final version broadband in nigeria challenges to the next frontier april2012

8/12/2019 Final Version Broadband in Nigeria Challenges to the Next Frontier April2012

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data segments. The huge dichotomy between the voice telephony and data segments isevident when statistics are presented. With tele-density in the country growing frombelow 2% in 2001 to about 65% within 10 years, the broadband segment is yet to catch-up. Recent statistics show that there are over 45 million internet users in Nigeria, whichon the surface appears to be a large number until we note that this figure represents

only 29% of the population1. In reality, we estimate that actual broadband penetrationin Nigeria is in the 10% range, and places us in several published studies behind SouthAfrica, Kenya and Ghana in sub Saharan Africa.

We believe the goal in terms of broadband penetration should be such that there is ahigher degree of penetration and broadband is available in all parts of the country suchthat it starts to impact our lives in a more meaningful way in education, servicedelivery to run our daily lives, government, commerce and big business and alsoentertainment. When broadband is readily available, behaviour patterns will changebecause we will rely on such to obtain services and get tasks required in our daily

existence as students or workers or business people done.

With the advent of the Main One and Glo-1 submarine fibre optic cable systems (as wellas the expected WASC and ACE cables), Nigeria has sufficient bandwidth capacity andthe fundamental ingredient to drive the growth of data and broadband penetration inthe country but we have not made the same kind of progress other countries have madewith the same kind of development since these cable systems bring in the potential ofdelivering fast and affordable international connectivity at speeds far in excess of whatwas previously available on the NITEL SAT-3 submarine cable system.With this in mind, it is evident that advances made so far in international bandwidth

connectivity are yet to be translated to the end user due to certain factors with the firstbeing the absence of a national backbone with the failure to privatize NITEL. Thus thefast, affordable and reliable bandwidth connectivity which is available at the shores ofthe country is not effectively distributed to end users across the country with anymeaningful impact. There is a reason why incumbent national carriers which have beenlong privatized in other countries remain the anchor of the communications industry. Inthe United States where I am quite familiar, AT&T was split up into 6 regional Belloperating companies, which reconsolidated into two and remain the largesttelecommunications providers in the United States today i.e. Verizon Communicationsand SBC/AT&T. It is the same reason we have BT in the UK, Deutsche Telecom inGermany, France Telecom in France continuing to play leading roles in theirtelecommunications sectors. Closer to home, we have Telkom South Africa andVodafone Ghana playing similar roles in these African economies. Our inability to gaincost effective and high quality access and distribution networks required for datadistribution at fair and non-discriminatory prices places the promise of faster, better

1http://www.internetworldstats.com/stats1.htm.Figures represent statistics as at 31stDecember, 2011.
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and more affordable broadband services to the end user by the advent of the Submarinecables on the verge of defeat.

WHITHER THE CONNECTIVITY?

From the foregoing, the connectivity realities in Nigeria reflect an artificial over-abundant supply of international bandwidth without a corresponding supply ofdomestic bandwidth. High domestic bandwidth prices, non-level competitive marketfor operators, inadequate access to last mile infrastructure fraught with discriminatoryand prohibitive costs and poor quality of service are symptoms of the domesticbandwidth sector that requires urgent intervention.

While these same conditions have prevailed with the growth of mobile voice telephonyservices and each major operator has invested in its own infrastructure rather thanleverage shared infrastructure, such arrangements do not lend themselves so easily to

data services. The reason being that while voice requires limited bandwidth and thehigh population of Nigeria makes it feasible for mobile operators to deploy theinfrastructure on a proprietary basis and pass the high costs onto consumers,broadband services requires a lot more infrastructure (fiber and electronics), which isunaffordable to serve most parts of the country if the infrastructure is not scalable andshared between several operators.

It is clearer now than ever before that service providers are being forced to developproprietary distribution infrastructure to deliver services in the absence of a fair regimeon sharing. Huge capital outlay and time to market factors, amongst others, are key

disincentives for this option, and it is not always an economically feasible option, nordoes it offer a viable business model for new entrants in the broadband market. It goeswithout saying that the cost associated with such procurement of builds will betransferred to the end user, the consumers, leading to the current situation wherebroadband services are still offered at rates disproportionate to the immensely reducedprices offered by the submarine cable companies to the service providers. No doubt, amore feasible alternative is for service providers to procure access on a shared basis toexisting last mile infrastructure for the provision of their services, at least whereavailable, or engage in industry supported joint build models to reduce cost andimprove productivity.

The current status of broadband in Nigeria therefore begs the following questions: -

i- How do end users reap the benefits of the abundant international bandwidthconnectivity at their doorsteps?

ii- How can we resolve the issue of access to distribution and last mileinfrastructure resolved?


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iii- What amount of independence should be given to the forces of demand andsupply and free market dynamics in resolving anti-competitive practices byoperators especially those owning infrastructure which may be consideredessential to the provision of domestic bandwidth capacity?

iv- What role must the regulator and policy makers play by way of policies,regulation and infrastructure funding?

We must also highlight what we believe will be the key indices for tracking the progressof broadband in Nigeria in the near future.

3.1 Availability

The major index for the growth of broadband services in Nigeria in the future will bethe sheer ease of access to a variety of broadband services. This refers to the availabilityof broadband services to the consumers. Currently, the broadband market in the

country cannot be said to be homogenous, with major cities like Lagos having a largershare of the market than the others. It is therefore important for broadband services tobe readily and fully available in all states of the country such as Jalingo, Taraba, Bayelsato ensure that the services are accessible to the end users who requires access. A child inYenagoa must be able to go home after school confident that they will be able to obtainaccess to the Internet to complete research required for the paper due for submission inschool tomorrow.

3.2 Low Cost High Quality

In market segments where broadband and data services are available in the country,there is disequilibrium between the cost of these services and the quality provided.Quality here refers to the quality of the services itself, in terms of download throughput,upload throughput and latency competencies and to the available broadband speeds onoffer. The future of broadband in Nigeria must be characterized by low service costswhile at the same time ensuring high service quality. Consumers must be motivated topurchase broadband services by a competitive environment that guarantees that theservice providers will provide the best possible services at the most competitive rates.

3.3 A competitive service provider market

The future of broadband in Nigeria must be characterized by a market drivencompetitive landscape that focuses on sustaining growth and innovation in the sectorthrough required FDIs and local investment. Regulatory intervention and investmentincentives particularly for local players should pervade government policies andregulatory intervention should be tailored towards enhancing sustainability of themarket and creating effective level playground for all and sundry. It is well knownglobally that market domination by large players in high technology related businesses


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stifles innovation, punishes consumers with high prices, while rewarding the playerswith high profit margins, and fails to encourage or support growth of local content andparticipation. Our regulators will need to be active in sector specific regulation of themarkets, where the market does not self-regulate and it must be such regulation thatrewards investment in open infrastructure, innovation and local content participation.

3.4 Efficient consumer protection mechanism

It is of paramount importance that there exists a system to address consumer concernsto guarantee their expectation from the promises made by services providers. Customerconfidence in the service market should be taken as important as investor confidence inthe country itself. As such, there is a need to ensure that consumers are guaranteed asimple and effective mechanism to have all their concerns address and remedied wherepossible. The onus for ensuring such a mechanism will lie on both the industry and theregulator.

4. NEEDED IMPERATIVES

Regulatory

From the foregoing, intervention in access to critical last mile infrastructure (backhauland the local loop) for the delivery of the services to the end user remains essential forprogress. Regulating access to, and prices of, existing backbone and last miledistribution infrastructure will create competition and provide further incentives tonew entrants to deploy only unavailable infrastructure. The objective should not be tostifle growth in infrastructure development but to ensure that efficient competition isfostered and infrastructure builds are appropriately directed to meet areas where thoseneeds truly exist, whilst services requirement in areas with existing backboneinfrastructure could be immediately addressed. The nature of competitioncontemplated is the fair and competitive unbundling of local loop access to existinginfrastructure by an infrastructure owning operator to other service providers at pricesthat are reasonable and reflective of economic cost of the provision and maintenance ofthe infrastructure and sundry investment by the facility owners.

Though current regulatory prescriptions in Nigeria provide for such access to shared

infrastructure, the scope and enforcement provisions of the regulations leaves more tobe desired. Whilst the respective provisions i.e. the Communications Act and theTelecommunication Networks Interconnection Regulations, guidelines on Collocationand Infrastructure Sharing generally provides for access in one way or the other, thereare no specific pricing regime and enforcement of the current rules are not particularlyfirm, even though some of these regulations suggest that the prices should bereasonable, non-discriminatory and cost based.


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Specifically, there is no cost based rationale for bandwidth from Lagos to Abuja or PortHarcourt to be more expensive than bandwidth between Lagos and London but such isthe reality because there is no enforcement of the existing regulations for infrastructuresharing.

Given market antecedents, it is unlikely that infrastructure owning operators are evergoing to commercially agree rates that are truly cost based, competitive and non-discriminatory without regulatory intervention. The current level of continuedinvestment and build in intercity and intra-city backbone network infrastructure byeach and every network is also in itself testimony to lack of willingness to agreeequitable and cost justifiable prices for access to those facilities. While the absence ofspecific backbone or wholesale leased line service regulation in the sector could havebeen fuelled by the view in the past that there were no legacy intercity lease line andlocal loop infrastructure on ground, thus no need for regulation. However, the situation

has tremendously changed over the years and despite the proliferation of suchnetworks, the cartel like behaviour of network owners with respect to access andpricing remain deterrents to the further competitiveness of Nigeriastelecommunications market, in particular for internet and broadband services andconsumers bear the burden of such high costs.

In addition to the foregoing, current proprietary owners of the most expansive last mileand access facilities in Nigeria are also the largest networks providing data and voicetelephony services. With the rates charged for leased lines services i.e. by theseoperators, they are able to maintain market dominance by keeping the small ISP

businesses and other secondary providers of data services such as CDMA operatorsfrom reaching the end user market and successfully stifling competition in broadbandservices in Nigeria. Given that some of these operators also have internationalconnectivity cable infrastructure, the fate of other operators and their ability to competemay be sealed since prices of access to the end users and customer remain critical factorfor price competitiveness, even as Main One continues to be an open access cable withcompetitive pricing made available on its network. There are therefore also seriouscompetition issues, which justify our stance on the need to effectively regulate accesspricing in the market if any meaningful growth and development would be attained inbroadband services segment of Nigerian telecommunications market.

It is clear that the regulator must make strict pronouncements that mandate access anddetermines pricing in the interest of promoting broadband access, particularly inrelation to duct space, dark fibre, other ancillary network infrastructure and highcapacity bandwidth needed to aid the market development of broadband services.Several models abound all over the world, and looking inwards, the Commission couldbenefit from similar experience in the voice telephony segment, which was largelyuncompetitive in retail and end user pricing until the three different phases of voice


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termination regimes were made by the NCC. The phased determinations havesignificantly improved competition in the voice market, helped to improve quality ofservices in the process and drastically improved prices. Main One, along with otherindustry players, firmly believes there is an urgent need for the Commission toimplement a study of the wholesale leased line and other last mile access and

distribution infrastructure market, and implementing a firm access and pricingregulation and enforcement regime. Such regime needs to also clearly spell out theguidelines for sharing with incentives and penalties for operators willing or unwillingto open up their networks to others at competitive rates. In addition, the measureswould need to be structured in a manner that such incentives do not continue tostrengthen dominant players, but support overall growth in the sector and local contentdevelopment.

Policy and Investment Incentive

Main One has been in the forefront of the push for the development of a NationalBroadband Policy for Nigeria to drive the expansion of broadband in the country. Thisviewpoint is predicated on the conviction that both the demand and supply sides needto be enhanced beyond the efforts of operators and service providers, but withconcerted efforts from the regulator and the policy makers as well. Significantimprovement in the access to and current levels of broadband infrastructure buildshould form an essential part of the National Broadband Policy and implementationstrategy. There is need to ensure efficient allocation and utilization of governmentowned and government influenced assets such as Spectrum and Right of way, sinceensuring efficient access to such resources at fair prices will only drive further

deployment.

In recognition that we are still lacking reliable power supply in Nigeria today, thisposes a challenge, but similar to the challenges faced in the power sector today, we donot want to look back in 10 years and face similar problems with regards to broadbandcommunications. Today most developed and even developing nations recognize thataccess to broadband services is similar to the requirement to access to electricity andgovernment is a major driver in ensuring broadband services are deployed to everycitizen. For example, National Research and Educational networks have been a majorfocus of government to drive broadband network deployment to educationalinstitutions. The US pioneered this development with NSFNet which led to thedevelopment of the Internet and companies like Cisco Systems and more recently, wehave Tenet in South Africa, Ubuntu in East Africa, NITA and GARNET in Ghana, butNigeria is yet to boast of a Research and Educational network.

Beyond funding support for research and educational networks, in areas where theinfrastructure is inadequate or does not exist, the provision of special funds to enhanceaccess to backbone and last mile infrastructure facilities across the country is urgently


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required. The National Policy needs to specify a transparent process that ensurescompetitive bids and an efficient monitoring system to guarantee optimum applicationof the resources to enhancing existing infrastructure and/or new builds. In addition,programs must be designed to cut across government agencies e.g. federal and stategovernments or collaboration between agencies such as the CBN with the cashless

Nigeria program and the telecommunications regulator. If such programs are notleveraged to achieve the broader policy objective of broadband penetration, when willthe opportunity exist? Likewise, if we continue to deliver satellite basedcommunications services to our schools, where is the opportunity to migrate to fiberand ensure that our students have enough bandwidth to support learning in todaysenvironment and that gets our educational institutions once again competitive?Lessons must be learnt from previous initiatives that have failed to meet theexpectations of the consumers and policy makers alike largely because they were basedon frameworks that did not effectively consider their impact on the fulfillment of theproject objectives, as well as the sustainability of the processes.

The notion that governments policy role should be limited and that market forces willsolely drive broadband service availability beyond the most densely populated urbanareas is simply wrong. Given todays realities in Nigeria, governments direct support isneeded for infrastructure development for broadband services in urban areas as it isneeded in the rural areas. Direct financial incentives towards broadband last mileinfrastructure development, which may be through a dedicated government controllednational broadband infrastructure development fund or application of the USPF fundwhich can be equally accessed by operators and services providers demonstrating clearand proven deployment strategy, operational antecedents and execution plan. This

needs to be supported by an efficient management and governance structure that willguarantee proper supervision to assess the service impact of the utilization of suchfunds. Such framework must take into consideration the need for local contentdevelopment to ensure sustainability and economic growth. In order to ensure thatagain we simply do not become consumers of broadband services in a manner similarto mobile services today, government support needs to be geared towards thedevelopment of local companies, skills and jobs that will foster innovation and creationof local wealth.

Ample stimulation of the demand side through the promotion of content developmentand entrenchment of usage of broadband through digitalization of governmentMinistries, Departments, and Agencies and the automation of government workforceand operational processes is equally important, such that citizens are encouraged toutilize broadband services as tools for interfacing with public departments, and publicenterprises are also able to benefit from increased efficiency of online real-time servicesvalue, enabled by broadband services access.


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5. CONCLUSION

As reiterated in our paper, Nigeria cannot overlook the important economic benefits ofexpanding its broadband connectivity capacity if it were to compete with the globalleague of developed countries. Prior strategic plans of the NCC have secured mobile

voice access in the country and such services are now available within no more than 30minutes travel time of every Nigerian. If Nigeria is going to achieve Vision 20:2020which will place it in the G-20 league of nations, or go from BRICS to BRINCS byjoining the emerging economic block of Nations in which South Africa is already amember, the next strategic plan of the NCC must address growth in broadband capacitydistribution to every nook and corner in Nigeria. There is indeed ample need for theregulator and policy makers to take the lead in developing and implementingappropriate policies and regulations that encourage continued growth and investmentin the sector in ways that ensure our public institutions embrace ICT, support amplecreation of jobs, ensure adequate local content participation and the creation of wealth

and economic growth for more Nigerians. The new NCC Strategic Management planmust address how broadband gets to every doorstep and how public institutionsembrace ICT for service delivery to all Nigerian citizens.

Thank you

final version broadband in nigeria challenges to the next frontier april2012

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