Business

Deepening broadband penetration with ISPs

From the initial doldrums that had seen the number of Internet Service Providers (ISPs) in the country reduced drastically, that segment of Nigeria’s telecommunications is becoming lively again as more players are being licensed by the regulator. This raises the hope for deeper broadband penetration in the country. SAMSON AKINTARO reports

The number of companies providing internet service in the country has increased significantly this year. From less than 120 players in 2019, the country now has 157 licensed Internet Service Providers (ISPs) as of December 1, 2020.

The ISPs play critical roles in providing last-mile connectivity to people across cities, rural communities, and underserved communities and key to achieving the country’s target of deepening broadband penetration.

Interestingly, the renewed interest in ISP business has seen the telecoms regulator, the Nigerian Communications Commission (NCC), licensed over 40 new players this year, thus increasing the country’s capacity to achieve its 70 per cent broadband target set for the year 2025. This development is in contrast with the situation in the last few years when licensees were exiting the ISP business in drove due to challenges.

Operating challenges

The ISPs, over the years, have come under serious pressure from the mobile network operators (MNOs), who are regarded as the big players but are also playing in the ISP space as their Universal Access Service Licence (UASL) also permits them to do so. The intense competition coupled with other operational challenges such as increasing capital and operational expenditure has been cited as the bane of ISPs in the country. These had led to a plunge in the number of players from about 170 some 10 years ago to less than 100 in 2018.

Consequently, while the ISPs battle to keep 169,639 active customers on their networks as of December 2019, the MNOs, the quartet of MTN, Airtel, Globacom, and 9Mobile, could boast of 125.73 million internet subscribers. Furthermore, stakeholders and some of the ISPs have blamed the situation on the harsh business environment occasioned by the sharp practices of these GSM operators, who now compete with ISPs in retail service offering, instead of sticking to the wholesale service end of the business.

The ISPs buy broadband data wholesale from companies like nTel, MainOne, Glo1, and MTN, who have berthed their submarine cables with huge bandwidth capacities at the shores of the country. They, in turn, retail the broadband data bundle to individuals and organisations.

“The challenge over the years, however, is that the same broadband companies that sell to them are now in competition with them, selling directly to same customers even at a reduced price, thus making competition and survival extremely difficult for ISPs,” Kehinde Aluko, a telecoms expert said. But, according to the immediate past President of Association of Telecommunications Companies (ATCON), Mr. Olusola Teniola, with a change in business approach and focus on niche areas of the market, ISP will remain a viable business. Teniola also urged the government to remove several obstacles impeding telecoms growth in the country such as multiple taxations, Right of Way challenge, noting that ISPs will survive if all these challenges are fully addressed.

What has changed?

Industry analysts said recent regulatory efforts of the NCC towards addressing the Right of Way challenges and the implementation of initiatives aimed at deepening competition among the operators have had positive impacts on the ISP business.

As of May this year, seven states had slashed RoW charges while the remaining states are expected to follow suit. This makes it easier for ISPs to lay cable in the states at a reduced cost, thus giving a fillip to the business, while connecting more Nigerians.

In June, the NCC also commenced the implementation of the Accounting Separation Framework in the telecoms industry. This policy, according to the commission, is to further ensure transparency and accountability regarding effective regulation and prevention of anti-competitive behavior among operators.

The policy document, “Determination on the Implementation of an Accounting Separation Framework for the Nigerian Telecoms Industry,” which was developed via a consultative process in 2015, had undergone a comprehensive review by the regulator in collaboration with telecoms licensees and other critical industry stakeholders. With the commencement of the implementation of the framework, telecoms licensees are obligated to submit their Regulatory Financial Statement (RFS) to the commission in line with the new ASF, within seven months after the end of the licensees’ financial year. According to the Executive Vice Chairman of the NCC, Prof. Umar Danbatta, “the new ASF promote an industry environment that fosters open and transparent financial reporting while ensuring that charges for telecom services are cost-based and non-discriminatory.”

Licensees shall also be required to prepare their financial and nonfinancial reports in line with the Guidelines for the ASF while reports shall be furnished by the licensees for every accounting year beginning from the 2020 financial year-end. Also, as part of operators’ licensing conditions, the commission requires licensees to prepare, in respect of each complete financial year or of such lesser periods as may be specified, separated accounting statements for all their activities. According to Danbatta, the commission considers the Accounting Separation Framework “as an effective, least evasive and less costly solution to implement to meet its regulatory objectives,” adding that the implementation of the Framework is also a key deliverable for the commission in the new National Broadband Plan (NBP), 2020-2025.”

Increased revenue

Reaping from the improved operating environment, ISPs in the country recorded an increase in revenue in 2019. According to the industry data for the year released by the NCC, the operators raked in a total of N53.7 billion as revenue, which was 23 per cent higher than N43.8 billion generated by the operators in the preceding year. This amount was, however, gen erated by 40 out of 104 active licensed ISPs at the end of 2019.

The regulator said these 40 were those who made their revenue figures available. Analysis of the report showed that Spectranet, Vodacom Business Africa, Main One, and IS Internet Solutions were the biggest players in the industry for the year as they accounted for a large chunk of the revenue. The report revealed that Spectranet generated N11.7 billion, thus accounting for 21.8 per cent of the total revenue while Vodacom Business Africa garnered N11.6 billion as revenue, representing 21.6 per cent of the total figure. MainOne and IS Internet Solutions generated N11.3 billion (21 per cent) and N3.2 billion (6 per cent) respectively.

Hope for broadband

With the steady increase in the number of ISPs in the country, stakeholders have expressed confidence that Nigeria is on the right track towards achieving its 70 per cent broadband penetration target by 2025. While the country already has huge bandwidth capacity lying at its shores, the ISPs in various locations across the country are expected to drive this capacity down to the last mile users.

This is further boosted by the reduction in RoW charges in some states of the federation, which will in turn fast-track the NCC’s infrastructure company (InfraCo) project. According to the NCC, with the reduction of RoW charges by states, the coast is now clear for the take-off of the long-planned infrastructure project. This, it said, would allow already licensed InfraCos to roll out services across the country. NCC said: “Everything that is needed to commence the infrastructure projects in the various zones has been done, and very soon the Minister of Communications and Digital Economy, Dr. Isa Pantami will provide the exact time that these projects will kick-off.”

Danbatta said with the reduction in RoW charges, InfraCos were expected to help address the challenges of fibre deployment in towns and cities and assist the country to achieve ubiquitous broadband. He explained that the Commission would not rest on its oars for speedy rollout of services by the InfraCos to ensure available, affordable, and accessible broadband across the country. InfraCos have been licensed for the past four to five years, but have been burdened by some state policies, especially RoW tariffs, in rolling out services. Currently, NCC licensed six Infra- Cos in all the six geopolitical zones of the country, except that of the North Central Zone, that was initially registered, but the company had to return the licence to NCC for its inability to roll out services as a result of rollout challenges, which include high RoW charge.

Last line

While some of the challenges confronting the ISPs have been addressed leading to renewed interest in the business, there are still some issues requiring the regulator’s attention to sustain the current vibrancy in the segment. These challenges must also be tackled to realise the full potentials of the ISPs in deepening broadband penetration.

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