In an interview with Nairametrics, Gbenga Adebayo, Chairman of the Association of Licensed Telecoms Companies of Nigeria (ALTON) – which comprises Nigeria’s largest GSM operators: Glo, 9Mobile, Airtel, MTN Nigeria, and Ntel – discussed a wide range of issues including the telecommunications Financial Inclusion Committee, outlook for the industry in 2019, and challenges telecommunication firms face in Nigeria.
What, in your opinion is the most pressing issue telcos are facing in Nigeria?
Telecommunications is a capital-intensive, fast-paced and dynamic sector. Technological advancements and Nigeria’s gradual transition to the digital era is driven largely by broadband infrastructure provided by the telecommunications industry.
However, telecom operators are facing increasing challenges in this digital era. Threats from Over-The-Top players (OTTs) such as WhatsApp, Skype, Google, social media messaging applications (Facebook messenger, etc.) who provide communications services locally without local operating licenses or being subjected to local regulations and taxes (like telecom operators). These create an avenue for the erosion of traditional telco revenues.
In addition, the sector is also not insulated from Nigeria’s economic challenges as the weak macroeconomic conditions have led to reduced disposable income, adversely impacting Average Revenue per User (ARPU) and increased cost of accessing foreign exchange to sustain investments in the sector.
One of the most significant challenges is particularly in relation to multiple taxations and increased regulatory interventions. Telecommunications operators are increasingly challenged by regulations, guidelines, rules and directives issued by government agencies with insufficient understanding about their operations. This results in unintended consequences which stifle innovation and business growth.
While the sector is not averse to regulatory interventions, such interventions should (where necessary) be minimal and leave room for self-regulation. An impact assessment should precede regulatory interventions and such interventions should contain the barest minimum required to address a deficiency.
Policies introduced should be market-friendly and regulatory frameworks as well as approval processes should be simplified and not cumbersome. Given the potential of the sector to increase its GDP contribution (which currently stands at about 10%), ALTON advocates for a special focus on the sector by the Presidential Enabling Business Environment Council (PEBEC) to improve the sector’s business environment and ensure sustainable economic gains for the country.
What are your thoughts on the new Value Added Services (VAS) rules released by the NCC?
The VAS aggregator-licensing framework essentially redesigns the VAS delivery ecosystem and redefines stakeholders’ roles in the VAS ecosystem. We acknowledge and appreciate the NCC’s desire to remedy the prevalence of complaints of unethical practices in service delivery.
However, the framework far exceeds the mischief it seeks to address and delves into market structural issues. It restricts the participation of some of our members in the VAS sector despite the fact that the Unified Access Service License permits them to do so.
You’ll recall that, in 2006, the NCC introduced Unified Access Service Licensing (UASL), to align with global best practices in efficient licensing processes as endorsed by the International Telecommunications Union (ITU).
Thus, rather than have a multitude of individual licenses for digital mobile services, fixed telephony services, gateway services etc., regulators began to issue a single (unified) technology and service-neutral license; this authorised operators to deploy services using any type of communications infrastructure and technology capable of delivering the desired service. This Licensing Framework allows UASL holders to provide VAS.
In view of the fact that the licensing framework formed the basis of operators’ decision to invest in the UASL and their valuation of it, it is quite clear that any subsequent regulatory interventions, which affect the scope and terms of the UASL, should involve open conversations with license-holders.
The implications are quite worrisome when viewed in the light of how digital content delivery (which is at the heart of VAS and from which telcos have been excluded) forms a significant chunk of telco growth and a significant development opportunity, especially as revenue from voice and SMS continues to decline.
According to research by Ovum (a world-renowned, market-leading data, research and consulting firm), data and digital services represent the main growth prospects for operators in Africa and should be central to their strategies. The restrictive nature of the NCC’s VAS aggregator licensing framework, therefore, portends serious danger for the investments, operations and their aspirations of the industry.
Given that the NCC’s regulatory intervention is premised on commendable objectives, as well as the fact that there is room for improvement in the existing VAS delivery experience, our recommendation is that a more open conversation and consultative engagement process be put in place by the NCC. This will ensure that the NCC is able to achieve its objectives and secure the confidence of all stakeholders in the VAS delivery experience without mortgaging the long-term future of the service sector and indeed that of the entire industry. ALTON has made its position known to the NCC on this issue and it is our expectation that it will review its decision in the overall interest of the industry.
Big telcos are going into Fintech (9pay) these days, what future does this portend for small players in the industry?
As mentioned earlier, data and digital services represent the major prospect for future growth for telecommunications operators on the continent and should be the key focus area. The possibilities and opportunities span a wide area, which includes the development of services & content, distribution and co-branding. Paga, a notable Fintech company recently celebrated hitting 10 million customer mark after 6 years of operation. This is indicative of huge growth potentials in the Fintech space, which is still at its nascent phase.
Accordingly, and in view of the fact that the regulatory framework applicable to that sector is emerging, our view is that smaller players should look to opportunities for collaboration and partnerships with bigger organisations, in order to leverage the economies of scale for their long-term sustainability. As such, innovative deployments such as 9pay are a step in the right direction and a welcome development.
With MTN’s recent challenges with the government, do you worry about operators halting their investments?
Policymakers and regulators need to be more mindful of how their activities affects investors/investment. Existing and prospective investors are primarily motivated by empirical evidence. Where there are indications of an insecure, hostile or uncertain business climate, there is a high likelihood that investors will (at the very least) adopt a watchful approach to making further commitments until indicators are more favourable and provide greater comfort or assurance. It is important to note that Angola, South Africa, Egypt and Ghana are all competing for the same foreign direct investments that Nigeria seeks to attract, thus the portrayal of Nigeria as a friendly investment destination is imperative.
How has ALTON liaised with state governments to ease the challenges faced with right of way?
The National Economic Council resolved that state governments would adopt the same Right of Way (RoW) regime set by the Federal Government where RoW is N145 per linear metre. Despite this resolution, very few states (if any) have reflected the resolution in their pricing and this has affected the ability of telcos to roll-out affordable broadband infrastructure across the Federation.
ALTON has been extensively involved in engagement and discussion with relevant stakeholders on this issue. Right of Way remains one of the main cost drivers for building out broadband infrastructure, as it accounts for not less than 50% of the total cost of fibre deployment in the various states.
As such, our focus has been on securing the reduction or outright waiver on RoW costs on Federal, State and Local Government roads and ensuring a streamlined and fast-tracked RoW approval regime.
We commend states that have been supportive of ICT investments through the adoption of business-friendly RoW and we will continue to engage others to present our concerns and position. We acknowledge the leadership role that the NCC has played in the engagements with the State Government and hope it is sustained until the issue is conclusively addressed.
Do telecommunication firms have any pending legislation before the national assembly?
The current principal legislative instrument for the sector is the Nigerian Communications Act (NCA), which became law 15 years ago. In the intervening period, the telecommunications industry has experienced significant changes e.g. the advent of digital services, the introduction of OTT players, Value Added Services, etc. — these were not accounted for, under the current legislation. It has, therefore, become imperative for the current legislation to reflect these realities.
This is why our members have painstakingly made comments towards the review of the NCA, and we commend the National Assembly’s ongoing review of the NCA.
It is our expectation that the legislation upon finalisation will reflect current industry peculiarities; be business-friendly, innovation-focused; and will ultimately promote investments in the ICT industry. We have submitted our comments to the legislature on the Act and will continue to engage the legislature on the review.
While internet connectivity in Nigeria is one of the cheapest in sub-Saharan Africa, many Nigerians feel it can go much lower. What are the factors preventing telcos from doing so?
Retail data rates are determined by a variety of factors. As such, a conversation around whether or not these rates are expensive must occur within the context of service delivery and the associated factors.
Some of the critical factors to be considered are infrastructure deployment costs and the cost of accessing funds. From an infrastructure standpoint, RoW fees and broadband spectrum fees are key cost elements which are factored into data pricing, and typically, prohibitive RoW charges and spectrum fees affect retail rates of data services.
In the same vein, the high cost of accessing funds also contribute to the price levels for data services as the sector is not isolated from the general economic climate.
Ultimately, the price for data services could go down as the economic climate improves and the cost of doing business reduces.
What is ALTON’s take on the newly released guidelines on payment service banks (PSBs) by the CBN?
ALTON is of the view that the exposure draft on Guidelines for Licensing and Regulation of Payment Banks in Nigeria is a step in the right direction for deepening financial inclusion in Nigeria.
The framework is a paradigm shift as the CBN is seeking to permit MNOs (through subsidiaries) participation in the delivery of financial services to end users by leveraging their assets and resources, in order to enhance financial inclusion in Nigeria.
Despite our agreement in principle with the general features of the Draft Guidelines, we advocate for changes to some provisions capable of creating barriers for potential PSBs.
Some of these include:
• Recommending that the focus area of PSBs be expanded to cover all financially excluded persons across Nigeria living in both rural and non-rural areas;
• A downward review of the minimal capital requirement to N2 Billion to free up additional funds for aggressive investments;
• The requirement to provide evidence of a minimum capital deposit during the AIP phase can be deferred to the final license phase to provide comfort to the promoters.
• That PSBs be allowed to maintain 40% of PSB deposit liabilities in Federal Government Securities while the residue of 60% can be in bank placements.
• That CBN grants a BVN capture waiver for the opening of the PSB account and allow Tier 1 KYC requirement to be an acceptable standard.
• CBN considers collaborating with the NCC to allow MNOs to use subscriber information to satisfy the KYC requirement for PSBs, upon receipt of customer consent.
• CBN reconsiders its decision on differential pricing and arm-length dealing and permits PSBs and parent companies to devise an arrangement whereby the former can leverage the assets and resources of the latter to provide low-cost financial services to end-users.
• CBN collaborates with the NCC to address concerns around the fear of the preferential use of network infrastructure, allegations of denial of use of infrastructure; and poor service quality provision by MNOs, as highlighted by some stakeholders at engagements.
How will individuals and small businesses be able to key into the Telecoms financial inclusion committee roadmap?
Given the broad range of services which the CBN has now enabled (e.g. super-agent/distribution, payment service banks, micro-finance banking), we are of the view that there will be opportunities for individuals and enterprises to collaborate towards the ultimate goal of achieving the Federal Governments financial inclusion objectives.
The Telcos’ Financial Inclusion Committee was recently constituted by the industry to articulate, steer and provide guidance on how telcos’ can participate in driving financial inclusion initiatives and approaches which can deliver desired results for all stakeholders. We will, therefore, be making further pronouncements in this regard in due course.
What is your outlook for the coming year? What new developments are pertinent to the industry?
As 2019 is an election year, we anticipate a cautious/watchful disposition from investors in Q1 and even up to Q3 2019. Business owners will want to get some degree of clarity and certainty as to the direction/outcomes of the election and the economic agenda of the government in power prior to making any significant investment decisions.
Nevertheless, there are quite a number of impending developments which will enhance the impact of the telecommunications industry. 5G remains the most exciting development to look forward to.
Although discussions on 5G have accelerated in 2018, the roll-out of the service will be a multiyear journey. 5G technology will drive the adoption and accelerated developments of innovative solutions such as autonomous vehicles, Internet of Things and also media – VR and AR.
In Nigeria, telcos will continue to find ways to expand their 4G coverage while they start exploring new revenue streams in IoT and media. Investments in streaming services will be encouraged by the increased speed 4G provides.