ICTs and National Development– Trends and

Opportunities

Michael Ikpoki CEO, MTN Nigeria

Sept. 2015

Agenda

• Executive Summary

• Powering National Development Telecoms/ICT Infrastructure

as Enabler.

• ICT Evolution – Trends, Prospects and Opportunities

• Getting to the Future: Required Policy and Ecosystem

Support

• Conclusions

Executive Summary

• The Nigerian Telecoms/ICT industry is at a watershed – several

factors are at play, changing the face of the industry, and affecting its

prospects.

• The industry has recorded exponential growth over the last decade, and it

remains a veritable platform for driving national development.

• However, the industry is yet to reach its full potentials. We are at the

cusp of the Digital Revolution - there are still huge opportunities

untapped – particularly in the roll-out of broadband networks and digital

services.

• But several factors are impeding the development of the Industry.

• High-impact interventions are therefore required to steady the ship and

deliver national growth; some of these are discussed in this Presentation.

Telecoms/ICT as Enabler of National Development

• Telecoms & ICTs are a critical Social Overhead Capital

• Like Water, Roads and Power, robust provision of telecoms powers socio-economic

growth across all sectors and social demographics.

• It enhances productivity; creates future opportunities; it also enables economic

growth, social welfare and security.

• ICT Applications deployed for education, health, security & other social services –

eGovernance, eHealth, etc.

• In Developing Economies:

•10% increase in broadband service penetration = 1.38% increase in GDP per

capita.

•10% increase in internet penetration = 1.12% increase in GDP per capita.

•10% increase in mobile phone penetration = 0.81% increase in GDP per capita.

•1% reduction in tax on mobile broadband = 1.8% increase in penetration and 0.7%

increase in GDP.

• Globally:

• ICTs enable innovation, decreases costs & improves overall efficiency.

• Growing ICT adoption requires more ICT investments; ICT Investments lead to job

creation, self-employment, enhanced productivity.

• Huge multiplier effects on overall economic growth – the higher the penetration, the

higher the impact.

The Digital Revolution – Trends,

Prospects and Opportunities

Grand Convergence is the global trend, making our industry the

engine-room for innovation & growth in all other sectors

Adapted from Tomi T Ahonen 2014

Internet

Computers

Gaming Music Broadcast

Print

Advertising

Credit

Mobile

Telecom

s Mapping

Communications

Watch

Banking

Insurance

Camera

Social Media

Marketing Research

Virtual

Our industry (operators and regulator) have been heavily impacted, as

evidenced by a number of key features, challenging us to develop new

capabilities and orientations.

Issues Market Impact

• About. 66% of new devices sold in Nigeria are multi-SIMs

e.g. Nokia, Samsung; LG, & Techno multi-SIM

smartphones.

• Operators are leveraging this development for growth

Multi ple

SIM >40%

Empowers

Customers

Over-

penetration

into the

“poverty

zone”

• Low-value customers below poverty line have the

highest share of first-time SIM purchases in the

Nigerian market:

• seek highly discounted entry devices & call rates.

• represent 90% of total monthly churn

• Increase the Costs of Market Development

The Nigerian Industry is challenged by Changing Market

Dynamics which are eroding value.

Mobile

Terminatio

n Rate

Reduction

• 39% decline in Interconnect Revenue with consequent 4%

decline in Total Revenue (average loss of 2.89b/month) in

2013

• A further decline in MTR in 2015 by 12% implies decline in

interconnect revenue by 12% if usage remains flat.

MTR Reductions

threaten

investible

revenues

Continuous

investment in

market

penetration &

access to the

underserved

MNP

• Over 65% awareness of MNP in key cities empowering to

change networks not their numbers.

• MTN has championed the largest media campaign on

awareness.

Empowering

Customers with

greater choice &

more market

competition

Stagnating Value Penetration is a clear Threat to Future Capital

Investment

Economic and Financial

Investment and Technology

Competition and Regulation

Consumer and Markets

High inflation rate impacting consumer confidence

Reduce capital expenditure

Increased price competition

Stagnating penetration levels

at/near current levels

Declining/flat Revenues/margins

Constrained access to capital / reduced

CAPEX

40.2% reduction in MTR

Inability to monetize Value-Added

Services (VAS)

Investor’s concern on

general market sentiment

Dominance declaration and

risk of below-MTR prices

Consumers cut-back spending/turn to

lower cost alternatives

OTT services

cannibalization

of voice /SMS

Survivor Consolidation Model with Below-MTR

Price Points is leading to value erosion across

the Industry

As a result, there is a general decline in YoY industry revenues …

• 11% decline in dollar terms and 7% in Naira terms

• NBS: Telecoms contributed N1,344,489.25 million - 8.38% to total economic

output in Q1 2015 recording a marginal decline from the 2014 average of 8.46%.

• Key Determinants:

• Greater choice for customer and more market competition

• increasing inflation leading to reduced consumer spend

• Drop in tariffs

Statistics 1Q13 1Q14 1Q15 YoY change

(% or p.p.)

Service revenue ($m):

Mobile 2,270 2,328 2,062 -11.4

Fixed n/a n/a n/a n/a

ARPU ($):

Mobile 6.6 5.5 4.8 -12.7

Fixed n/a n/a n/a n/a

Prepaid/postpaid split 99.6/0.4 99.6/0.4 99.5/0.5 -0.1/0.1*

2G % of total base vs 3G/4G subs 91/9 86/14 81/19 -10/10*

Mobile revenue ($m)

Voice 1,933 1,926 1,634 -15.6

Data 337 403 428 6.2

Operator capex ($m) 828 452 n/a n/a Source: Ovum; *percentage points

Broadband is the next growth frontier – but there is still much to be

done…LTE/4G Spectrum Licensing & the Digital Switchover…

Vision 20:20 A society of connected communities with high speed internet & broadband access that facilitates faster socio economic advancement of the nation & its people

2018 Broadband Goal

• Wireless broadband coverage to 80% of the population • Fixed wired broadband coverage to 16% of the population

Target Type Medium Current (2013) Short term Targets (2015)

Medium Term Targets (2018)

Long Term Targets (2020)

National Availability/ Coverage

Wireless 35% 60% 80% 95%

National Penetration Wireless 6% 21% 42% 76%

City Availability/ Coverage

Wired 1.5% 10% 16% 25%

City Penetration / Usage

Wired 0.5% 3.3% 5.3% 8.3%

Community Public Access Venues

Wired or Wireless Hotspots

15% 25% 62% 100%

Wireless Broadband Objectives Largely Unmet – Due to lack of Spectrum & Investments.

To meet 2018 targets, we should have 21% national penetration by 2015 but we are only at

10% according to NCC statistics

Indeed, there is still much to be done…

2013

Rank

Country Score 2014

Rank

1 Finland 6.04 1

2 Singapore 5.97 2

3 Sweden 5.93 3

4 Netherlands 5.79 4

5 Norway 5.70 5

6 Switzerland 5.62 6

10 United States 5.61 7

14 Hong Kong SAR 5.60 8

7 United Kingdom 5.57 9

115 Zambia 3.34 110

105 Pakistan 3.33 111

113 Nigeria 3.27 112

113 Suriname 3.30 113

107 Senegal 3.30 114

140 Guinea 2.48 145

n/a Myanmar 2.53 146

144 Burundi 2.31 147

142 Chad 2.20 148 http://www.weforum.org/reports/global-information-technology-report-2013

• Nigeria now ranks 113 (out of 144) in

the Networked Readiness Index

prepared by the World Economic

Forum, and INSEAD.

• The index measures key factors for

digital readiness such as: • the quality of the regulatory, business and

innovation environments,

• the actual usage of ICTs,

• the societal and economic impacts of ICTs

• availability of Internet access

• adult literacy

• mobile phone subscriptions

• availability of venture capital

• patent applications

• gauge the social and economic impact of

digitization (i.e. availability of e-government

services, etc.)

Nigeria ranks low on the Digital

Readiness Index…

Getting to the Future: Required Policy

and Ecosystem Support

Industry SWOT: Required Policy and Ecosystem Support…

STR

ENG

THS

THR

EATS

• Short-term focus and value-destroying price

competition of many players.

• Pressures on revenues/profitability –

economic slowdown affecting spending

patterns,

• Systemic rot – huge interconnect debts &

PTO extinction over the last 6years are

symptoms of potential industry failure.

• Inconclusive broadband spectrum licensing.

• The OTT Paradox

• Conducive policy environment • Huge investment appetite.

• ubiquitous national footprint to drive growth

across all sectors – banking, agriculture,

entertainment, etc..

• Deep resilience against massive ecosystem

challenges.

• Huge multiplier effect – i.e. funding government

services (MTN alone has paid over N1trillion in

taxes & charges).

• Major employer of labour (MTN’s ecosystem

alone employs over 500,000 Nigerians).

• Industry’s direct GDP contribution on growth

path.

OP

PO

RTU

NIT

IES

• Large unserved population (but mostly at BoP).

• Growing Value-added and digital services ecosystem

• Service gaps in adjacent markets.

• Huge untapped appetite for new/broadband services.

• Well-developed local talent – MTN as test case.

• Conducive policy framework for broadband penetration.

WEA

KN

ESSES

• Value-destruction through extreme price competition & price regulation.

• Poor internal governance and short-term focus of many players,

• Lack of differentiation. • Perception of regulator penalizing

growth. • micro-regulation (i.e. Micro-

management).

Required Policy and Ecosystem Support

•up to 70% of outages in Nigeria related to power issues; MTN expended N34billion on diesel alone – enough to build +5,000 additional BTS

Lingering Dearth of Supporting Social Infrastructure

•Required investments can only be encouraged with assurance of fair availability of LTE/4G spectrum to support evolution. Digital switchover needs to be expedited.

Spectrum Evolution Policy

•To enable growth for adjacent sectors and services i.e. to deepen finance inclusion, facilitate inclusion in financial services.

•Harmonized tax regime

Inter-agency co-ordination & harmonization

•Regulation should accommodate industry dynamism, and acknowledge that technology & services cannot be micro-managed

Supportive Regulatory Framework

•To encourage growth of FDI in telecoms and other sectors.

Provide Investment Guarantees

• to address eco-system issues, protect telecoms infrastructure & deepen broadband penetration - recently concluded MoU with LASG - a positive template

Smart Incentivisation & Smart PPPs

The Digital Revolution: New Services; New Paradigms

• Our industry is critical to powering National economic/socio-

political growth.

• The telecoms sector must be stable and set on a new path of

growth.

• The challenges holding the industry back are NOT

insurmountable; they require collective action and dedication

of all stakeholders.

Thank You