Nigeria: Much More Growth to Come
By Steve Wallage, Tue May 03 08:00:00 GMT 2005

In the world's fastest growing mobile market, the ride has just begun.


Nigeria hit the mobile headlines in late 2003 when the ITU published its global subscriber growth rates for the year to June 2003, showing the country leading the world with a growth rate of 143% -- a figure that could have been even greater were it not for the fact that SIM card sales were suspended for 20 weeks due to too much customer demand. Yet, even now, with an active subscriber base of around 5.5 million, the penetration rate is only around 4%.

The market research firms clearly see Nigeria as continuing to show strong growth. For example, Yankee Group is predicting 16m subscribers by the end of 2008, while Gartner Group believes that Nigeria may overtake South Africa as the largest mobile market in Africa by then.

However, they are seriously underestimating the potential of the Nigerian market. One reason is applying European and American models to usage in Nigeria and the rest of Africa. Take Yankee Group, which tries to neatly divide African countries into either nascent, adolescent, growth or maturing markets. Secondly, they underestimate the saturation level of Nigeria. Most research companies work this out on a combination of a GDP per capita figure with a GINI coefficient (a statistical tool to measure inequality). This clearly misses the way that mobile phones are used and perceived in Nigeria.

Very Different Usage

Vodafone, in a recent study on the African market, looked at the ratio of outgoing voice calls to SMS messages sent. In the UK, this figure was 6:10 -- that is, six outgoing voice calls for every 10 SMS messages. In rural communities in South Africa, the ratio was anything from 130:10 to 170:10.

In parts of Nigeria, multiple languages and literacy are major challenges. Fixed lines are a rarity. A mobile phone is a lifeline, and is often shared between people. The demand in rural communities, with few shops, in Nigeria can be seen in the rise of the "umbrella people", who use umbrellas to provide shade and sell mobile pre paid cards.

But mobile phones also provide identity. Without a mobile phone and number, many Nigerians have few ways to be contacted and given official status. A good example of this is banking. There is very little formal banking done in rural areas of Nigeria. Yet, using the mobile phone for banking transactions is one of the most effective ways in which the banks can reach into these communities and users can access these services. It is also very popular with the banks as it keeps the money within the banking system.

Competition Drives the Market

The World Bank has clearly proven the link between mobile penetration and competition. A convincing illustration of this can be made by plotting competition and penetration for different African countries.

In Nigeria, the first mobile license was awarded to the state operator in 1992, but first license to a private operator in 2001. Initially, the state operator had been happy to tap into the business and wealthy consumer market.

The two biggest operators are now MTN Nigeria, 76% owned by the South African operator of the same name and the rest by local companies and the World Bank, and Glo Mobile, part of the second national fixed operator, Globacom. MTN was encouraged to enter the market by the awarding of a five-year tax holiday for having "pioneer status" -- something that is very much questioned in the country today. There are two other GSM operators: Vmobile (formerly Econet Wireless) and Mtel, part of the incumbent fixed operator, Nitel.

However, the real blast of competition is about to come. The national regulator, the Nigerian Communications Commission (NCC), will allow at least 25 operators to deploy CDMA 1x networks. It has also stated that all operators must allow the sharing of infrastructure. This regulatory impetus, as well as the obvious opportunities in the country, has already led to a rapid broadening of mobile network. Take Glo Mobile, which now covers over 3,000 towns and villages.

Given the opportunity and growth in Nigeria, it is easy to assume that the operators are happy to wait for the subscriber numbers to add up. Led by Glo Mobile, which is leading the innovative developments with several initiatives: access to contract rates without signing a contract, the ability to buy a phone in weekly installments deducted from the prepaid cards, an m-banking service providing access to accounts from 16 different Nigerian banks, weekend promotions on international calls with prices capped at 50% of the cost of a fixed call and daily news and Internet access -- for many subscribers, is a completely new experience.

The Chinese Saw It Coming

Chinese vendors have claimed that they can understand the Nigerian market well as both countries have vast but sparsely populated regions. They have also been very aggressive in selling to the mobile operators at very low prices.

Huawei has signed a $200 million agreement to deploy a nationwide CDMA450 network with the Nigerian Ministry of Communications, with the China Development Bank providing Nigeria with a loan of $200 million for this project. Huawei is also working with MTN and is the main supplier to Vmobile. It has signed another agreement with the Ministry to co-operate in developing 3G and IP networks, and has a training center in the capital, Lagos. ZTE has also won some major deals in the Nigerian market.

As every new mobile operator knows, the interconnection costs with the fixed operators are the major expense. To try and help smaller players, the Ministry has decreed that Nitel and second operator, Globacom, should pay twice as much to interconnect with the mobile players as they do to connect with Nitel. However, many have struggled to pay, and most have complained about delays in receiving money back from Nitel. The bottom line is that more than 30 small mobile operators have been cut off.

There will no doubt be a few more twists and turns in the development of the Nigerian mobile. However, there is no doubt it will continue to grow rapidly. A local bank has suggested that, already, the addressable market in terms of coverage and ability to pay is over 30 million. This could easily be the actual customer base in a few years.