operating profit, which rose by 20.6 percent to $425 million, profit after tax was up 25.3 percent to $178 million and underlying earnings grew 14.9 percent in reported currency to $614 million.

Surging profits however belie the difficult operating environment that Airtel and other telcos have to surmount in Nigeria. Diesel prices remain high and scarce foreign exchange makes importing equipment many times more expensive than in the past, and also galloping inflation at 20.77 percent, the highest in 17 years, has taken a toll on consumer spending on telecom services.

These recently forced telcos to demand through their association that a review be considered on the price of data and airtime, to which the government refused. In October, Airtel and MTN unilaterally reviewed their prices, leading to public backlash that eventually made the government to order the two telcos to reverse the action. The operators are still angry with the NCC for the back-and-forth on the upward review of prices. A telco source said the commission did agree for the telcos to quietly increase the price only to do about-turn when the public backlash got intense.

Potential 5G bidders may also be dissuaded by the not-so-exciting outcome of the launch of 5G network by MTN in September. Since the launch, the telco has had to make extra effort to increase subscription for 5G. Part of this effort is partnering with other stakeholders like Intelligra to make devices that are 5G-enabled more affordable and accessible to a wider population of Nigerians. It did however acknowledge that finding a middle ground with banks on device financing involves a tricky balance.

Globacom, the third largest telecom operator, may also not be on the bidding table. Sources say the Nigerian-owned telco is indebted to multiple contractors. Globacom was the last telco to launch payment service bank, despite being one of the first three companies to secure the licence from the Central Bank of Nigeria.

The prospects of another dark horse beating existing telcos to the 5G auction may be the way out for the NCC that is focused on achieving its N500 billion revenue target. However, the struggles of Mafab Communications clearly show the difference between ambitions and reality in the telco industry. Mafab Communications, which was given five months extension, now has less than two months to meet the timeline. Failure to deploy after five months could impact investors’ confidence in the business environment.

The NCC does not appear perturbed as it has set strict deadlines for the upcoming auctions. The commission noted in its statement and Information Memoranda that it set December 16 for mock auction and proper auction takes place three days later.

The process is anticipated to enter its grant stage on December 21, 2022 with the publication of provisional bid winners and the notification of provisional award of licence.

The year 2023 will open with the payment for Spectrum Licence and Operational Licence, where applicable, on 20th January 2023 and on the 23rd of January 2023, the auction process will be concluded with the publication of the result.