Nigeria’s 3 LTE ISPs pull ahead of the pack as key spectrum remains unavailable

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There have been significant delays in Nigeria’s digital broadcasting transition and other unexplained delays on a recent spectrum auction. These delays are giving independent LTE ISPs in Nigeria the kind of opening to expand that may be repeated elsewhere on the continent. Russell Southwood looks at how these ISPs are pulling ahead.

The ISP story in Africa is like a roller-coaster. Back in the day, they sold dial-up to corporates, cyber-cafes and a few high-end individuals. They dominated what was a tiny market. With the arrival of ADSL, the fixed line incumbent telcos took back the initiative and by wholesaling unfavourably to ISPs drove many of them out of the market.

The ISPs fought back with WiMAX which was supposed to deliver so much and in the end delivered something but not the whole answer. Some foolishly called it 4G but the speed and reliability advantages were by no means clear-cut. As the mobile operators rolled out 3G and its many higher-level variants and the price to customers dropped, they mopped up large numbers of new data users on feature phones and smartphones.

This is where the Nigerian market is now. According to data from the regulator NCC, the four mobile operators (MTN, Glo, Airtel and Etisalat) have 65,813,890 active mobile Internet subscribers. Because data is on ISP subscriber levels is not collected by NCC, it’s impossible to give an accurate figure. However, estimates vary between 0.5-1 million. So it remains a tiny proportion of the overall Internet user market.

However, the threat from the LTE ISPs (Swift, Spectranet and Smile) is that they have ability to cut into the high-value end of the customer base: people who can afford the service and want to do things like streaming videos and video calling.

These LTE ISPs have effectively begun to acquire a much larger individual user base, leaving the remaining 17 or so ISPs on the margins, doing corporate bandwidth for relatively small numbers of customers. As Lanre Ajayi, Pinet told me:”We’re now more focused on smaller enterprise customers and Wi-Fi hot-spots where there’s interest. The LTE ISPs are more focused on individuals.”

Speed and price alone are not the only issues. The third part of the triangle is reliability. On the mobile operators’ 3G services reliability varies enormously and different operators come up as more reliable at different times. According to our conversation with users in the industry, Etisalat was winning all the points for reliability last year but and generalisations are always difficult, the service seems to have “gone off”. As one person told us:”Recently a lot of people have been complaining. There’s been dramatic changes in the industry but continuing frustration from customers.”

With ISPs, there’s a more clearly identifiable pattern. One ISP installs a new technology like WiMAX or LTE and customers flock to it. Initially the service is very good when there are less people on the network. Over time the network becomes clogged and the ISP fails to invest in upgrading the network. So the users begin to migrate to whoever is new in the market. However, as with mobiles, many retain 2-3 service providers’ devices so that if one network is down, they can easily switch to another.

Smile’s entry into the market seems to have caused an outflow of some of Swift’s customers and certainly Swift had some very public problems with quality of service at the back end of 2014 which now seem to have been addressed. By everyone’s estimate, Swift still has the largest customer base in this part of the market. Spectranet does not seem to have a highly reliable service according to those we have spoken to and appears the weakest of the three.

The business dilemma for the independent ISPs is the cost of roll-out. Above a certain level of customers, the network needs to be made denser and if you go outside of Lagos (to Abuja and Port Harcourt), the level of capital investment seems to be beyond the reach of some of the independent players.

One exception seems to be Smile which started in Ibadan and has now expanded to Abuja, Lagos and Port Harcourt. As Michiel Buitelaar, Smile told me:”We have an aggressive roll-out plan and will be reaching large segments of the population by the end of 2015. But Smile’s here for the demanding Internet users. I’m adamant that we could go to 100 cities but we have to maintain quality and capacity.”

One user told us:”Smile’s (Mi-Fi) device is more convenient and allows you to connect several things at once. However, because it’s so fast, the data gets exhausted too soon. It’s so fast, people use it very frequently and it gets exhausted very quickly.” Swift has an account that allows a customer to get bandwidth from several devices. Anywhere on any device is beginning to become the standard to work to in the market.

Prices may not be coming down but the amount of bandwidth available is increasing:”I used to pay N6,000 for 10GB. I now get 20GB.” Another person talked of getting 14GB for N5,000 from another provider. Buitelaar from Smile is reluctant to enter a price war:”There’s price competition on LTE but there are real quality differences between the providers…Price wars are a very bad thing (for operators).”

Also there are now increasing numbers of people using low-end smartphones and the drivers for use amongst these people are music and video streaming or downloading, as well as less bandwidth heavy uses like What’s App.

There are a number of “wild cards” that might yet challenge these LTE ISPs. ipNX continues to roll out fibre to the home in Lagos. The reliability of Fibre-To-The-Home will be an attractive service to high-end home users once everyone gets accustomed to faster broadband.

The Multilinks/CAPCOM deal continues to be “dead in the water” but at some stage someone will go after it’s network and spectrum and it offers an attractive package for anyone with large-scale ambitions. Nitel has finally been sold but its new owners have not yet announced their plans. But it’s hard to imagine that they would not include both high-speed mobile and fixed broadband.

But as one industry insider told us: “I doubt whether the market can sustain the number of players.” So there may yet be some level of consolidation in the market at the high-end. For if there is to be a serious insurgent challenger for the mobile operator, it will need a significant customer base to allow it to keep raising capital to stay in the game. Indeed as one of the smaller ISPs told us, it simply doesn’t have the resources to bid for the required spectrum.

But size of market is not the current obstacle:“The greatest challenge is spectrum,” Ajayi, Pinet told us. Smile is the only operator with spectrally efficient 800 MHz. But as things stand, access to more spectrum for this “sweet spot” is completely uncertain:“There’s no timeline for that yet,” as one person put it.

The mobile operators could re-farm existing spectrum but do not have 700 or 800 MHz spectrum. The bidding on 2.5 GHz spectrum seems to be on hold. Everyone is waiting for the election to be over.
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John Dada on the challenges of using broadband for development in a northern Nigerian town

Eban Oliver, Skyroomlive on livestreaming top African music acts in concert to the world

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Pascal Schmitz, iBiskop on overcoming the three barriers to downloading: bandwidth, price & piracy

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