By Frances Rose, Head of EMEA, TowerXchange: Nigeria is the most populous country in Africa with an economy valued at $500bn. BMI project that the economy will grow by 70% over the next few years driven mainly by the oil industry, but also with strong growth in FMCG and the Food and Beverage markets. The Nigerian mobile market is substantial with 110 million subscribers and an ARPU of around US$6.
The experts participating in the Nigeria roundtable discussion at the TowerXchange Africa Meetup 2014 believe that there is still a large amount of pent-up demand for telecoms services in Nigeria and that the market has not yet hit a peak. They predict that as operators jostle for critical market share a price war will emerge and as prices drop, capacity requirements will rise sharply.
The discussion began with a review of the inhibitors and catalysts in this growing market. Demand was raised as a key factor – particularly as the roundtable took place before the recent Nigerian tower deals, during a period of uncertainty as we waited for the winning bidders to be confirmed. However the group agreed that the scale of the market means that demand will remain high even through periods of fluctuation.
The towercos present at the discussion suggested that this period of uncertainty is an optimal time to start engaging with new solutions which can help them to deliver on their SLAs or make efficiency savings once the acquisitions are complete. They also feel it’s a good time for Nigeria to invest in infrastructure both in terms of the national grid and fibre roll-out. The Nigerian government is currently encouraging heavy investment in fibre infrastructure projects as the population grows more and more data-hungry.
Nigerian fibre: an opportunity for towercos?
Delegates felt that towerco investment in fibre was a natural next step and that soon the MNOs will sell off the fibre infrastructure if there’s a viable market for them. However margins for fibre are smaller given the sheer landmass in Nigeria which meaning there’s a long way to build out. The discussion covered the fact that there has been a lack of investment by the operators in network extension and densification, therefore QoS is notoriously poor, a situation the NCC is pushing to be rectified in the near term.
The group talked about the importance of a good transmission infrastructure to support the growing tower network and whether the emphasis for rectifying problems in this area would shift to the towercos as network coverage expands, concluding that in the immediate future the market is unlikely to see towercos take responsibility for this without a strategic shift into backhaul.
One natural result of improved backhaul and more consistent service will be a growth in ARPU as users consolidate their phone usage and limit the number of SIMs they use on a regular basis. This will be a clear win for the MNOs in the region as many ARPUs in Nigeria sit at or under the loss-making US$2 mark as users split their calltime across multiple networks to ensure the best coverage. The group agreed that once the mobile infrastructure is improved this consolidation will help the industry as a whole.
Nigerian experts advised that as long as you work with advisors, lawyers, agents and partners who know the market and can ensure your documentation is in order then the local banks and authorities are keen to support business in the country.
Security
In terms of security, the conversation centred on the unsettled North-East of Nigeria. However, serious security concerns for towers in the region were dismissed by local experts who underlined the fact that rebels rely more heavily on mobile networks than the authorities and therefore avoid causing damage to key infrastructure such as towers and petrol stations. Indeed MNOs find that mobile spend increases in areas experiencing unrest as the local population keeps abreast of news and needs a safe way to share information. It was also pointed out that the government views towers as a critical part of national infrastructure and will make it a criminal offense to attack telecoms infrastructure at the next National Assembly.
Network extensions and BTS
In terms of reaching the rest of the country, several members of the group referred to government support for extending networks further, citing a deal whereby the Nigerian government will provide up to 25% of capex and opex for the first three years once you are ready to deploy RPS or broadband in a rural area. The discussion also touched on the importance of employing solar power to cut rural opex, with small solar power systems costing as little as US$8,000, meaning in many low income areas there is still a strong business case for installation.
Hybrid power was also proposed as a viable option for remote towers, as hybrid power can cut diesel consumption by up to 80%. Now the towercos are taking control of the towers their deployment of improvement capex and efficiency budgets will allow them to extract value through these kinds of investments.
In terms of build to suit opportunities, the participants agreed that MNOs and towercos need to work together to commercially viable network extensions.
Power in Nigeria
Power is of course a big issue in Nigeria. For a towerco in Nigeria power represents 60% of opex and the towerco participants stated that they had often found that alternative energy solutions tended to under-deliver on a long term basis. An example was given of one system which cut diesel by 25% and was deployed across the network but within three years all the engines needed to be replaced as they had been placed under huge strain. The group agreed that more thorough on-site testing was needed in collaboration with suppliers, recommending trials of over six months in high traffic sites with time taken to identify and minimse operational issues before deployment.
For a towerco in Nigeria power represents 60% of opex and towerco participants stated that often alternative energy solutions under-deliver on a long term basis
Often the issue isn’t with the equipment but with ongoing maintenance. One expert pointed out that often towercos use subcontractors to run their O&M and manage passive infrastructure on a tight magin managed service fee. For these contractors their revenue comes from the sale of diesel, meaning that after a while there’s no incentive for a hybrid solution to work and conflicts of interest start to occur. For those innovative players looking at comprehensive hybrid solutions all stakeholders must have a vested interest in the site benefitting from the investment, including O&M partners. Ideally towercos need to find a technology partner and a maintenance partner who will work hand in hand and share incentives and penalties based on the success of the investment, not based on their own agendas. As a result, compete outsourcing of power will become more and more popular to avoid these issues in the next few years.
Of course the group agreed that the ideal solution is simply to be able to plug a tower into a reliable grid. In this respect Nigeria is making good progress, with private companies now investing in power generation and distribution and a national grid being created. However our experts predict that demand will increase more quickly than capacity for several year and few believed a reliable Nigerian grid would be in place for another 10-15 years. Additionally as phone networks have become a critical part of Nigerian life there will always be a need for a secondary power source.
Following the TowerXchange forecast that Nigeria will need an additional 40,000 towers to achieve full coverage, the group discussed the reality and timescale of this prediction. HTN (Helios Towers Nigeria) stated that with 24,000 towers and 100million subscribers in the market currently, they average 4,500 subscribers per tower. This is a high ratio when compared to India (around 2,000 subscribers per tower) and the USA (about 1100 per tower). Low minutes of usage in Nigeria compared to India (20 minutes) and the USA (40 minutes) mean the high subscriber rate is possible but our experts felt there’s a large amount of pent-up demand in Nigeria and that call rates would be much higher if cost were lower and quality of service higher. In the past when free calls have been offered to subscribers at evenings or weekends the network has simply crashed. As MNOs compete for market share and prices drop (and with an eventual LTE roll out) the need for an additional 30,000-40,000 towers will become more and more critical.
At the current build rate of 2-3,000 new towers per year hitting the required number will take too long, and HTN estimate that the network will need to be at a total of 60,000 towers within the next five years to meet market demand. Towercos will need to drive growth and change in the market and as Nigeria’s infrastructure will struggle to support the construction of 10,000 towers a year towercos are currently assessing the potential for network gaps to be filled by small cells and other in-building solutions.
