Nigerian Telecom Sector Needs Re-invention as IHS Takes Action on 9Mobile, Swift and Smile

Nigerian Telecom Sector Needs Re-invention as IHS Takes Action on 9Mobile, Swift and Smile

You may not have noticed it – our telecom sector is going through serious paralysis. The players are seeing multiple-whammy from OTT (over the top services like WhatsApp and Skype), satellite players and the ICT utilities. WhatsApp has eaten their margins bare, and yet the dislocation and associated disintermediation are still at infancy.

Over The Top (OTT) solutions like WhatsApp have been a concern to telecommunication companies like MTN, Glo and Airtel. But while these companies are looking at OTT, a huge challenge may be coming from Facebook and Microsoft. Microsoft has been building capabilities on TV whitespaces.

Yes, I expect the penetration of WhatsApp to remain unbounded until SMS usage fades. Some people in Nigeria are already receiving broadband services from satellite providers who are operating in their own worlds, unconstrained by any rule which NCC – our telecom regulator – has put in place. Then, you have the ambitions of Google Stations which technically means “free internet”. Microsoft is testing TV whitepapers to use the “free frequency” In TV airwave to pipe data. Add the startups which are giving users free Internet for watching adverts, you will see why the telcos are stressed!

When you look at these trajectories, the long-term view of the telecom sector is one where more resources would be needed for infrastructural investments even as revenue per user will continue to do down. I do not see how growth can happen without a total re-invention of the business model. Just look at this cut (see below) from the Guardian; 9Mobile, Smile and Swift Networks may see service challenges as IHS takes action because of non-settlement of facility charges.

We will continue to see all kinds of business models in the sector, the one which I expect to happen in order to save the industry is contract-based billing where once a subscriber has paid for the month, it would be irrelevant what that user does online. Yes, you can live on WhatsApp for the month but I have collected my N5,000 for the month as a telco. Today, someone can pay N500 and use that on WhatsApp for the month. The implication is that telecom companies are powering huge services even when they are not making money on them. They need to find a novel business model to fix that revenue – service dislocation.

As I look at NITDA (National Information Technology Development Agencybudget and numbers, it is evident that our telecom companies are not making money. More than 99% of them are not profitable. They are required by law to pay 1% of their profits to NITDA but largely all are not sending money to NITDA. Simply, they have no money to wire to NITDA because they are not making money in Nigeria.

Case Study I: NITDA gets 1% of all profits from Telcos. MTN has been the most reliable to NITDA as it makes profit. But MTN declared loss last year owing to the huge fine it paid. Others like Etisalat (9Mobile), Glo, and Airtel rarely pay or pay very little, because they rarely make much. For NITDA, in the short-term, it has to look for other ways to fund its activities. Had Airtel, ET and Glo made money, NITDA would be fine. Sure, customers enjoyed their Skype and WhatsApp, but the government agency gets its zero revenue.

All Together

We should not take it for granted that 5G would come to Nigeria as it happens in other parts of Africa. If the telcos are not making money today, no one will give them money to fund 5G deployments. If 9Mobile, Swift Networks and Smile are seeing challenges that are preventing them from paying facility charges, you would agree with me that the paralysis is deeper than anyone had imagined.

Yet, the telcos have data from the registration of SIM Cards and ideally can fix the challenges. All they need is to transform the data into a system to unlock new revenues in the sector. The prepaid or pay-as-you-go business model does not make sense anymore especially in a world where ICT utilities like WhatsApp and Skype are encroaching into new territories. You need to secure your flanks!

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