Nigeria Telecommunications Limited (NITEL)

BACKGROUND
Location
Plot 251, Central Business District
Herbert Macauley Way,
Abuja.

Service offerings

The historical key businesses of NITEL are as follows:

• Fixed telephony services including international, internet, payphone and interconnection;
• Long- distance carrier including incoming international calls and satellite services; and
• Cellular, including all cellular activity carried out within M-Tel.

The Telephony Revenue of NITEL is derived from the following services:

• DEL (Direct Exchange Line)
• IDD (International Direct Dialling)
• Enhanced Digital Facilities: call blocking, call waiting, malicious call identifier, three party calling, international direct dialling (IDD)
• Operator Assistance Service
• Call Office/Public Counter Services
• PABX, PBX, and PMBX
• Direct Inward Dialing (PABX) Facility (DID) – with automatic PABX switch, DID facility will transfer all incoming calls to the extension directly without operator assistance.
• Facsimile Service/NIFAX Delivery Boxes

Ownership Structure

NITEL is Nigeria’s national fixed line and mobile telecommunications company. It is 100% owned by Federal Government of Nigeria (FGN). NITEL was incorporated as a limited liability company in December 1984. It is a product of the merger between the telecommunications arm of the defunct posts and Telecommunications Department (P&T) of the Ministry of Communications, and Nigerian External Communications Limited (NET).  NITEL formally commenced operations on 1^st January 1985.    As at June 2004, NITEL had an installed fixed telephone network of 720,000 lines, of which approximately 500,000 had been activated.

NITEL, in turn, owns 100% of M-Tel, the analogue mobile cellular communications company.  NITEL and M-Tel’s operations were merged in 2001.

Mode of Privatisation

In line with the on-going Privatisation Programme of the Federal Government of Nigeria (FGN), 51% equity stake of NITEL will be sold to a Core Group/Strategic investor and subsequently an Initial Public Offer (IPO) of minority shares.

Demographic profile of the market

Nigeria’s demographic profile – a young, growing and increasingly urban population, is conducive to the growth of the telecommunications market.  Nigeria has a high percentage of its population in the 15 – 64 years age bracket.  With expected population growth of about 2% per annum over the next five years, Nigeria is projected to have a population distribution by age that is increasingly young.  This demographic profile is highly conducive to the environment required for growth in the use of cellular and Internet related services.

Figure: Key demographic information

Estimated population, (millions)	111.6
Population growth rate (%)	2.8
Urban population (as a % of total)	43
Age structure (as a % of population):
– 0 to 14 years	44
– 15-64 years	53
– 65 years and over	3

Nigeria is a multi-lingual country. Nigeria’s three largest ethnic groups are the Hausa-Fulani concentrated in the far north, the Yoruba of the southwest and Igbo of the southeast. These groups represent about 71 percent of the Nigerian population. Of the remaining 29 percent of the population, about one-third consists of groups numbering more than 1 million members each, while the balance is represented by over 300 other ethnic groups.

Nigeria has an international advantage as English is the official language and is widely spoken in government, business, education and the mass media. The number of other indigenous Nigerian languages is estimated at between 350 and 400, and there are also dialects of some of these languages. The most common Nigerian languages are Hausa, Yoruba, and Igbo. Pidgin, a combination of English with native languages, is also widely spoken.

SECTOR DATA

The macro-environment

Since it came into office in May 1999, a primary aim of the democratically elected government of President Olusegun Obasanjo has been to restore macroeconomic stability through the reduction of extra-budgetary expenditure, the tightening of monetary policy and the introduction of structural reforms in the country. As part of this process the FGN intends to privatize the major utilities and liberalize key sectors including power and telecommunications, in order to promote competition and improve efficiency.

As part of the first phase of privatisation BPE has successfully concluded a number of transactions. Those transactions involving foreign investors include:

• The sale of majority stakes in Ashakacem and 49% stake in WAPCO. The core investor was Blue Circle of UK
• The sale of a majority stake in CCNN to Scanacem of Denmark.

In August 2000, in recognition of the government’s reform efforts, the International Monetary Fund signed a US$1billion Stand-by Arrangement (SBA) with the government.  In addition, the International Finance Corporation has recently approved credit facilities for a total of US$ 120million to five Nigerian banks to expand options for term lending, and has supported the creation of a private equity fund.

The Government through the National Investment Promotion Commission (NIPC) Act 1996, set a liberal framework for investment in Nigeria.  This act permits 100% foreign ownership of Nigerian companies in most sectors including telecommunications.

The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995 guarantees unconditional repatriation of dividends, profits and proceeds of sales arising from foreign currency imported into Nigeria and invested in any enterprise or security in accordance with the act.  No approvals are required for foreign currency inflows.

Commercial laws are well established with a Companies and Allied Matters Act 1990 codifying various principles of company law based on English common law.  The Companies Income Tax Act of 1979 is the main law governing the taxation of companies registered or operating in Nigeria.  Dividends and interest payable are subject to a 10% withholding tax, but this is reduced to 7.5% where double taxation treaty provisions exist.

The telecommunications sector currently consists of three main participants including the Ministry of Communication, the NCC and the service providers, including NITEL. A new telecommunications Act – Nigerian Communications Act 2003 was enacted and signed into law in July 2003.  With the Nigerian Communications Act 2003, it is important to note that participants in the industry, including potential investors in NITEL, would have confidence that the sector will operate in a controlled and predictable manner. The major elements of the new regime include:

Regulatory framework

• Ensuring the independence of the NCC;
• Clarifying the respective powers of the NCC and the FGN;
• Establishing a transparent process for licence allocation and renewal;
• Establishing clear ground rules for interconnection.

Drafting of NITEL’s Carrier licence and to be issued on its privatisation

NITEL is to be issued with a carrier license for its fixed line operations. NITEL already holds a GSM license for mobile operations. The carrier license will be for 20 years with a potential renewal for a further 15 years subject to payment of an agreed fee.

Clarification of Tariff setting

Tariffs for regulated services provided by “dominant operators” are subject to approval by the NCC prior to introduction and changes are subject to [a price cap.] Tariffs for unregulated services must be published, filed with the NCC and are subject to challenge by other operators.

Clarification of a transparent Interconnect regime

A licensed operator is obligated to interconnect based on rates, terms and conditions that are fair, reasonable and non-discriminatory.

Network expansion and setting universal service obligations

Network expansion and universal service obligations are included in the draft license. The planned legislation provides for a Universal Access Fund to promote availability of service in remote and rural areas.

Establishment of International connection rights

NITEL will be licensed to connect with foreign operators for the provision of international services.

GSM licences issued

The GSM licenses issued in February 2001 are for 15 years and may be renewed. The general terms regarding areas such as tariffs and competition are consistent with existing licenses for PTOs. There are, in addition, network rollout obligations of 100,000 connected lines within one year of commercial launch, 750,000 lines within two years and 1,500,000 lines within five years. At least 5% of the lines must be in each of Nigeria’s six geopolitical zones.

The market environment

The Nigerian Communications Commission (NCC) has issued licences to provide telecommunications service to private telecommunications operators (PTOs) for several fixed telephony licences, payphone service providers and Internet service provision.

• Three GSM mobile licences were issued in February 2001 to MTN, V-Mobile and NITEL. The fourth major license issued by NCC is the Second National Operator license issued to Globacom in November 2002.

In addition, several V-SAT service providers are also in operation. It should be noted that, under the terms of their licences, NITEL’s VSAT and fixed telephony competitors cannot act as an international gateway and must interconnect with NITEL for international calls. The competing GSM licences have limited international connection rights.

NITEL has undertaken limited marketing activity to date.  It is likely that there are significant opportunities from this in the short and long term being:

• To increase share of growing markets in all areas; and
• To increase utilisation of available but unutilised capacity.

ENTERPRISE DATA

1. The Business opportunity

NITEL has a leading position in fixed line with 720,000 lines and approximately 90% of the market in the country. This provides potential investors with a strong customer base and an existing network that can be expanded. This network, its rights of way and the strategic real estate assets of NITEL, would be both difficult and costly for competitors to replicate.

NITEL has a highly experienced and well-educated workforce and employs most of the engineers and skilled technicians in the industry in Nigeria. Until very recently NITEL was the telecommunications industry in Nigeria.

2. The Performance of the Enterprise

The Nigerian telecommunications market is to undergo significant changes over the next few years. As the incumbent operator NITEL faces increasing competition in both fixed and mobile markets. The challenge for NITEL is to remain the market leader whilst increasing the quality and range of its services and attaining the profitability expected by its shareholders.

Financial Summary: 1998-2002

	1998 N’000	1999 N’000	2000 N’000	2001 N’000	2002 N’000
Profit before tax	14,858,617	14,467,929	17,811,393	23,289,952	15,501,663
Provision for tax	(2,974,581)	–	(4,210,169)	(6,468,926)	(6,797,830)
Profit after tax	11,884,036	14,467,929	13,601,224	12,492,122	8,557,130

NITEL does have significant advantages in both the growth potential of its market and its market position, as outlined above, and has begun to face up to competition in its markets.

3. The outlook for the Enterprise

The strategic investor is expected to make NITEL more efficient and assist NITEL in facing up to competition as effectively as possible.

A summary of the potential areas in which the strategic investor is expected to provide particular benefits to NITEL is shown below:

Experience of competitive markets

• Introduce sales and marketing expertise
• Increase the range of product range and offering
• Improve quality of service within the competitive environment

Encourage change in NITEL’s operations

• Improve infrastructure and its operation
• Transfer technologies and skills
• Strengthen management.