SOCIO POLITICAL ENVIRONMENT OF BUSINESS

MOBILE PHONES ARE FOR EVERYBODY - THE MTN STORY

PREPARED BY

WASIU OLUWASINA OTUKOYA (EMBA- 9)

LAGOS BUSINESS SCHOOL(PAN AFRICAN UNIVERSITY)

INTRODUCTION

“The telephone is not for the poor”, “The mobile phone is a luxury item and it must remain as such”. These kinds of statements were credited to former government functionaries who in the past have been charged with the responsibility of providing telecommunications infrastructure for Nigeria. But today such statements have been belied, (ownership of telephone has been democratized, with artisans, students, market women and taxi drivers now owning phones) thanks to the telecommunications revolution that has swept over the land over the past couple of years, the story of which cannot be completed without mentioning MTN, the single largest telecommunications provider in the country today.

EVOLUTION OF TELECOMMUNICATIONS IN NIGERIA.

Since its inception a little over a century ago, Nigeria's telecommunications system has progressed through various stages of development from the primitive communications equipment in its colonial days to the enormous variety of technologies available today. The development of telecommunications in Nigeria began in 1886 when a cable connection was established between Lagos and the colonial office in London. By 1893, government offices in Lagos were provided with telephone service, which was later extended to Ilorin and Jebba in the hinterland. The objective then was to promote administrative functions rather for the socio-economic development of the country. Thus the external connection by public telegraph services linking Lagos by submarine cable along the west coast of Africa to Ghana, Sierra-Leone, Gambia and on to England was more prominent than internal telecommunications services.

A slow but steady process of development in the years that followed led to the gradual formation of the nucleus of a national telecommunications network. The total number of telephone lines at independence in 1960 was therefore only 18,724 for a population estimated at about 40 million people, a tele-density of about 0.4 telephones per 1000 people. The Cable and Wireless Act of 1962 established the Ministry of Communications (the Ministry) as the regulatory body for telecommunications in Nigeria. Between 1960 and 1985, the management of the Nigerian telecommunications network consists of the department of Posts and Telecommunications (P & T) and the Nigerian External Telecommunications (NET) Limited, responsible for the external telecommunications services. The NET Limited provided the gateway to the outside world. Telecommunication development during this period was characterized by serious shortfalls between planned targets and their realization principally due to under funding, poor management, lack of accountability and transparency and low-level indigenous technical know-how. The installed switching capacity at the end of 1985 was about 200,000 lines as against the planned target of 460,000 lines with all the exchanges in analogue mode. The quality of service was largely unsatisfactory as it was unreliable, congested, expensive and customer unfriendly.

As a result of the above defects, in January 1985, the erstwhile Posts & Telecommunications department was split into the Postal and Telecommunications division, the latter was merged with the NET to form Nigerian Telecommunications Limited (NITEL), a limited liability company, while the postal division was reconstituted into another organization called the Nigerian Postal Services (NIPOST). Between 1985 and 1999, installed capacity rose to 700,000 out of which 400,000 lines are connected. In this connection, Nigerian lags seriously behind comparable and even less endowed African counties let alone of advanced countries. It was in order to tackle this shortcoming s that the industry was deregulated.

The Nigerian Communication Commission (NCC) was established by a decree in 1992 and was charged with the duty of regulating the telecommunications sector. The NCC was inaugurated in September 1993 with Engineer Cletus Iromantu as its first Chief executive. The NCC's is responsible for the following:

1. Licensing telecommunications operators;

2. Facilitating private sector participation and investment in the telecommunications sector;

3. Ensuring the improvement of Nigerian telecommunications penetration;

4. Establishing and supervising technical and operational standards and practices for network operators;

5. Overseeing the quality of service provided by operators;

6. Setting terms for the interconnection of carrier networks;

7. Ensuring that the interests of telecommunications consumers are protected by promoting competitive pricing and guarding against abuse of market power.

Since becoming operational, the NCC has taken aggressive steps to open the telecommunications sector to private investment and enterprise. By June 1994, it has issued licenses to a number of companies for the following telecommunications undertakings:

(i) Installation and operation of public switched telephony.(ii) Installation of terminal or other equipment(iii) Provision and operations of public payphones(iv) Provision and operation of private network links employing cable, radio

communications or satellite within Nigeria(v) Provision and operation of public mobile communications(vi) Provision and operation of community telephones(vii) Provision and operation of value added services(viii) Repair and maintenance of telecommunications facilities: and

(ix) Cabling

NITEL remained the national carrier and basic services provider for domestic and international services with serious repercussions in terms of inefficiency expensiveness and lack of universal access that has characterized the industry.

Despite the award of several licenses, there was very little private sector participation in the Nigerian telecommunications industry due largely to the fact that these licenses were awarded to the cronies of the government of the day as well as the political uncertainty and perceived policy inconsistencies among other shortcomings prevalent at the time had combined to make for relatively unattractive investment climate in Nigeria.

The deregulation of telecommunications in Nigeria effectively took off in Nigeria when Multi-Links Telecommunications Limited, a newly licensed Lagos based PTO announced the commencement of commercial operations. Within a couple of years, a number of other operators joined the race to provide last mile telecoms access to an under served population.

Commencement Date Of Service by PTOs

PTOCOMMENCEMENT OF SERVICE

Intercellular 1998

Mobitel 1998

Starcomms 1999

Cellcomm 2001

Bourdex 2000

VGC 1998

XPT 2002

Reltel 2001

Prest 2002

EMIS 1998

21st Century 1999

However after five years of commercial operation, the PTOs have only been able to add 168,000 new lines (as at June 2003) to the national fixed telephone network (representing 23.3% of the lines). PTOs are typically small operations having growth hampered by low capacity to mobilize capital and poor management among other reasons.

With the advent of democracy in May 1999, telecommunications in Nigeria witnessed a big boost with the determination of the government of Chief Olusegun Obasanjo to increase the level of Direct Foreign Investment (DFI) in Nigeria, the board of the NCC was reorganized with Alhaji Ahmed Joda and Engineer Ernest Ndukwe appointed Chairman and Chief executive respectively. A new telecoms policy was released in 2000, the hallmark of which was the blueprint for full liberalization of the telecom industry. The NCC also successfully conducted a 3-day auction for Digital Mobile License (DML) in Jan. 2001, which culminated into the award of GSM licenses for four companies; MTN Nigeria Communications Limited, Econet Wireless Nigeria Limited, Communications Investment Limited (CIL) and the national carrier NITEL.

THE ECONOMIC ENVIRONMENT

The economic environment in the country as at the time MTN Nigeria opened its doors for business was characterized by 2-digit inflation, high and unstable exchange rate. Interest rate is also high (above 20%). Nigeria’s GDP (US$42billion - 2002) grew by 4 % in real terms in 2001, about the same as 2000, but below the 5% target for the year. The agriculture sector grew at an average annual rate of 4.5% in real terms during 1997 to 2001, while industrial production fell at an average annual rate of 0.2% in real terms during the same period. The inflation rate was 13.2% as at November 2002, a slight improvement over the 18.2 recorded in October 2001 but still far from the single digit target of the government.

Government policies have yet to completely free the economy from macro economic distortions but efforts are in that direction. Inflation has been markedly reduced relative to the levels in the mid 1990's but economic growth remains sluggish and sustainable development appears far removed. A major review by the government concluded that State owned companies needed to be privatised to reduce budget deficits, improve transparency and reduce the level of poverty. Privatisation of State-owned enterprises began in late 1999. The government has placed top priority on rejuvenating the real sector, alleviating poverty, and funding health and the education sector.

COMPANY OVERVIEW

MTN Nigeria Communications Limited is part of the MTN Group, Africa’s leading mobile telephony company. The company successfully secured a GSM license for a fee of $285 million in Feb. 2001. MTN Nigeria is 76.44% owned by MTN International Limited, 20.56% owned by Nigerian investors and the International Finance Corporation (IFC) 3%. In may 2001, 3 months after signing the license, MTN Nigeria completed its first test call while it commenced commercial operation simultaneously in the cities of Lagos, Abuja & Port Harcourt. The company’s digital microwave backbone Y’hellobahn was completed in January 2003. As at July 2004, the company, MTN has coverage in all the 36 states of the

federation including the FCT Abuja and has achieved a subscriber base of over 2 million – growth of 90% in financial year 2003/2004 and a mobile market share of close to 50%.

MTNN subsists on the core brand values of leadership, integrity, innovation, relationships and “can do” attitude, a passionate optimistic focus on the future. It prides itself on its ability to make the impossible possible-connecting people with friends, families and opportunities. MTN’ s overriding mission is to be a catalyst for Nigeria’s economic growth and development helping to unleash Nigeria’s strong developmental potential not only through world-class communications but also through impactful corporate social responsibility initiative

NETWORK INFRASTRUCTURE

MTN Nigeria GSM network coverage extends to approximately 45% of the population while geographic coverage has reached 165,759 km2. As at July 2004, the network was serviced by 24 mobile switches and 1 transit switch housed in seven switching centres with an additional 5 centres under construction. Also over 1000 base stations had been deployed across the country.

Building the GSM network in Nigeria has presented MTNN with a number of unique challenges including the construction of a nationwide transmission infrastructure as well as a national electric power system. In the absence of sufficient transmission capacity in the country, MTNN embarked on the construction of a digital microwave transmission backbone christened Y’hellobahn. The first of its kind to be planned, designed and built by Nigerian engineers for Nigeria. The Y’hellobahn was built at a cost of $120m and it comprised 3400 km of STM-1 (capable of carrying 1890 voice channels simultaneously) capacity digital transmission microwave. The original Y’hellobahn has proved insufficient to meet demand and a Y’hellobahn phase 2 was commenced in July 2003 aimed at quadrupling the most heavily congested links such as Lagos- Ibadan and Port Harcourt- Onitsha.

Due to the unreliable power supply in Nigeria, MTNN was compelled to construct its own power system, to keep the entire network at peak performance all year round. Each base station is constructed with twin generators and a large diesel tank. Expensive power management electronics are installed at every site to provide clean electricity and protection for the highly sensitive base station circuitry.

To date MTNN has invested a total of $972 million in infrastructure rollout.

MARKETING

Due to existing pent up demand, the strategy adopted by MTNN is to rollout as fast as possible to major cities and towns across the country and also to grab the highest ARPU customer, reduce churn by building a strong brand, good customer relations (CRM) an effective after sales service and a strong distribution network.

MTN Nigeria’s top of mind brand awareness remains consistently high at 71%. For the past two years, it has been recognized as the top brand in the country. In line with industry trends, ARPU declined from $57 during 2003 to $51 during 2004. The decrease was due to tariff reduction as well as penetration into lower subscriber segments.

As the ever- demanding Nigerian market grows, MTNN has met the challenge by introducing a number of tailored products and tariff structures for the market. MTNN subscriber profiles remain predominantly prepaid, making up to 97% of the entire base versus 3% for post paid.

Market share also decreased slightly to just under 50% due to entry of a fourth operator (Globacom) and the scaling up of MTEL (The state owned operator) effectively changing the market from two-player to a four-player market.

MTN Nigeria works through 340 distributors, super dealers and several sub-dealers tiers of distribution totaling more than 9000 retail point of presence. Channels are supported extensively by MTN sales and distribution teams. A total of ten MTN owned and operated friendship centre have been commissioned to date servicing six main areas of regional operations (Lagos, Abuja, Kano, Enugu and Port Harcourt)

ON PEOPLE AND LEARNING

MTN as a leading international player in the telecommunication industry believes in employing people having the appropriate skills, experience, exposure, qualifications and behavioural profile without prejudice to gender, ethnic origin, marital status, religion, race, colour, age and physical handicap. MTN strives to be the employer of choice and recruits the best talent available in the market, taking into consideration the global technological challenges and Nigeria’s unique circumstances including its ethnic composition.

MTN is committed to the implementation of an objective recruitment process focused on identifying and selecting candidates with the greatest potential for professional and personal success in the company. Recruitment/Selection practices in MTN is driven by the need to consistently recruit and retain high quality people who are encouraged to achieve high levels of performance.

In addition to recruiting the best available talents, learning and continuous improvement has been part of the MTN culture from the beginning. To facilitate this, MTN Nigeria has a dedicated training department headed by a Senior Manager to liase with providers both local and foreign, to provide both technical and personal development training to its staff.

FUNDING

To date MTN Nigeria has invested a total of US$972 in infrastructure rollout. Funding for the rollout has been financed through shareholder funding, vendor financing as well as the local financial market. In January 2002, the company went to the local financial market to

raise a Naira equivalent of US$150 million via a commercial paper facility fully underwritten by a syndicate of Nigerian financial institution. In November 2003, the company secured a project finance facility of US$345 million to fund further expansion of its infrastructure in the company. An additional US$50 million standby facility has been provided by the IFC.

SUCCESS STORYAfter 3 years of operation, MTN Nigeria has contributed positively towards the MTN Group’s vision of being the leading communication services provider. With the successes achieved in Nigeria so far, MTN is very close to being the largest telecoms provider in Africa snapping closely at the heels of its rival Vodacom. With a profit of 45 billion Naira in financial year 2003/2004, MTN is one of the most profitable company in Nigeria.

A large part of the success witnessed by MTN is Nigeria is due to the fact that we have in place a government that is strongly committed to supporting private sector initiatives particularly in the telecoms, power and petroleum sector in the economic/social development of the nation. The government through its agencies particularly the NCC has been highly instrumental to the rapid growth experienced by the sector over the past 3 years. The government has given the companies a five-year tax break, reduced tariff on importation of telecommunications equipment and removed all bottlenecks associated with the logistics of importing telecommunications infrastructure equipment into the country.

The lesson to be from the success of the GSM operators in Nigeria (particularly MTN) is that the impact of government policy as well as the performance of appropriate regulatory institutions is key to the survival of businesses in any sector of the economy.

FORGING AHEADIn recent times, there has been a change of leadership at the helms of MTN Nigeria, the former CEO, Adrian Wood has been redeployed while a person Sifiso Dabengwa (a South African) is now at the helms of affairs. The key challenge to the new CEO remains accelerating the network rollout, improve network quality as well as maintain brand and market leadership in an increasingly competitive environment.

REFERENCES

1. The Punch Newspapers, Sunday Oct.31st 19992. MTN Group Limited; Business report 20043. Salawu, R.I, Ajayi,G.O , Raji, T.I: A Century of telecommunications

development in Nigeria-what next?

4. Ndukwe, E.C: An evolution of the telecommunications industry in Nigeria and the challenges ahead. Delivered at the Telecomm Summit 2003

APPENDIX

Financials

2004 2003

‘N000 N000

Revenue 132,487 101,859

EBITDA 67,583 39,672

PAT 45,000 21,774

Market Information

Population 130 million

Mobile penetration 3.1%

Market Share 48%

Operational Information

Prepaid/Post-paid mix (%) 97/3

Market Share (by operators)

MTN Cumulative Subscriber growth (from 2001 till date)

GSM Penetration of Population

Cumulative CAPEX in MTN from 2002 till date

ARPU Trend in MTN (from 2002 till date)

MTN NIGERIA’S CURRENT COVERAGE MAP