Major African Mobile Markets: Future Growth Prospects 2006-2011

Key Market - Nigeria

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Industry Overview

Mobile Market

Future Outlook Figure 1: Nigeria - Mobile Subscribers and Penetration (2002-2011)
Figure 2: Nigeria - Market Share of Mobile Network Operators (November 2005)
Figure 3: MTN Nigeria - Ownership Structure (November 2005)
Figure 4: Vmobile - Ownership Structure Table 1: Nigeria - Important Economic Parameters (2004)
Table 2: Nigeria - Telecom Industry Snapshot
Table 3: Nigeria - Mobile Subscribers (2002-2011, In Million)
Table 4: MTN Nigeria - Key Performance Indicators (FY end-March 2005)

Nigeria has a federal republic form of government and has recently undergone transition from military rule to civil rule. Due to the absence of a government accountable for its actions, Nigeria has faced problems of political instability and corruption in the past, and the country is now in the process of establishing itself as a reliable and trustworthy international business community.
Nigeria has a vast population base of more than 125 million people, more than France and the UK combined, and a rich cultural diversity with approximately 250 ethnic groups living in this one country.
Nigeria's economy is dependent on both agriculture and oil earnings. The country is currently undergoing several economic reforms and faces issues with the privatisation of different industries. Political instability, a high level of dependence on oil reserves, which are affected by world price variations, a large population base and many other factors have slowed the economic growth of Nigeria.
The government took various initiatives during 2003-2004 to boost economic growth in Nigeria, such as deregulating fuel prices, the privatisation of the country's four oil refineries, etc., and as a consequence, GDP rose significantly.76
Table 1 provides an overview of the country's key economic parameters.
Table 1: Nigeria - Important Economic Parameters (2004)

Telecom Industry Overview

The first mobile services in Nigeria were introduced in 2001, but growth in the mobile communications sector has been so fast that mobile penetration surpassed fixed-line penetration very quickly, with wireline penetration struggling at barely 1 percent.
In Nigeria's wireline market the government operator, NITEL, dominates the 24 other private operators providing fixed-line services, and the whole wireline sector has been faced with serious issues such as liquidity problems and capital adequacy. However, the liberalisation of the telecom sector and subsequent increase in competition have been the key drivers of growth in this sector and has also brought benefits to the customers in terms of lower prices and enhanced services and choice.
Total telecom investment in Nigeria by end-2004 reached USD 10 billion.
Table 2 provides an overview of the country's telecom sector in terms of subscriber numbers and penetration rates.
Table 2: Nigeria - Telecom Industry Snapshot

Mobile Market

The Nigerian mobile market is a comparatively young market by African standards, with the first mobile services only launched in 2001. However, the Nigerian mobile market has emerged as the fastest growing mobile market in Africa, registering triple-digit growth rates in subscriber numbers, and we forecast a further 72 million new subscribers are likely to join this market over the coming years.
The Nigerian mobile market has emerged as the fastest growing mobile market in Africa, registering triple digit growth rates in subscriber numbers.
The rapid growth in the mobile market has been primarily due to the government's liberalisation policy and the subsequent increase in competition in the market. The presence of competition in the market has resulted in a rapid growth in the countries subscriber base, reduced tariffs, wide network coverage and high quality of service, along with the creation of employment opportunities. The operators are witnessing lower ARPU and a slowing rise in profits, primarily driven by lower mobile tariffs and the growth of low-income and low-usage subscribers.
At present, there are four network operators in the country - MTN Nigeria, Glo Mobile, Vmobile and M-Tel. All operators provide services based on 2G (GSM) and 2.5G (GPRS) networks. Although 3G services are not yet available in the country, MTN is expected to launch these services based on UMTS technology in 2006.
The Nigerian mobile market also has a large number of VAS companies, such as MTech, TaviaTxt, SaveMyContacts, Textnigeria, Entegration Solutions, Cellulant, 3G Reality Centre and A3&O, which generate mobile content to deliver value-added services via the GSM network operators. The mobile operators share the revenues equally with these private VAS companies, barring M-Tel, which is yet to develop a relationship with a VAS company.
Market Size
The total number of mobile subscribers in Nigeria as on 30th November 2005 was 17.66 million, with a penetration rate of approximately 13.7 percent.
The subscriber base more than tripled in one year, increasing from 3.15 million at the end of 2003 to 9.58 million at the end of 2004.
The number of mobile subscribers in Nigeria is expected to increase at a CAGR of approximately 30.2 percent from 18.56 million at end-2005 to 90.47 million at end-2011. The corresponding penetration rate is expected to increase from 14.4 percent to 60.9 percent. Moreover, 3G services, expected to be launched in 2006 are likely to account for approximately 13.4 percent of the total subscribers in 2011.
Table 3 shows the forecasts for mobile subscribers in Nigeria for the 10-year period from 2002 to 2011.
Table 3: Nigeria - Mobile Subscribers (2002-2011, In Million)

Source: Portio Research Ltd.
Figure 1 illustrates the trends and forecasts for mobile subscribers and penetration rate in Nigeria for the 10-year period from 2002 to 2011.
Figure 1: Nigeria - Mobile Subscribers and Penetration (2002-2011)

Source: Portio Research Ltd.
Mobile Network Operators
Nigeria's mobile market is competitive in nature with four operators providing mobile services. However, the three leading operators together accounted for more than 90 percent of the country's total subscribers at the end-November 2005, and the fourth operator is a much smaller player in the market.
Figure 2 provides the market share of the various operators in Nigeria's mobile market in terms of subscriber base at the end-November 2005.
Figure 2: Nigeria - Market Share of Mobile Network Operators (November 2005)

Source: Company Reports
The four operators currently providing mobile services in Nigeria are discussed below:
MTN Nigeria
MTN Nigeria is the subsidiary of MTN International and launched its GSM services in the country in 2001. The operator also provides 2.5G (GPRS) services. At present, it is the largest operator in terms of subscribers. Its network covered more than 58 percent of the total population of Nigeria at end-March 2005.
The company has significantly increased its pace of network expansion in the country in order to cope with the increasing subscriber base and solve network congestion problems. MTN had invested more than USD 1.8 billion on its network infrastructure in Nigeria by end-March 2005.
Figure 3 shows the ownership structure of the company as on November 2005.
Figure 3: MTN Nigeria - Ownership Structure (November 2005)

Source: Company Reports
Table 4 provides an overview of the operator's key performance indicators.
Table 4: MTN Nigeria - Key Performance Indicators (FY end-March 2005)

Source: Company Reports
Vmobile
Econet Wireless Nigeria (EWN) launched its mobile services in Nigeria in 2001 under the brand Vmobile. EWN, now called Vee Networks Limited, held 25 percent of the country's total subscriber base at year-end 2004. It provides 2G (GSM) and 2.5 G (GPRS) services. Vmobile offers the usual array of value-added services, such as SMS and content downloads, such as ringtones, graphics, sports and entertainment information, etc.
Vmobile's shareholding structure is divided between private investors/institutions and state at 60 and 40 percent, respectively. Figure 22 illustrates the latest shareholding structure of the operator.
Figure 4: Vmobile - Ownership Structure

Source: Company Reports
Others in the above graph include the following:
O & O Networks Ltd (10 percent)
Bromley Investment Ltd (5 percent)
Bromley Asset Management Ltd (4.8 percent)
First City Telecoms Ltd (2.5 percent)
Leadway Assurance Ltd (1.54 percent)
Others (3.4 percent)
M-Tel (Mobile Telecommunications Limited)
M-Tel, which is held by the government-owned Nigerian Telecommunications Limited (NITEL), launched its GSM services in the country in 2001, along with two other operators, viz., MTN Nigeria and Vmobile. Due to financial difficulties, it could not expand its network in the country and currently accounts for less than 10 percent of the total subscriber base. It provides 2.5G (GPRS) services as well.
Glo Mobile (Globacom)
Glo Mobile (Globacom) is the latest operator to enter Nigeria's mobile market. It launched its services in 2003 and has since acquired a substantial subscriber base in the country, accounting for approximately 25 percent of the total subscriber base at year-end 2004. Glo Mobile provides a fairly standard array of value added services on its 2G (GSM) and 2.5G (GPRS) networks, such as SMS, per second billing, mobile banking, MMS, ringtone and logo downloads, Internet access, etc.
Globacom is owned by the Nigerian petrochemical company Conpetro.
Recent Developments
Some of the recent developments in Nigeria's mobile market are as follows:
Mergers and Acquisitions
The government has been planning to privatise NITEL (and its mobile-arm, M-Tel) since 1999. After a few unsuccessful attempts to partially privatise NITEL, the government resolved to complete NITEL's privatisation before the end of 2005. In July 2005, six prospective investors were short-listed for a 51 percent stake, which include MTN Group, a consortium of Telkom and Vodacom, Orascom Telecom, another consortium of Huawei Technologies and Jacu, Celtel International and Newtel. However, in December 2005, it was reported that only two of the six short-listed players, namely Orascom and Newtel, would take part in the bidding. A possible reason for the disinterest shown in the bidding is speculated to be the doubt on whether SAT-3, an underwater cable owned by NITEL, would be included in the bidding. The status of SAT-3's inclusion in the bidding has not been clarified by the Ministry.
The Virgin Group and Vodafone confirmed in June 2005 their intention to form a consortium to jointly bid for a stake in Vmobile.
Technology Innovations and New Services
Vmobile Nigeria signed a contract with Harris Corporation, a supplier of wireless equipment and services in May 2005 to supply TRuepoint microwave digital radios. The agreement would provide for the expansion of the operators' network in new territories to support up to 500,000 new subscribers.
Price competition between operators will help in increasing the subscriber base as well as drive the growth of value-added services in the market.
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Future Outlook

The growth in Nigeria's mobile market has been spurred by the government's liberalisation policy and hence the introduction of competition in the market. With the increase in competition in the market and the continuing growth in the size of the subscriber base, the market is expected to keep growing fast but suffering from price competition and subscriber churn rates. The main inhibitors to the growth presently are the low income levels in the country and the high prices of handsets. Hence, the subsidisation of mobile handsets as well as targeting the low-income group through tariff reduction and well structured prepaid offerings should continue to stimulate high growth in the Nigerian mobile market over the next few years.
As well as driving overall growth, solid price competition between the operators should, in turn, help drive the growth of value-added services in the market. As the market matures, it is expected that operators will focus on churn reduction and improving quality of service.
Specifically, some of the factors that should continue to drive high growth in mobile services in Nigeria are as follows :
· Large population and low levels of penetration
Nigeria has the largest population base in Africa, at over 125 million people, and one of the lower levels of mobile penetration (14.4 percent at end-2005), thus offering a huge potential for growth of mobile subscribers.
· Increased competition in the market
The proposed privatisation of the government-owned telecom operator NITEL (and its mobile arm M-Tel) and the entry of leading foreign stakeholders in the country, such as Orascom, Celtel, etc would further intensify competition in the market. Vodafone also intends to enter the Nigerian mobile market by owning a stake in the operator Vmobile, in order to expand its coverage in Africa. All these factors are expected to further nurture rapid growth in the subscriber base, reduced tariffs, increased network coverage and improved quality of service in the country.
The number of mobile subscribers in Nigeria is expected to grow to approximately 90.47 million by end-2011, with a corresponding penetration rate of 60.9 percent.
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