The struggles of Nigeria's internet industry
Data is expensive in Nigeria, and the service is either too slow or unreliable. Many of those who use data end up spending a chunk of their income on it, and in today’s world, where internet access is essential, this is a significant issue for Nigeria and its role in the new economy.
All Telecommunication Service Providers (TSPs), like 9Mobile, are Internet Service Providers (ISPs), but not all ISPs, like Spectranet, are TSPs.
Telecoms in Nigeria is a trillion-naira industry. In 2017, the sector accounted for 9% of our GDP, and there are over 100 million internet subscribers in the country. And yet, less than 15 of 103 ISPs in the country applied for a license renewal in 2017. What’s happening to the ISP industry?
A high cost of doing business
Nigeria’s epileptic power supply is a burden for everyone, and for ISPs who need round the clock power to function efficiently, the issue is exacerbated. For example, because they cannot rely on the national grid, ISPs power their base stations with expensive generators. Some estimates suggest that as much as 60% of the cost of managing a cell tower goes to buying diesel and maintaining generators, a problem only worsened by currency depreciation which has inflated diesel prices in Nigeria.
Furthermore, ISPs face high tower rental costs—according to Satis Kimar, COO of Direct on Data, ISPs are charged about ₦4 million per tower for tower space rental each year. Moreover, David Venn, ex-CEO of Spectranet, has argued that even compared to countries with power deficits similar to Nigeria’s, tower rental costs are much higher in Nigeria. One reason for this is security; unlike in Zambia, for example, ISPs in Nigeria have to pay for security at the towers to ward off vandals.
ISPs also face high taxes and heavy-handed regulation. The President of the Association of Telecommunications Companies of Nigeria, Olusola Teniola claimed that ISPs face 39 different levies and taxes. This may not be far off the mark; after all, Omobola Johnson, the former Minister of Communications Technology, has spoken about how the government milks TSPs through levies and taxes. One of these is the CBN’s National Cybercrime Fund which charges 0.005% on all electronic transactions.
These factors not only hurt ISP growth in Nigeria, but they also have a negative impact on ISP's ability to compete with Telcos and innovate in the space.
Much ado about data prices
In 2015, the Nigerian Communications Commission (NCC) lifted the data price floor initially introduced to check anti-competitive practices and protect smaller ISPs. Before the price floor was removed, ISPs could not set prices below ₦3.11/Mb. So, while they were free to set competitive prices, they couldn’t go below that price. By removing the price floor, the NCC allowed ISPs to lower their prices as they deemed fit.
Ostensibly, the NCC removed the data price floor to attract more subscribers and help the industry grow. The move was good for consumers who wanted cheaper data, and TSPs could afford to charge lower prices as they received income from other services. However, smaller ISPs were hit.
The policy seems to have had the desired effect: prices have fallen and subscriber numbers have risen. ₦1000 could only get you 260MB of data if you were an MTN user in 2015. In 2018, for ₦1000 you can get 1GB and a 500MB night bonus. Likewise, a Swift subscriber could only get 300MB for ₦500, but now, you can get 750MB for the same amount.
Nevertheless, prices could still be lower. In 2016, Tanzania had the cheapest data rates in Africa. An MTN subscriber in Nigeria can get 10GB of data for about $28 while a Tigo subscriber in Tanzania can get the same amount of data for $15. Tanzania probably benefitted from the presence of the public-private Tanzania Telecommunications Company Limited which introduced 4G LTE technology in the country and lowered its prices, forcing other providers to follow suit.
Cheap data, low quality
Data prices have fallen, but data quality hasn’t changed much. Nigeria ranks 95th out of 189 countries in the 2017 Cable global country internet speed ranking. Our average download speed of 3.15Mbps is considerably less than the 10Mbps minimum requirement set by Ofcom the communications regulator in the U.K., for a small business. Given this internet quality, it is no surprise that Google launched YouTube Go in Nigeria, an app that allows you to watch YouTube videos offline and is targeted at users with slow internet connections.
Kenya, the top-ranked African country with an average speed of almost 9Mbps, successfully implemented a National Broadband Strategy, enabling the rollout of their National Optic Fibre broadband Infrastructure and provision of 4G network coverage.
Nigeria has tried similar things. Five years ago, the NCC tried to increase broadband penetration by 30% over 5 years by accelerating high-speed internet and expanding broadband access. The NCC claims they are now at 22% and very close to achieving the target, though industry experts suggest the figure is closer to 10%.
Even with the removal of the price floor, data remains prohibitively expensive for many Nigerians, but it is doubtful that many ISPs would survive amid lower prices. Not when the cost of doing business is so high. Meanwhile, Nigerians remain frustrated by static data quality in an industry associated with innovation. All Nigerians want is internet service that is fast, reliable, and inexpensive. Nothing suggests we will get that anytime soon.
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