Despite bomb attacks, unreliable electricity and government interference, phone companies are planning to invest at least $5 billion in Nigeria in anticipation of rapid adoption of data-carrying smartphones.
The most visible threat to the carriers comes from Islamist militants, especially a group called Boko Haram. The insurgents, who have killed thousands of people in the north of the country, have said they target phone company installations.
“It’s becoming increasingly challenging to operate” in areas where rebels are active, Segun Ogunsanya, CEO of Bharti Airtel Ltd. (BHARTI)’s Nigerian unit, said by phone. “We are not security experts.”
With a population above 160 million, Nigeria is Africa’s most populous country and is expected to grow by 7.2 percent this year, versus an average of 5.6 percent for sub-Saharan Africa, according to the International Monetary Fund.
Its mobile market is also the continent’s biggest, at 114 million subscriptions. That will grow to more than 200 million subscriptions by 2017, researcher Informa Telecoms & Media predicts.
Three days before Christmas last year, two suspected Islamist militants killed themselves in separate bombings that rocked offices of Airtel and MTN Group Ltd. (MTN) in northern Nigeria.
“The guy couldn’t get into our facility and he ended up blowing himself up at the gate,” Brett Goschen, chief executive officer of MTN’s Nigerian unit, said in his Lagos headquarters, where guests must be searched with metal detectors before entering.
MTN, Nigeria’s biggest mobile-phone provider, in April said it secured a $3 billion loan to invest in the country. Globacom Ltd., the No. 2 carrier, is investing $1.25 billion to upgrade and expand its network in Nigeria. No. 3 Airtel has invested $1.2 billion in Nigeria since 2010. Emirates Telecommunications Corp. (ETISALAT), the fourth-largest carrier in the country, said its Nigerian unit has secured a $1.2 billion loan for expansion.
The number of Nigerian smartphone users is expected to increase to more than 35 million in 2017 from 5.6 million at the end of last year, according to researcher Informa. About 10 percent of Nigerian wireless subscribers use smartphones today.
“Voice will remain the major chunk of revenue, but data is where the growth is,” Airtel’s Ogunsanya said. His company says its Nigerian business will expand at 10 percent or more this year.
MTN’s growth in Nigeria has attracted the attention of Fitch Ratings, which has warned investors about the company’s exposure to high-risk markets. The West African country accounted for 28 percent of MTN’s 2012 revenue.
The company has built networks in many countries where sovereign debt is below investment grade due to weak corporate governance, an unpredictable regulatory environment, and the possibility of default. That could hurt MTN’s credit rating -- currently BBB, two notches above junk status -- according to Fitch analyst Darshak Juta.
“MTN’s operating model has changed from a pure-play South African company to now a company that’s spread all across Africa,” Juta said by phone. MTN, which also operates in Yemen, Iran and Afghanistan, didn’t respond to e-mails and phone calls seeking comment on Juta’s assessment.
The Johannesburg-based company says it last year added 1,175 base stations using 3G -- the technology that’s optimized for delivering data -- roughly double its 2011 installations. About 70 MTN sites have been attacked with machine guns and petrol bombs in the past year, according to CEO Goschen, who yesterday was named MTN’s chief financial officer.
Vodacom Group Ltd. (VOD), South Africa’s largest wireless provider, is less bullish on Nigeria. While the company has had some operations in the country and has explored buying an operator there, at this point any deal would be too expensive, according to CEO Shameel Joosub. “The pricing has always been wrong,” Joosub said over lunch at the company’s high-security headquarters in Johannesburg.
Carriers already in Nigeria, by contrast, say the potential earnings from the continent’s second-largest economy are worth risk.
“Any company operating in Africa knows Nigeria cannot be ignored,” Airtel’s Ogunsanya said. “It’s still a profitable place to be.”