US embassy cable - 04LAGOS2104

UNCLAS SECTION 01 OF 02 LAGOS 002104 
 
SIPDIS 
 
STATE PLEASE PASS TO FCC, EX-IM, AND OPIC 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, NI 
SUBJECT: Nigeria: TELECOM COMPANIES FACE NIGERIA MARKET 
CHANGES 
 
 
Summary: The July 2004 Central bank decision requiring 
25 billion naira minimum capitalization for all banks 
has affected the telecommunications sector.  Banks have 
reduced their loan portfolios in order to minimize 
their risks and thus appear more attractive as a 
potential partner for merger with other banks.  Bank 
mergers are one of the ways institutions are coping 
with the recapitalization requirement.  For 
telecommunications firms, this shrinkage of loan funds 
comes at a bad time.  Due to strong competition in the 
sector, major telecom operators have been slashing 
connection fees, reducing acquisition costs, and 
introducing value added services in an effort to 
increase and/or maintain market share.   The Nigerian 
Communications Commission (NCC) plans licensing changes 
in 2006 that will further liberalize the sector, 
bringing fixed operator licenses more in line with GSM 
licenses.  End summary. 
 
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Banks on Loan Recovery Drive; Telecoms Hard-Hit 
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2. (U) Since the Central Bank of Nigeria announced 
reforms requiring banks to recapitalize to 25 billion 
naira ($188 million) by the end of 2005, most banks 
have tried reducing risk assets by calling in existing 
loans and decreasing the number of new loans and 
credits.  The telecoms, major recipients of bank 
credits since wireless telecoms took off in 2001, have 
been hard hit by these recovery efforts. 
 
3. (U) Since liberalization of the telecom sector in 
2001, telecoms have been an attractive sector for 
Nigerian banks - second only to the oil/gas industry. 
In 2003, Stanbic Bank, in a consortium with 15 other 
smaller banks, granted MTN -- the largest mobile 
telephone company -- a N53 billion ($398 million) short- 
term loan. 
 
 
4. (U) Perhaps an unintended consequence of the CBN 
capitalization requirement, Dirk Smet, Managing 
Director of Starcomms Telecomm, said his company 
responded to the new rule by satisfying local debts. 
Starcomms' debt for its Nigeria operations is now 
entirely external. 
 
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Keener Competition In Telecoms; Connection Fees Fall 
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5. (U) The Nigerian telecom consumer is becoming more 
sophisticated as service provider options and telecom 
consumer education expand.  While the Nigerian telecom 
market is large and the potential for future growth is 
enormous, there is a saturation point for any given 
time period and for players like Starcomms, Smet 
believes that point may be closer than many people 
think. 
 
6. (U) In their efforts to maintain customers, telecom 
operators have been lowering connection fees despite 
the fees' importance in generating the majority of 
telecom profits.  Telecoms are also offering value 
added services like internet and data transmission. 
Reduction in access charges and elimination of negative 
billing (whereby a customer is billed for periods when 
the line was used on credit) have also become major 
selling points. 
 
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More Liberal Sector Guidelines To Be Introduced 
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7. (U) Exclusivity rights of GSM operators end in 2006 
when the Nigerian Communications Commission (NCC) plans 
to introduce at least three unified licenses to Private 
Telecom Operators (PTOs). Unified licenses will cover a 
larger area, including across currently sacrosanct 
state borders.  This will allow fixed wireless to 
operate more like mobile phone services. Investors are 
expected to respond favorably to the liberalization. 
 
8. (U) Presently, MTN, Vmobile and Glo Mobile have 2 
million, 1.5 million and 1.3 million subscribers 
respectively.  State-owned Mtel has about 800,000 
subscribers while PTOs like Starcomms have about 
100,000 subscribers on each of their networks. The 
introduction of unified licenses will significantly 
increase PTOs' subscriber base. 
 
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PTOs Talk With Foreign Investors 
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9. (U) Some telecom companies have already started 
talking to foreign investors in anticipation of the 
unified license policy.  According to Smet, Starcomms 
is presently talking with investors in the US and UK, 
including Emerging Market Partnership (EMP) of 
Washington, DC. He believes the next 18 months will be 
important for Nigeria's telecom industry as competition 
for limited local and international financing grows. 
 
Browne