JOHANNESBURG, South Africa-Mobile Telephone Networks (MTN), the South African mobile network operator, recently secured one of four mobile operator licenses in Nigeria. The network must pay a license fee of US$285 million, which could be regarded as either reasonable or overpriced, based on various industry opinions.
The four licenses went to the state-owned Nitel; the Zimbabwean consortium of Econet Wireless; Communication Investments backed by Deutsche Bank; and MTN in an auction that drew US$1 billion total for the government.
The risks and rewards of rolling out telecommunications infrastructure in Africa are large. One risk is the fact that Nigeria’s transition from military rule to democracy is still incomplete. The country faces another election in 2003, and President Olusegun Obasnjo could face a tough campaign, as his ruling Democratic Party has been an amalgamation of politicians and military officers.
However, given Nigeria’s large population of roughly 120 million, it is estimated mobile network providers could have access to a potential market of 40 million subscribers. This would easily make Nigeria the largest mobile market on the African continent, even dwarfing South Africa, which is seen as the most lucrative and largest yet.
MTN Chief Executive Officer (CEO) Bob Chaphe said the Nigerian license presents the operator with an opportunity to become the largest mobile telecommunications provider on the continent.
Currently, the high demand for telecom service in Nigeria could imply that MTN could safely secure 12 million subscribers of the estimated 40 million. However, to accomplish this, MTN would have to move on an aggressive land grab and roll out its network quickly, acquire subscribers and dominate the market.
Yvonne Muthien, MTN group executive of corporate affairs, said analysts are questioning the high license fee because of Nigeria’s low per capita gross domestic product (GDP) of US$345 compared with South Africa’s US$3,245. However, she said it is the country’s informal economy-the part of the economy that cannot be measured for taxation purposes such as street vendors-that presents a distorted picture of the country’s GDP. The informal sector is reported to have an estimated input of roughly 60 percent of Nigeria’s total GDP.
MTN expects the project to cost up to US$1.4 billion, including debt funding during five years, which would make it the network’s largest investment outside of South Africa. Raising as much capital as possible in Nigerian niara, the local currency, could ease the risk of investing in Nigeria. The issue is the Nigerian debt market cannot comfortably absorb the funds required by all four licensees, which means foreign investment will be sought.
Of all the four potential success stories in Nigeria, MTN holds the most promise, according to telecom analyst Andre Wills with BMI-TechKnowledge in South Africa. This is partly due to the network operator’s experience in running successful operations in Uganda, Rwanda and Cameroon.
The investment in Nigeria does appear to be a bit of a gamble, but the payoff could be big.
