US embassy cable - 04LAGOS676

UNCLAS SECTION 01 OF 02 LAGOS 000676 
 
SIPDIS 
 
STATE PLEASE PASS TO FCC, EX-IM, AND OPIC 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, EINV, NI 
SUBJECT: NIGERIA: GLOBACOM: SIX MONTHS ON 
 
 
1. (U) Summary: Late February marked the six-month 
anniversary of Globacom's introduction of global system 
for mobile communications (GSM) services.  The firm won 
mobile, fixed, and international gateway licenses in 
August 2002 (as Nigeria's second national operator) but 
experienced lengthy delays rolling out its mobile 
network.  The firm is now expanding rapidly, and 
company executives say Globacom is on track to become 
Nigeria's leading mobile service provider.  Outside 
observers are skeptical.  End summary. 
 
2. (U) Globacom's highly anticipated August 29 rollout 
attracted thousands of subscribers.  Scores of people 
signed up in the company's first four or five hours of 
operation, and many of those who failed to acquire 
lines in Abuja snatched them up in Lagos a month later. 
Since then, the firm has expanded rapidly, signing up 
600,000 subscribers in its first six months and adding 
another 100,000 in March.  Service is available in 49 
major cities and hundreds of smaller towns and 
villages, and company executives say they connect two 
or three towns every week, far exceeding their target 
of 36 major cities within a year of operation. 
Globacom's microwave radio transmission backbone spans 
thousands of kilometers in four of Nigeria's six geo- 
political zones, and executives say they plan to expand 
into the northwest and northeast later this year. 
According to one executive, the network is growing 
faster than any other in Africa. 
 
3. (U) Globacom executives say the firm has spent an 
estimated $1.2 billion to construct its mobile and 
fixed networks and build an international gateway to 
connect GSM users to the outside world.  Fixed lines 
run to a handful of corporate customers (mostly members 
of the firm's ownership group), and company executives 
expect to begin building the first phase of a 10,000- 
kilometer (6,250-mile) fiber optic backbone in the next 
few weeks.  Once completed, the network will link 
Lagos, Ibadan, Port Harcourt, and Abuja, and as many as 
half a million customers will have access to fixed or 
fixed wireless communications services. 
 
4. (U) Globacom executives say the fiber optic backbone 
will allow for cheaper, more frequent domestic and 
international connections.  The backbone will turn the 
company into a "carriers' carrier" by allowing it to 
transmit calls for other operators and simultaneously 
allow it to distribute SAT-3 bandwidth to local 
Internet service providers.  Globacom executives hope 
to do what Nigerian Telecommunications Limited (NITEL), 
the country's national operator, has not: take 
advantage of the high capacity underwater fiber optic 
cable (the South Atlantic Telecommunications Cable No. 
3/West African Submarine Cable/South Africa Far East 
Cable, or SAT-3) linking Nigeria to the rest of the 
world.  As Nigeria's second national operator, 
Globacom's access to the cable is guaranteed.  The 
company is not yet connected, but executives say 
logistics and pricing negotiations with NITEL are 
nearly complete. 
 
5. (U) Globacom has cut prices, introduced flexible 
payment plans, and offered regular promotions in an 
aggressive attempt to attract subscribers.  The 
company's tariffs beat those of its competitors, and 
customers say they appreciate the choice between pre- 
and post-paid payment plans and per second or per 
minute billing.  Globacom was the first of Nigeria's 
GSM providers to offer per second billing, and company 
executives believe the innovation plays a key role in 
attracting customers.  They believe their promotions 
are equally important, pointing out that potential 
subscribers line up in droves to buy N6,000 ($45) pre- 
paid Classic lines.  The rate beats the N6,480 ($49) 
offered by Globacom's major competitor, MTN Nigeria 
Communications Limited, and Globacom executives expect 
the trend to continue.  The key to making money, they 
say, is in the amount of time customers spend on air, 
not in the amount of money they spend to subscribe. 
 
6. (U) Globacom executives expect to undercut 
competitors in more ways than one.  They say Globacom 
offers better service, and customer surveys support 
that assertion.  At only 7 percent, Globacom's 
estimated call drop rate is significantly lower than 
those of its competitors: 70 percent of calls on MTN's 
network are dropped, and more than 40 percent of calls 
on Econet's network are dropped.  Globacom executives 
hope to supplement the company's basic quality of 
service with a variety of value-added, pay per use 
features such as photo transmission and text to email 
services, something the firm's 2.5G network can support 
more easily than competitors' less sophisticated 2G 
networks.  Several features are already included in 
Globacom's Magic Plus package.  Company executives say 
they want to focus on introducing high quality, high 
technology services, something they see as a 
particularly effective means of attracting and 
retaining customers. 
 
7. (U) Comment: Globacom executives expect to match 
their competitors' transmission capacity relatively 
quickly.  The firm is expanding at an ever-increasing 
pace, and executives say they are on track to install 4 
million lines by the end of 2005.  If they do so, they 
will certainly make a name for themselves.  The firm's 
biggest competitors, MTN and Econet, have just over 2 
million and 1 million subscribers, respectively, and 
both have been plagued by over-subscription problems 
and customer complaints.  Their inability to match 
Globacom's tariffs will likely lead to losses of market 
share, and if they lose existing customers while 
recruiting relatively fewer subscribers, they may well 
give up their dominance of the Nigerian mobile services 
sector. 
 
8. (U) Comment continued: Not everyone believes that 
Globacom will have quite the success its executives 
expect.  Its GSM network rollout was delayed for 
months, and like other firms, it has had to spend more 
than it expected to build its transmission backbone, 
supply the infrastructure that NITEL does not provide, 
and put generators and diesel storage tanks at 
individual cell sites and switching centers.  Industry 
observers say the company has had trouble securing 
financing, and many doubt that it will be able to 
continue expanding at such a rapid pace.  Insiders say 
the firm is also troubled by a heavy-handed management 
approach and a lack of direction.  Chief Executive Mike 
Adenuga has a reputation for micromanaging, stifling 
ingenuity and innovation, and dismissing employees for 
questioning company doctrine.  Globacom employees have 
expressed dissatisfaction with company management, and 
outside observers publicly wonder if the firm will be 
able to meet the requirements of its three licenses 
quickly enough to satisfy the average consumer.  Given 
Globacom's internal weaknesses, meeting the Nigerian 
public's expectations of improved services and lower 
prices may be difficult.  If it does succeed in meeting 
those expectations, however belatedly, Nigerian 
consumers and the broader Nigerian economy will reap 
rewards.  End comment. 
 
HINSON-JONES