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Nigeria May Ban Sale of SIM Cards to Force Service Quality

Feb. 11 (Bloomberg) -- Nigeria’s government may temporarily ban mobile phone companies from selling new SIM cards in order to force greater investment in network quality by putting the brakes on soaring customer numbers.

“We’re not satisfied at all” with telecommunications service, Information and Communication Technology Minister Omobola Johnson said in an interview yesterday at a Renaissance Capital investment conference in Lagos. “Fines are just a slap on the wrist. We need to change behavior.”

A ban on signing new customers may force the companies to focus on improving infrastructure and quality of service for existing phone users, Johnson said.

Nigeria’s telecommunications regulator has repeatedly fined companies including Johannesburg-based market leader MTN Group Ltd. and Emirates Telecommunications Corp., or Etisalat, for failing to meet quality standards and improve connections in Africa’s most populous nation.

“We take customer experience very seriously and have worked assiduously over the last 18 months to ensure we not only meet but surpass set quality of service measures,” Chineze Amanfo, a Lagos-based spokeswoman for Etisalat, said by e-mail today. “There are challenges that make this difficult in certain parts of the country where access or damage to telecommunications facilities remain a challenge.”

Growing Subscribers

Etisalat, the fourth-largest carrier in the country, said its Nigerian unit secured a $1.2 billion loan for expansion last year. Funmi Omogbenigun, a spokeswoman for MTN Nigeria, said she couldn’t immediately comment when contacted by phone yesterday. Charles Ikoabasi, a spokesman for Globacom Ltd., and Bharti Airtel Ltd.’s Nigeria Chief Executive Officer Segun Ogunsanya, didn’t immediately reply to e-mailed requests for comment.

“If you restrict supply because you want the quality of service to increase, you’re actually killing the business model of the telcos,” Bismarck Rewane, CEO at Financial Derivatives Co., a risk advisory company, said by phone from Lagos today. “If you stop them from doing that, then you’re actually destroying the demand that will justify their investment, it’s counter productive.”

Nigeria had 156 million mobile-phone subscriptions as of October 2013, according to the Nigerian Communications Commission. With many subscribers owning more than one phone, user numbers will probably grow to more than 200 million in 2017, London-based research company Informa Telecoms & Media estimates. The population is about 170 million.

Reduce Taxes

MTN said in April it secured a $3 billion loan to invest in the country, while Lagos-based Globacom, the No. 2 carrier, is spending $1.25 billion to upgrade and expand its network. Nigeria’s four biggest phone companies, including MTN and Etisalat, have cited a lack of power and sabotage as reasons for the poor service.

“It is a pretty aggressive stance from the regulator,” Alastair Jones, a London-based analyst at New Street Research LLP, said in a phone interview today. “It’s negative for the growth outlook for the market as a whole, however, assuming it is applied to all the operators it does provide an opportunity for MTN to invest in the network whilst not jeopardizing market share.”

When MTN and Airtel’s licenses come up for renewal in 2017 the government will push to have improving service and infrastructure written into the contracts, Johnson said.

‘Good Deal’

“All the telcos got a good deal when they came in if you look at the success that the industry has had,” she said. “When we move to the renewal there will be negotiations we will have in terms of the pace of the rollout, where they’re rolling out and the quality of service.”

While increased taxes and charges are unlikely in the renewals, the government and regulators will probably revalue the phone operators’ spectrums, she said.

“We’re not going to be unreasonable because we need that technology to be built,” Johnson said. “You really have to have that fine balance between how much money we want to have as government and the pace of roll out after those licenses are renewed.”

The federal government is also in talks with state governments to reduce local land taxes on phone companies, which are being charged more than other businesses, Johnson said.

‘Mercilessly Taxed’

“Telecom infrastructure is mercilessly taxed, every base station is taxed by state government, local government, everybody is just feeding on these things,” she said. Regional governments shouldn’t be able to charge a retail store 10 million naira ($60,808) and phone companies 100 million naira for the same-sized space, Johnson said.

Nigeria will boost broadband services by awarding a license for each of the country’s six geopolitical zones and Lagos state, Johnson said. They will be handed out after a winner is named in an auction for a spectrum license for wholesale broadband services next month, she said.

MTN shares were down 0.5 percent by the market close in Johannesburg, extending the stock’s two-day decline to 1.5 percent.

Nigeria wants to reach 30 percent broadband penetration by 2017. Bandwidth increased about 26-fold to more than 9,000 gigabytes per second in the West African nation in the past four years, according to data provided by the Communications Ministry. A lot of that remains stranded in cities where the connection points were installed due to a lack of infrastructure to distribute it.

“There’s a tremendous amount of interest for these licenses,” said Johnson. “These broadband licenses will really begin to spur this data revolution.”

To contact the reporters on this story: Chris Kay in Lagos at ckay5@bloomberg.net; Yinka Ibukun in Lagos at yibukun@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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