MTN Nigeria and Mafab Communications may have secured the provisional license bag for the 5G spectrum at the cost of $273 million, but there are still hurdles to face.
Four of these hurdles may include meeting the condition for payment, unfinished business with right of way charges and state policies, power generation, and economic case for 5G.
Condition for licence payment
The Nigerian Communications Commission (NCC) had noted that the two winners are expected to complete payment of the $273.6 million licence by February 2022. The NCC, however, said the payment has to be made in naira at the prevailing Central Bank of Nigeria (CBN) exchange rate.
The local currency, Naira, is currently experiencing high volatility which might present a problem for the winners. On 13 December 2021, the day the auction was completed and the companies that won announced, the naira was trading at N414/$1. On 31 December, less than three weeks after the auction was announced, the naira rose to N435 weakening further against the dollar.
The implication is that should the two telcos had resolved to pay for the licences on the day the announcement was made in naira at the prevailing CBN exchange rate as stipulated by NCC, they would only have paid about N113 billion ($273 at N414 rate). However, should they decide to pay on 31 December, the price of the licence goes to N118.75 billion ($273 at N435 rate).
The naira has fluctuated widely in 2021 around a largely fixed spot rate of around N415 as investors try to make sense of the CBN’s exchange rate direction. The apex bank has been selling the greenback at between N437 to N444 per dollar to investors since early October 2021. If the volatility rates continue MTN Nigeria and Mafab are likely to pay close to or more than N200 billion for the licence.
Experts BusinessDay spoke to who wouldn’t want to be put on record are betting for MTN Nigeria to afford the licence. The telco had approached the local debt market to borrow N200 billion in April 2021 after securing the approval of the Securities and Exchange Commission (SEC) to launch an N200 billion bond issuance programme. By November the company announced that it had completed the programme in a two-legged process which was oversubscribed. In December the telco unveiled a public offer of 575 million shares which ended after a two weeks sale campaign.
At a stakeholders meeting, Karl Toriola, MTN Nigeria CEO said the fundraising was part of the telco’s mission to raise N600 billion which it intends to invest in telecom infrastructure in Nigeria.
Mafab Communications on the other hand, according to an unconfirmed report, is said to be planning to raise $350 in equity as part of a larger $1.9 billion fundraising campaign. Several sources close to the company BusinessDay spoke to were not able to confirm this report.
Right of Way
In 2020, the Minister of Communications and Digital Economy made an effort to impress on the 36 states governors in Nigeria about the need to reduce their charges for Right of Way for fibre cables and adopt the agreed N145 signed by the National Executive Council. The engagement was able to get about 7 governors to publicly comply with the agreed fee and in the case of Kaduna State waive it.
Read also: Outlook for 2022: Telcos to focus on cloud, Internet of things, 5G adoption
Unfortunately, there are about 29 states in the country that are not aligned with the N145 fee. Lagos, the state that hosts the majority of telecommunication customers is also among these 29 states. In the case of Lagos State, a proposed new policy mandates operators to utilise the unified duct infrastructure project that is yet to be completed. The project is expected to gulp about $200 million or N82 billion (N410/$) on completion. At the moment, the state’s right of way fee is at N796 per linear meter.
Abuja is also unyielding in its approach to right-of-way policy. Apart from Right of Way requiring stringent documentation, securing approval to build a base transceiver station in the capital territory could take several months if not up to a year according to a source at the NCC.
Power generation
Nigeria’s installed power generation capacity stands at 12,522MW, however, maximum power transmitted has failed to surpass 5300MW. This is hardly enough to power the entire Lagos State, much less the entire country.
Due to the heavy power demand of most telecom infrastructure, operators in Nigeria have to generate and distribute the power they use. For example, the about 40,000 base transceiver stations in the country are powered by diesel generators and solar power systems. Grid power is used as an alternative instead of the primary source.
A study jointly released by InterDigital and ABI Research titled Environmentally Sustainable 5G Deployment, noted that as 5G usurps LTE, energy consumption is expected to increase 160 percent between 2020 and 2030 due to the energy demands of powerful network elements like massive MIMO and edge servers, the proliferation of 5G cell sites, and the flexibility of the 5G networks in both consumer and enterprise use cases.
“The advent of 5g holds unprecedented promise for the wireless ecosystem and our world, but we must remain clear-eyed about the staggering energy demands of 5G and its life-changing use cases to develop appropriate and timely solutions,” said Henry Tirri, Chief Technology Officer, InterDigital. “We must consider the environmental footprint, in addition to the technological impact, to ensure 5G and future generations of wireless technologies exist and thrive in a responsible and energy-stable world.”
Economic case for 5G
The potential of 5G technology for economic development in any country, has been heavily reported in different journals and by various researchers. 5G undoubtedly has bigger potential than previous network generations.
However, the entire process of deploying the technology; from the capital raise, to resource distribution and human personnel recruitment, and making returns for investment describes the economic case.
In countries where broadband penetration is at its peak, it would be easy to present a solid economic case for 5G. But Nigeria’s penetration is at 39.89 percent as of October 2021, representing a decline from 42.93 percent in January. South Africa, the first country in Africa to roll out 5G, has over 80 percent broadband penetration.
While the number of internet users in Nigeria is the highest in Africa, the majority of the unique users are hooked on 3G coverage, even then it is less than 60 percent of the adult population. 4G coverage is at a mere 30 percent.
Part of the reasons for the decline or slow pace of growth in broadband penetration is insufficient investment in infrastructure. Another problem is the growing number of people in the low income bracket, many of which cannot afford to pay for internet services. The World Bank estimates that the COVID-19 pandemic has pushed an additional 8 million Nigerians into poverty bringing the total to over 90 million people. This is largely why after the lifting of the ban on SIM card sales in April 2021, the telcos continued to record decline in subscriptions.
Experts however project that MTN Nigeria is in a better position to prove the economic case for 5G In the long run. The telco has a robust infrastructure already deployed and has garnered experience from running 2G, 3G, and 4G.
Mafab was only incorporated in July 2020, about 18 months ago. It may need to merge or acquire an existing telco in order to leverage the existing infrastructure. Otherwise, it would need to build its infrastructure from scratch which would cost it more for a technology like 5G.
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