advert
home instructors journals contactus
Home

 

Instructors

 

Journals

 

Contact Us

 

JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 7 NO 2, DECEMBER, 2009

LIBERALISATION OF THE NIGERIAN TELECOMMUNICATION SECTOR:
A CRITICAL REVIEW

Mohammed Abubakar Mawoli
Department of Business Administration, Ibrahim Badamasi Babangida University, Lapai
E-mail: sabe1120@yahoo.com

 

Abstract
After over a century, the Nigeria telecommunication sector was partially and fully liberalized in 1992 and 1999 respectively. How these liberalizations have impacted on the telecommunication sector, consumers and the economy at large is the focus of this paper. The research is largely library and archive based. Secondary data was obtained from Nigerian Communication Commission (NCC) and analyzed qualitatively. The paper reveals that the total telecom productive capacity, number of connected lines, competition, GSM telecom services, service quality, foreign direct investment, and  employment generation in the telecom sector have improved tremendously after full liberalization. However, the operation costs and service tariffs of the telecom companies are still very high as a result of constant power outage in the country. The paper recommends that government should increase and sustain electricity generation and distribution capacity so as to enable telecom companies charge lower prices for telecom services.

Keywords: Liberalisation, telecommunication, Nigeria, and GSM.


Introduction
The service industry has grown rapidly in the last three decades, dominating both global and national economies in terms of employment generation and contribution to Gross Domestic Product (GDP). Globally, the service sector contributes 70% of the world’s GDP and also witnesses 70% concentration of the world work force (Gržinic, 2007). As at 2002, services as percentage of GDP was 80% in Unites Sataes (U.S.), 73% in United Kingdom (U.K.), 71% in France and Germany, and 63% in Kenya (Czinkonta and Ronkainen, 2004). The sector has also absorbed the largest percentage of GDP of workforce in most countries. For example, the percentage of workforce in the service sector is 83% in U.S., 74% in U.K., 71% in France, and 63% in Germany (Czinkonta and Ronkainen, 2004). Whereas services jobs account for 55% of U.S. jobs in 1970, today they account for 82% of total employment (Kotler and Armstrong, 2006). They posit that services are growing even faster in the world economy, making up a quarter of the value of the international trade.

In Nigeria, the privatization of public enterprises at the Federal, States and Local government levels as well as the pursuit of deregulation/liberalization policies have contributed immensely in the rapid growth of the country’s service sector. The telecommunication industry that hitherto had only one telecommunication service provider, had 21 operators as at September 2008, and with the entrance of Etisalat in the last quarter of 2008 the number of telecommunication operators increased to 22. The story is the same in other service sectors. For example, government monopoly in the provision of education – primary, secondary and university - has long been broken. There was no single private university in Nigeria as at 1998, but as at 2005 there were 23 (Obasi, 2007), increasing to 32 in May 2007. The health, aviation, road transportation and tourism sectors have all witnessed private operators in large numbers which have stirred intensive competition.

 This paper is specifically aimed at reviewing the pre and post liberalization epochs of the Nigerian telecommunication industry in terms of changes in government policies, number of operators and nature of competition, number of connected or active lines, foreign direct investment,

employment generation, and operators’ customer base / market share. 

The concept of liberalisation
Liberalisation is often used in place of deregulation. Deregulation is the process of removing restrictions on prices, product standards and types, and entry conditions

 

(Parkin, Powell and Mattews, 1997). It has been introduced where the existing regulation is thought to cause a barrier to entry in a market there by reducing competition. According to Wikipedia (2009), liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. Liberalization is comprehensively described by Oyejide and Bankole (2001:3) as:


The freeing up of restrictive conditions through the introduction of laws and regulations aimed at bringing about a more competitive market structure. Liberalization measures are established to remove many growth-retarding characteristics embedded in the structure of the economy, such as heavy government intervention, restrictive entry and exit conditions in particular industries, and ceilings on input and output price. The overriding objective of liberalization is to create a market structure devoid of government-induced distortions in resource allocation, where the primacy of market forces is firmly established.
In such a framework, the nature of government intervention assumes a facilitative character and becomes restricted to the establishment of rules and regulations that prevent or minimize incidence of market failure, secure property rights, and ensure justice and equity among economic agents.


From the above definitions, it is crystal clear that liberalization is nothing more than removal of laws that prevent competition, innovation, market and economic growth, and competitive pricing. Parkin et al. and Oyejide and Bankole’s definition of liberalization and deregulation is tilted toward economic liberalization, but liberalization also touches on social issues such as relaxing laws that restrict abortion and divorce (Wikipedia, 2008). 

Liberalisation can take place via unilateral or multilateral arrangements. Unilateral liberalization is initiated by a given country without any external influence. According to Oyejide and Bankole (2001), the driving force of such an approach is the strong need to restructure and reposition the economy for sustainable growth, achieved through the establishment of pro-competition regulatory and institutional framework. On the other hand, multilateral liberalization is when external government(s) or international institution(s) exert pressure on a given country to reform trade or social regulations. Multilateral approach is superior to the unilateral approach because it assists countries to lock in or sustain reforms, and enhance their predictability and stability as well as transparency (Oyejide and Bankole, 2001).

Nigerian telecommunication: pre-liberalisation epoch
Telecommunication services began in Nigeria in 1886 with the installation of cable link between Lagos and the Colonial headquarters in London providing communication channels for administrative purposes (Nigeriafirst, 2003). Ten years later, the first national telecommunications’ infrastructure was established. In 1895, the first rudiments of public communications facilities were introduced and the Public Works Department (PWD) administered a telegraphic system (Nigeriafirst, 2003). In 1907, the Post and Telegraphic department was established.
 
At independence in 1960, there were only 18,724 functional telephone lines for an estimated population of 45 million, which was a ‘teledensity’ ratio of 0.04 telephones per 100 people (Ajala, 2005). Ndukwe (2003) corroborates that at independence in 1960, there were less than 20,000 lines in Nigeria. Upon independence in 1960, the Department of Post and Telecommunication (P&T) under the

Ministry of Communication (and later Federal Ministry of Transport and Communications) assumed responsibility for network operation and service provisioning. From 1960 to 1975, the telecommunication did not receive required government attention in terms of infrastructural development. The first two national development plans 1962 to 1968 and 1970 to 1974 national development plans failed to adequately address the issue of infrastructural upgrading and capacity. However, the third national development plan of 1975-1980 targeted significant improvements in capacity and infrastructure in telecoms. Specifically, it set the roll out target at 1 million lines [but later revised to 750,000 lines] (Ndukwe, 2003). At the end, the target was grossly unmet (Ndukwe, 2003).

In 1984/85, the telecom service was commercialized and thus, the Department of Post and Telecommunication became separated. Nigeria Telecommunication (NITEL) was created as government owned monopoly operator to provide a range of services such as Fixed Telephone, Telegraph (gentex), and Payphone. The installed capacity improved to 400,000 lines, while the connected lines stood at between 205,000 and 250,000 lines in 1987 (Ndukwe, 2003). It could be argued that the low number of connected line was as a result of poor services provided by NITEL. Ndukwe (2003) remarked that between 1987 and 1992, no remarkable improvement was recorded in performance by NITEL and consumer demands were largely unmet. This prompt the Federal Government of Nigeria under the military administration of General Ibrahim Badamasi Babangida to embark on market oriented reforms by partially liberalizing telecommunication sector.   

Post-liberalisation epoch

Partial liberalisation The Nigerian Communication Commission Decree (NCCD) 75 was promulgated in 1992 and became the main legislation governing the telecommunication sector (Oyejide and Bankole, 2001). The decree liberalized various aspects of telecommunications activities including the installation of terminals or other equipment; provision and operation of private network links employing cable, radio communication or satellite exclusively within Nigeria; provision and operation of public mobile communication

(GSM standard); provision of community telephones; provision and operation of value – added network services; repair and maintenance of telecommunications facility; and cabling (Id). Thus, the establishment of a strong and independent regulator becomes a prerequisite to enforce rules and regulations (Ndukwe, 2003). That was why NCCD also set up the government regulatory agency in the telecommunication sector - Nigeria Communication Commission (NCC). NCC regulates the sector but it is supervised by the Federal Ministry of Communications. The NCC seeks to create a proper regulatory environment for the supply of telecommunication services and facilities, promotes fair competition, establishes technical standards and promotes Nigeria telecommunications. It is empowered to license private-sector operators, draw up technical standards and rules as well as approve rates charged by operators. The NCC accredits foreign bodies and provides type approval for telecommunications equipment and facilities for use in Nigeria. The body also licensed all operators with the exception of NITEL in 1998. The licenses’ duration ranged between 5 – 10 years, each operator having paid a fixed licensed fee for each service type. An additional operational fee of 2.5% is charged on turnover less costs (Ndukwe, 2003).

However, the Federal Ministry of Communications is responsible for frequency allocation as well as numbering plans and interconnection rates. NITEL takes charge of the technical management of frequencies and requires the signing of an inter-connecting agreement between it and private operators before the later can connect to national network (Oyejide and Bankole, 2001). The actual licensing of network operators or service operators began in 1996 but NITEL continued to retain monopoly over voice Telephony in National long distance, international long distance and mobile telephony, etc. (Ndukwe, 2003). Despite the huge potentials offered by the Nigerian telecom market, progress was very slow. Private investment in telecommunication was mere U.S. 50 million dollars as at 1999, an average of just 1 telephone line to 250 inhabitants as at that year; about half of the functional connected lines were held by government organizations and corporate bodies;

an estimated 4 million lines were concentrated mostly in some selected urban centres; weak infrastructure base and poor quality of service in forms of low call completion rate (e.g. all trunks are busy), and billing inaccuracy (Ndukwe, 2003). The poor performance of NITEL and telecom industry in general could be attributed to military rules that hindered independent regulatory performance, political uncertainties and perceived policy inconsistencies.

Later, a series of liberalization measures were implemented in the telecom sector. One such measure taken in 1997 was the agreement between NITEL and Multi-Links Communication Nigeria (MCN) that authorized the later company to provide telephone services through the former’s national grid, breaking NITEL’s monopoly in basic telecommunications. By 1998, the policy to allow private operators in the sector had been strengthened, culminating in the participation of six (6) private operators and eight (8) VSAT license holders in the basic telecommunications and mobile telecommunications sector. Also, in 1998 there were only 400,000 lines connected out of the total installed capacity of 700,000 lines, representing a teledensity of 0.4 or 4 lines to 1000 people (Oyejide and Bankole, 2001).

Full liberalisation Nigeria moved to join the digital age with the enthronement of democracy in 1999. The democratically elected government showed keen interest in the full liberalization of the telecommunication sector. The implementation of the policy has resulted in opening up to competition all the incumbent operator such as national and international long distance services and mobile services, etc.; creation of a level-playing field for all operators (for example, NITEL was brought under the regulatory oversight of the NCC in 2000 and subsequently licensed in 2001); easing or eliminating barriers to cross boarder movement of capital and equipment through removal of restrictions in level of Foreign Equity Participation, reduction in level of import duties on telecommunications equipment from 25% to 5%, simplification of procedures for importation of telecommunication equipment and development of related software, granting of pioneer status to qualified investors, and fiscal incentives to encourage local manufacture

(Ndukwe, 2003:40-41). The need to strengthen the powers of the regulating body so as to increase her independence was emphasized upon, which led to the promulgation and signing of a new telecommunication law by President Olusegun Obasanjo in 2003. The New telecommunication law specifically empowers the NCC to make regulations and guidelines for the industry.

Under the democratic administration of President Olusegun Obasanjo, some historic achievements were recorded in the telecommunication industry. One of such great achievements was the licensing of three (3) companies – MTN, Vmobile and M-Tel by NCC in January 2001 to provide GSM services in Nigeria (Nigeriafirst, 2003). However, the first GSM communication call was made in Nigeria in August, 2001 (Ajala, 2005). At the end of 2001, the total number of connected lines for mobile GSM telephones was 266,461 (NCC, 2008).

In another development, Globacom Ltd. was granted Second National Operators license in May 27, 2002 (Nigeriafirst, 2003). This had contributed to the rapid rise of the connected lines from 266,461 in 2001 to 1,569,050 in 2002 (representing 488.85% increase). As more GSM companies were issued licenses, so the number of connected lines increased (see appendix 2). As at September 30, 2008 the total number of GSM operators providing mobile service in Nigeria was eight (8), while the total number of active lines stood at 55,836,282. Of this figure, MTN controls the largest share of mobile market (36.2%), followed by Celtel (former Vmobile and now Zain) Nigeria Ltd. with 28.48%. Occupying the third position is Globacom, with 27.54% of the mobile phone market share. Multilinks-Telkom Ltd., Visafone Ltd., Starcoms Ltd., Reliance Telecoms Ltd. (Reltel), and M-tel occupied fourth (2.64%), fifth (2.19%), sixth (1.43%) seventh (1.14%), and eighth (0.46%) market share positions respectively. By implication, three companies –MTN, Zain and Glo – control 92.14% of the market share, making them the market leaders in what can best be described as oligopolistic market given the few number of GSM providers serving a country with 140 million population. The remaining GSM companies – Multilinks, Visafone, Starcoms, Relatel, and M-tel – share meager

percentage of 7.86% of the total mobile communication market/customers. This further connotes that the market share for the whole 5 mobile phones is just approximately one third of either Celtel, or Globalcom’s, and a quarter of MTN’s market share.

On the other hand, the number of companies providing fixed line/wireless communication services in Nigeria is 16 as at October, 2008 (see appendix 3). The operator with the largest market share is Starcoms Ltd. with more than half of the total market share (i.e. 53.71%). Next to it are Visafone and Multilink- Telkom Ltd. with 8.83% and 7.83% of the total market share. NITEL controls only 4.74% of the market share, which placed her in the fifth position.

However, four (4) companies provide both mobile telephones services as well as fixed/wireless telephone services in Nigeria as at 30th September, 2008. These are: Starcoms with 1,461,508 active lines; Visafone Ltd. with 1,331,261 active lines; Multilinks with 1,571,102 active lines; and Reltel with 704,521 active lines (see appendix 3). In this area, Multilinks controls the largest share of the market (30.98%) while Reltel has the least share of the total market share (13.89%). In all, there are 21 licensed companies providing telecommunication service classified as either mobile telecommunication services, fixed line/wireless telecommunication services, or both. When this classification is disregarded and replaced with telephone services, MTN still controls the largest share of the total telephone market with 35.34%, while Celtel (now Zain) and Globacom occupies 2nd and 3rd position with 27.87% and 26.94% of the total telephone market share. The remaining 18 companies have less than 3% of the total telephone market share each, and share a total of 9.85% of the total market among themselves. In this group belongs NITEL – the old monopoly operator which enjoyed 100% market share prior to 1996 – which is now relegated to just 0.10% of the telephone market share (see appendix 2). 

The domination of the telephone market by MTN, Zain, and Glo could best be attributed to the Nigerian customers’ preference for mobile communication services rather than fixed line/wireless telephone.  The mobile telephone service is 97.83% of the total telephone market,

and is likely to increase. It can also be attributed to the companies’ time of entry into the industry (first move advantage). While MTN, Zain, and Globacom joined the industry between 2000 and 2003, other joined later between 2004 and 2008. The same argument does not hold of M-tel/Nitel which entered the industry before the present three market leaders. Ironically, M-tel is surpassed in market share by even Starcomms, Visafones, Multilinks and Reltel that entered the mobile telephone market much later. This could be attributed to political reasons, especially one regarding the privatization of NITEL.

From appendix 2, it could be argued that the GSM or mobile phone market is saturated for two major reasons. First, the subscribers were approximately 3.1 million in 2003 but had risen to approximately 53 million in September, 2008. Secondly, the Nigerian population was put at 140 million by the 2006 census (NCC, 2008), a sizable number of the 140 million people living in Nigeria do not constitute mobile phone consumers. Among them are those below 18 years, the deaf, the very sick, and those living in the interior rural areas where GSM network is yet to reach.

Impact of full liberalisation
The full liberalization of the telecommunication has impacted on the economy in a number of ways. First, it provides employment to many Nigerians. According to Ndukwe (2003:64), 3,500 people are directly employed by GSM operators and an estimated 400,000 indirect employment opportunities created by the operations of GSM as at 2003. In the third quarter of 2007, Globacom alone provided direct employment to 2,500 people (Bottonline, 2007). Since in 2003 the total subscribers of telecom services (GSM and Fixed wired/Wireless) was merely fairly above 4 million, and approximately 59 million in 2008, it could be infer that the number of employments directly and indirectly created by the telecom operators have increased in manifolds.

Second, the numbers of people that have direct access to telecom services have increased tremendously. Prior to full liberalization, the total teledensity was 0.04 line per 100 inhabitants in 1999 (Ndukwe, 2003), but increased to 1.89 in 2002 after full liberalization (NCC, 2008). By

2008, 9 years after full liberalization the total teledensity was 42.13 lines per 100 inhabitants in Nigeria. This entails that out of every 100 inhabitants, 42 is actively connected to telecom services.
Third, the total revenue accruing to the government in form of tax from the telecom sector has increased tremendously after the liberalization of the sector. For example, in 2005 MTN paid 9.8 million naira tax to the Federal Government of Nigeria, while the company’s workers paid about 1.1 billion as taxes to the government (Guardian, 2005) in Bottomline (2006). In the same year, the company paid 34.8 billion to government in the form of license fees, duties, taxes, and other statutory payments to government at various levels (Id). In 2007, a total tax of 150 billion naira was paid to the Federal Government of Nigeria by MTN since it began operations in the country in 2000 (Bottomline, 2007). Also, the Federal Government has earned over 242 billion naira from spectrum licensing fees (NCC, 2008) in Bottomline (2008).

Fourth, the liberalisation of the telecommunication has boosted foreign direct investment (FDI) in the country. MTN attracted FDI worthing 400 billion naira from 2001 to 2006 (Bottomline, 2007). In June 2008, the total FDI attracted by the telecom sector was put at over 11.5 billion dollars (Bottomline, 2008).

 

Fifth, the capital base and investment of telecommunication operators have improved significantly.  For example, Globacom have reinvested 3 billion dollars in Nigeria since it commenced business in Nigeria (BottomLine, 2008).

Challenges facing the Nigerian telecommunication sector
Despite the aforementioned grandiose achievements in the Nigeria telecommunication sector, there still remain some big challenges. According to Ndukwe (2003), the inherited challenges that still persist are weak infrastructure base, unusually huge demand for service due to inefficiencies of the past, spectrum planning and allocation problems, enabling laws and regulations limitations, and unreliable electric supply. Other challenges comprise interconnectivity, tariff regulations, effective competition, monitoring and compliance, managing consumer expectations, consumer education and institutional strengthening (Ndukwe, 2003). Inadequate power supply leading to high cost of maintenance of generators and fueling remained the big problem facing telecom operators. From Table 1, unstable power supply costs the three major GSM operators in the country about 24 billion naira annually. It could be argued that the operators are charging high tariffs because self-electricity generation constitutes their highest cost of production.

Table 1: Annual cost of generating power for MTN, GLO, and Celtel


Operator

Number of base station

Number of generators

Annual expenses on diesel

MTN

2,700

5,400

N7.5 billiom

Globacom

3,000

6,000

N8.4 billion

Celtel

3,000

6,000

N8.4 billion

 Source: BusinessWorld (2007) in (BottomLine, 2007)


Conclusion and recommendations

Liberalisation is intended for softening laws to enhance healthy competition. Competition empowers consumers in terms of innovative products with high quality, and drives the economy by providing employments and revenues to the government. Though liberalisation of the Nigerian telecommunication is the best thing that has ever happened to the country telecommunication sector, it was long overdue. From the analysis, the pre-liberalization eon was characterized by government monopoly in the provision of telecom services, low capacity utilization, poor telecom infrastructure, unmet consumers demand, poor network, overbilling, and general lack of innovativeness. But with the full liberalisation of the telecom sector, the situation has change from bad to good. The

policy has steered competition in the sector, generated job opportunities for many, and contributed to the economic growth.

Despite the great achievements recorded in the post-liberalisation period, one great problem that persists and which concerns consumers is that of high tariffs. Since high tariffs are precipitated by high cost of fuelling generators as a result constant power outage, the paper recommends that government at all levels should revive the electricity sector with much alacrity.   

 

References
Ajala, I. (2005), GIS and GSM network quality monitoring: A Nigerian case study, Available at: http://www.directionsmag.com/article.php?article_id=2030&trv=1
BottomLine (2006), MTN and Tax, Issue N0. 72, December-January, P.22.
adad                  (2007), MTN, Globacom, Celtel spend N50bn on power, Issue No. 93, September – October, P.18.
adadfa                         (2007), MTN to boost service quality with N256 billion, Issue No. 94, October-November, P.15. 
adad                             (2008), $33 billion foreign investment in Nigeria, Issue No. 97, January-February, P.23.
adfada                           (2008), Nigeria’s telecoms subscriber base  hits 60m, Issue No. 101, May-June, P.22.
 
Czinkota, M. and Ronkainen, I. (2004), International marketing, Southwestern: Thompson.

Grẑinic, J. (2007), Concept of service quality measurement in hotel industry, Ekon Misao Praksa DBK GOD XVL, Vol. 1, Pp. 81-98.

Kotler, P. and Armstrong, G. (2006), Principles of marketing, (11th ed.), London: Pearson Education Inc.
National Population Commission (2006), Nigerian Population. Retrieved from: http://www.npc.nigeria.com. 1/12/2008

Nigeriafirst (2003), Telecommunication in Nigeria. Retrieved from: http://www.nigeriafirst.org/Tcom. (12/11/2008).

Nigerian Communications Commission (2008), Subscriber data. Available at: http://www.ncc.gov.ng.index5_e.htm. (1/12/2008).

Ndukwe, E.C.A. (2003), An overview of evolution of the telecommunication industry in Nigeria and challenges ahead (1999-2003). Available at: http://www.ncc.gov.nig/speeches-presentations/EVC’s%20Presentation/overview%20of%20Telecom%20. (1/12/2008)

Obasi, I.N. (2007), Analysis of the emergence and development of private universities in Nigeria, JHEA/RESA, Vol. 5, No. 2&3, Pp.39-66. Available at: http://www.codesria.org/linkslpublications/jhea2_07/obasi.pdf. (14/11/2008).

Oyejide, T.A. and Bankole, A.S. (2001), Liberalisation of the services sector in Nigeria: implications of unilateral and multilateral approaches. Available at: http://siteresources.worldbank.org/INTRANETTRADE/Resources/ServicesNigeria.pdf. (11/10/2008)
Parkin, M., Powell, M. and Matthews, K. (1997), Economics (3rd edition), England: Addison Wesley Longman Limited.

Wikipedia (2008), Liberalization. Available at: http://en.wikipedia.org/wiki/liberalization. 10/02/2009.