Nigeria thinks big.

Nigeria's notorius telecoms sector is about to get a major shake-up. After years of dithering, it now seems that NITEL's monopoly will finally be broken and private companies will get unhindered access to potentially the biggest market in Africa. Constantine Ogunbiyi and Denis O'Brien report.

The Nigerian telecommunications sector, potentially the largest telecommunications market in Africa, has been the subject of keen interest to investors in Nigeria and abroad. At the meeting of eight West African states in Abuja in September (the Afrinet 2000 Summit), Vice-President Abubakar stated that Nigeria wants to be amongst the information-rich countries within the next five years. The question remains whether the government will implement the necessary reforms to make this possible.

The current telecommunications network is in much need of expansion and updating as penetration is amongst the poorest in Africa -- 0.45% average teledesity compared with the global average of 10%. Furthermore, the telecoms sector suffers from a very low standard of maintenance. Line quality suffers frequent failure, while customer services are notable for frequent disconnections, irregular and often inaccurate billing, and a poor credit control system.

Privatisation issues still to be resolved

The telecoms sector is due to be privatised in phase three of the Government's massive privatisation programme. The government has promised to make the bidding process more transparent when selling up to 40% of the equity to core partners. According to Nasir el-Rufai, director-general of the Bureau of Public Enterprises (BPE), public offers for NITEL will begin by June 3, 2002 (a delay of over a year according to the original plans).

No clear timetable has been formulated for the bidding by potential core investors; however, the government hopes that by 2005 - by which time NITEL, its value estimated at anyhere between $3bn and $5bn, should be privatised - local and foreign telephone companies will have added at least three million fixed and wireless lines to the network.

The Industry overview

The industry is overseen by the Federal Ministry of Communications (FMOC) as the supervising authority, the Nigerian Communications Commission (NCC), as an independent regulatory agency and NITEL, currently the only authorised carrier. The broad objectives of the NCC include creating a regulatory environment for the supply of telecommunications services and facilities, and promoting fair competition and efficient market conduct.

To align Nigeria with the information age, the government has outlined key objectives. These include: increasing teledensity to one telephone line per 50 people; universal coverage, "access to anywhere, at anytime"; global connectivity, a communications network connected to the international information superhighway; a transparent and properly regulated framework for the sector and increased competition from a second national carrier for local and international traffic

The decision to appoint a second national carrier to compete with NITEL is driven by the national target of at least 3m telephone lines by 2005. The carrier, when approved, is expected to install a minimum of 1.1m new lines by 2005.

Other significant investments are taking place in Africa that will benefit Nigeria. One, the Africa One Project, will provide a 32,000km cable system which will form a ring around the African continent to connect all 54 African nations to each other and the world.

Africa One Ltd, in partnership with two world leaders in the telecommunications industry, Global Crossing Ltd and Lucent Technologies, aims to bring state-of-the-art technology and access to the first truly global telecommunications network to Africa.

Fixed-Line communications

Fixed line communications are still dominated by NITEL, which inherited the whole state network, including the 'final mile', at its creation in 1984. Some alternative local networks are operating, but are yet to be connected to NITEL's national network.

Taking advantage of its position, NITEL aims to restructure its operations along functional lines. On September 22, the Government announced approval of a four year N625bn ($5.25bn) capital expenditure programme. Almost $4bn is expected from international investors, but many view it as little more than an exercise in fattening up the cow before its sale.

Most private companies offer services through wireless Local Loop (WLL) technologies using Time Division Multiple Access (TDMA) and Code Division Multiple Access (CDMA). The poor state of telecoms infrastructure has given rise to 13 private networks. Certain companies (mainly oil companies and banks) have built up substantial private networks for their internal use.

Oil sector

The single largest network belongs to Shell Petroleum Development (Nigeria) Company Ltd, followed by Mobil and Chevron. The Nigerian National Petroleum Corporation (NNPC) also has considerable telecommunications investments. Many companies supporting the oil-producing industry also employ their own telecommunications networks.

The largest and most notable among them are Halliburton and the Schlumberger Group. Schlumberger and Cable & Wireless have jointly established a telecommunications services company, Omnes Communications Nigeria, as part of their global collaboration.

The banking sector

Modern banking requires modern telecommunications networks. A number of banks offer electronic banking, some through YSAT. The Central Bank of Nigeria (CBN) is no exception and has been studying the feasibility of a VSAT-based WAN to connect all its offices.

Other organisations, such as the News Agency of Nigeria (NAN) and the Nigerian Police Force, operate, or aim to operate, transmission networks. NAN has entered into a contract with Matra Marconi Space France SA, for a (fixed) satellite distribution network.

Mobile communications

A joint-venture agreement between NITEL and Digital Communication Ltd (DCL), an American private company, gave birth to Mobile Telecommunications Services (MTS) Ltd in 1992-93.

Operation of the public mobile cellular network started with two mobile cellular services - a national one (NITEL) with about 10,000 subscribers and a Lagos service (MTS) with some 2,500 subscribers. MTS and NITEL provided analogue E-TACS mobile cellular telephone networks from the three switches at Lagos (Lagos and south-west), Enugu (south east) and Abuja (north).

In 1995, MTS shut down its operations before the government set up M-Tel to take over and operate NITEL.Private licences have since been granted for regional operation to wireless service providers with permission to offer limited mobile cellular services to cover their exchange areas.

The focus at the moment is the proposed on-line auction of four digital licenses in December. The licensing process has been mired in controversy for the past year. In an effort to be more transparent, the NCC published an 'initial consultation document", which raised more questions than it provided answers - for example, the frequency bands being auctioned, the number of frequencies on offer and the regulation of the incumbent monopoly.

It also appears that the government is keen to reserve at least one licence for NITEL and/or M-Tel. Observers argue that this will be impossible without the government breaching its own transparency rules.

The GSM project, estimated to cost about $700m, will involve the provision of 1.2m lines over the next four years. The NCC ii reviewing the license bids, twice cancelled, for four wireless operators.

The chief executive of the NCC, Ernest Ndukwe, has announced that by early December, the decision as to who has been appointed will be known. The Government priority is to provide more than 300,000 new wireless telephone lines for the country's commercial capital, Lagos.

Tayo Ekundayo, NITEL's deputy general manager, ii confident 40,000 new lines will become operational in the next few months as a matter of priority", with another 250,000 lines added to the network within 18 months.

The anomaly is that NITEL does nor have the capacity to interconnect the GSM operators once appointed. One solution is for the operators to build and operate their own backbone resulting in a significant increase in roll-out costs.

A number of international companies have shown a keen interest in the developments in Nigeria's telecommunications sector. South African Mobile Telephone Networks (MTN) plans to spend more than $800m in Nigeria's telecommunications sector over the next 10 years, while US-based Forbes & Company Inc plans to provide 10m telephone lines in Nigeria and services in all 36 states. United Networks Ltd, funded by a consortium of international investors, with Distacom International Ltd of Canada as the majority shareholder, is prepared to stake $1bn in GSM in Nigeria.

There are three modern digital international gateways installed in Lagos (Victoria Island) and Enugu each with dual antennae. Three international satellite earth stations have been installed and managed by Intelsat (two in the Atlantic Ocean and one in the Indian Ocean).

Equipment

The privatisation of NITEL will require a substantial overhaul of the existing infrastructure. The equipment market should record impressive growth in 2001, perhaps expanding by as much as 50%. There are other projects to improve NITEL'S transmissions systems. These include the modernisation of existing analogue transmission systems with digital radio.

Increasingly, fibre-optic cables are being deployed in the transmission system. A number of projects have been undertaken by the Ministry of Communications to modernise NITEL's transmission and exchange systems. Most of these are being handled by Siemens.

The Internet potential

The Nigerian Internet market is evolving and opening up. The regulator (NCC) has granted licences for 38 ISPs, about 12 being currently active. Two audio-video services currently either available or in the advanced stages of development include audio teleconferencing and video tele-conferencing services.

One company is currently seeking a service provider licence to operate in Nigeria via VSAT. Another company with VSAT capability is examining the feasibility of video conferencing from six zonal points in Nigeria, linking Lagos to Abuja, the federal capital.

International technology companies are expanding their presence in Nigeria. Several such companies, including Mobile Telephone Networks (MTN) of South Africa, Ericsson of Sweden and Nortel of Canada, are interested in bidding for the upcoming mobile network licenses.

Siemens has had a long relationship with NITEL and been awarded a series of turnkey project including Nigeria's largest EWSD switching centre, featuring 40,000 lines, as well as important optical waveguide projects to secure linkage of all 21 local switching centres. In June, Siemens was awarded contracts of $73m for the installation of telecommunication lines in the Bauchi and Ikeja exchanges.

Motorola Inc was awarded a $21m contract for the supply and deployment of its CDMA wireless local loop network to provide an expanded system capacity for up to 45,000 limited mobile subscribers.

Ericsson has also delivered mobile networks and several total solutions for the country's oil and gas companies, including one of Africas largest private telecom networks for the state-owned oil company Nigerian National Petroleum Company, (NNPC).

Other significant projects include an Intelsat earth station with a primary centre with 23,000 trunks and two antennae, connected to an international gateway exchange and the NTA (the national TV station) studios via fibre optic cables.

If Nigeria is serious about plugging the information gap, the telecoms sector must be liberalised and regulation must be transparent, creating a level playing field between NITEL and private operators. Incentives, such as reduced duties on equipment, must be extended to all, and the tender for a second carrier should be delayed no further.

The privatisation of NITEL and M-Tel offers the first investment opportunity under a deregulated environment and should achieve a targeted two million lines. Nigeria requires an expanded and upgraded broadband trunk network to cope with the increase in traffic.

NITEL plans to build such an expanded and upgraded optic fibre cable national trunk network at an estimated cost of $750m. This investment depends on the government adopting global standards in its telecommunications policy if it wishes to involve the right type of strategic partners, and making good its promises to invest the requisite mix of technological, financial, legal and human resources.

Measured against the size and opportunities of the Nigerian market, a population of more than 120m people, the current obstacles to foreign investment and participation remain essentially minor.