Evt. tekst

PPI approach towards backhaul fibre optic Infrastructure Development in

rural areas in Nigeria – The case of USPF

Idongesit WilliamsPhD Fellow CMI, AAU

idong@cmi.aau.dk

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Introduction

About USPF

PPP in Telecom Development

Mobile Telecommunitions market in Nigeria

Rural Fibre optic initiative

Conclusion

OUTLINE

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This paper identifies the organization that surrounds the Public Private Interplay, adopted by the Nigerian Universal Service Provision Fund (USPF) to developing rural fibre optic infrastructure

what makes the public sector represented by the USPF and the Private Sector (network operators) work together to facilitate this project?

Hypothesis derived from ‘The Logic of Collective Action’ by Olson Mancur (1971)

Olson in describing the theory of organizations and Groups states this hypothesis

Organizations or groups can only be sustained if they collective interest of the groups is harnessed to common interest based on common goals

Introduction

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Universal Service Provision Fund

Established by the Nigerian Communications ACT of 2003

Began operations in 2006

It is an agency of the Nigerian Telecom regulator, the Nigerian Communications Commission (NCC)

Funded by 1% of the annual profits of telecom operators which constitute 40% of their income.

Funded by the annual budget, its stock investments, Short term investment, finance from the NCC which constitute 60% of their income

About USPF

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The USPF is administered by a governing board under the supervision of the NCC

The USPF is assisted by an external fund manager that aids in project development and evaluation

About USPF

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The USPF designs projects and invites tenders from the private sector

The private sector entity that wins the tender receives subsidy from the USPF

The USPF monitors the project to make sure quality assurance is obtained

In the case of the rural fibre optic development, the consortium or company that wins the bid, owns the infrastructure eventually

Aside, the library project , the school connectivity programmes, the subsidies are aimed at helping the private sector expand their networks into rural areas

About USPF

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They do conduct research to locate areas with little or no connectivity

About USPF

Legend Population Range No of Clusters

2,500 - 50,000 44

50,001 - 100,000 34

100,001 - 200,000 62

200,001 - 500,000 55

500,001 - 906,000 12

Areas with Coverage N/A

The unserved areas are identified as clusters

36.8 million people are estimated to be underserved or unserved

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Nigeria’s land size is estimated as 923, 768km2

Data from the WorldBank indicates that 46% of Nigeria's live in urban areas, which imply that 54% of Nigerians live in rural areas.

Nigeria’s population is estimated today to be 180 Million citizens, but 2006 population census indicates that the population of the country was 150 million citizens

Hence USPF has segmented the country to facilitate the spread of projects to deal with the clusters

About USPF

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Concept initially involved the utilization of private expertise, finance and management capabilities to deliver public infrastructure

Today the concept is evolving and including more and more of co-financing of from the public sector

Initially the risk was borne by the private sector, now, there seem to be a bit of risk sharing but with the private sector bearing more of the risk

Initially in telecom infrastructure delivery, the aim of PPPs was to facilitate public infrastructure delivery

Today, there is the move towards facilitating private infrastructure delivery

Short term contracts are favoured to the long term concessional institutional agreements

Public Private Partnership

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In recent times the Design Build Operate (DBO) has been adopted towards Broadband Infrastructure delivery

With the DBO, there was joint ownership during the concession period while the private sector would actually build, and operate the infrastructure

Today, as the public sector aims to develop private infrastructure, the DBO has evolved based on infrastructure ownership as well as financial responsibilities

The private DBO involves the Public sector providing its resources (finance etc) towards facilitating the expansion of a private infrastructure.

The Public DBO involves the public sector leading the way in infrastructure, design and building while the private sector leases the infrastructure to operate with it

However, the good old BOT, DBFO etc are still being used but not as much as the DBO. Hopefully UK’s PF2 would be utilized at some point for telecom development

Public Private Partnerships

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Singapore’s Fiber to anywhere, the Brazilian National Fibre optics Initiative and the Rural Fiber in Nigeria are examples of the Private DBO

Argentina connect is an example of the Public DBO

Public Private Partnership

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134 507 329 million Mobile active subscribers

131 910 228 million GSM active subscribers 2 406 382 Million active CDMA subscribers 190 507 329 active Fixed Wireless subscribers

96.08% teledensity

5 GSM operators,

4 CDMA operators

17 fixed wireless operators (10 unique operators) at the end of 2013

Facilitated by Unified licence with a Universal Service mandate

Mobile Telecoms Market in Nigeria

Source NCC

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GSM Mobile internet subscription: 73 million

MTN leads the way with 38 million subscribers

Glo has 15 million subscribers

Airtel 13 million subscribers

Etisalat has 5 million subscribers

CDMA mobile Internet subscription: 160 182

Multilinks has 2031 subscribers

Visafone has 158 151 subscribers

Mobile Telecoms Market in Nigeria

Source NCC

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GSM: MTN (58 million subscribers), GLO (27 Million subscribers), Airtel (25 Million subscribers), Etisalat (19 Million subscribers) and MTEL (up for sale)

CDMA: Visafone limited, (2 million), Multilinks (30 306) (declining subscription). Starcomms (one time CDMA operator inactive by end of 2013). Zoom(inactive)

All inactive except Visafone, Multilinks, VGC/MTN, IPNX, GLO and 21st Century. IPNX and 21 Century are the only companies not owned by GSM or 21st century

Mobile Telecoms Market in Nigeria

Source NCC

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The market was vibrant until the early parts of 2014

It is a highly competitive market

There is inter standard mobile technology competition and intra standard mobile technology competition

The GSM companies are companies with huge financial capacity

The CDMA companies and Fixed Wireless companies were initially small telcos whose catchment area were small cities

The USO that came with the unified licence placed a strain on the companies to expand.

Aside the USO, the competition also led to horizontal integrations and expansions for the CDMA and fixed wireless operators

Mobile Telecoms Market in Nigeria

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Mobile number portability played a huge role in the once vibrant CDMA market loosing out to GSM

The CDMA market were plagued with failed horizontal integration

They also failed because banks were not willing to provide adequate finance for them

Visafone is a sister company to Zenith bank, hence the synergy helped

The delay in the Nigeria Rural Telephony project also played

However, the CDMA and fixed wireless operators are not out yet as the regulator is trying to find a solution

In some quarters, some believe that the CDMA is a better technology to GSM, hence the GSM operators sabotaged them (this is not proven)

Mobile Telecoms Market in Nigeria

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The advantage of the ruthless market is the reduction in tarrif across board SMS on the average board is 4 Naira (US$0.02) per SMS Voice calls on the average is 20kobo per second (0.0012) per sec One could also say that the low ARPU may have affected some companies

Mobile Telecoms Market in Nigeria

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Points of interest to USPF based on the market

The interest of the private sector is to make profit

Their private sectors desire to expand exists and is spurred by competition

The existence of competition opens up the avenue for the telcos to look for ways to expand at a cheaper cost

The market also provided room for synergy as failing companies could merge and bounce back or deploy another service with their unified licence

Mobile Telecoms Market in Nigeria

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The USPF rural fiber initiative (BTRAIN) is both a supplementary measure to private initiative and a continuation of the NCC’s national backhaul initiatives

The NCC had earlier embarked to the Wire Nigeria (WIN) project and the State Accelerated Broadband Initiative (SABI).

WIN and SABI were Private DBO initiatives aimed at providing a competitive fibre optic backhaul to the ones provided by the bigger telecommunication giants. The NCC via the USPF provided subsidies to the network operators that won the tender

The WIN initiative enabled either huge telecom companies or a consortium of Internet Service Providers or any other licenced telecom service provider to extend to at least 30 Miles to every part of the country.

The SABI initiative was aimed at terminating a fiber optic connectivity in every state capital (31 states) in the country.

The BTRAIN is the next phase where the USPF is now extending the connectivity into rural areas (It is a very ambitious project)

Rural fibre initiative

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The BTRAIN is a Private DBO managed by the USPF

Below are the list of on going projects, the next phase is on the pipeline

Rural fibre initiative

LOCATION STATE

Aba Metropolis Abia

Yenagoa-Brass Bayelsa

Wudil to Dutse Kano/Jigawa

Offa-Omuaran-Egbe Kwara/Kogi

MMA Ikeja-Covenat University, Otta Lagos/Ogun

Kukwaba(Apo)-Keffi Nasarawa

Izom-Suleja Niger

Minna(Tunga)-Bida Niger

Govt House-Osogbo Metropolis Osun

Source USPF

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The USPF does not have expertise in operating and actually developing the infrastructure, this is why they opt for private sector collaboration

The public sector approach in Nigeria since the turn of the century has been Public Private Partnerships, hence the USPF saw this as the best approach towards the different phases of the rural fibre development

The USPF in 2011 record an income of 9.8 Billion Naira (approx. US$57 million). Hence they can undertake huge projects and even borrow.

Due to the competitive nature of the market, the USPF can undertake multiple projects and indirectly aid the telecom companies diversify. Their subsidy helped Phase3Telecom who provided 4500 km of backhaul fibre optics as part of the WIN

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Interest management

The USPF have distributes the projects across the country, so that telcos that are frozen out of competition can come together and develop another service. They form consortiums to bid

The USPF in order to ginger interest in their rural projects have provided subsidies that can cater for the sunk cost of the operator in the rural area, hence the bidding for this project comes once a year

The projects are designed in a manner that the telcos would make profit on the long run via Private DBO

The sector liberalization gave them a pool of private sector partners, especially those who did not survive the inter standard mobile technology competition

On the flip side, the telcos trust USPF as a result of previous PPP arrangements

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Challenges of USPF

The slow approval of budget

The inability to complete projects within the time frame

The large and diverse nature of the country

The management of Risks of the PPP

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The Olson hypothesis holds true as the PPI (PPP) facilitated by the USPF for rural broadband

The PPI is also possible because of the previous relationship between the private sector and public sector

If this form of activity is to be replicated in a country in which the economic situation is not similar, there may be the need for the influx of cash from international donor agencies

This form of PPP is quite expensive but one would say, is worth it on the long run.

Conclusion

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1. Olson, M.: The logic of collective action. Public goods and the theory of groups. 2. print. ed., Cambridge, Mass. 1971.

2. NCC. Nigerian Communications Commission. www.ncc.gov.ng 3. USPF. Universal Service Provisional Fund http://www.uspf.gov.ng

Reference