Investment in underwater cables hit N365bn amid poor internet service

Ben Uzor Jr

With an estimated investment of about N365 billion ($2.24bn) in underwater cables in the country over the past five years, Nigerians are yet to feel the impact of this investment and are starved of access to reliable and affordable broadband services. Analyst told Benuzorreports that apart from the absence of distribution networks needed to move the available bandwidth capacity across Nigeria, big telecommunications firms are engaging in anti-competition practices, locking up their fibre infrastructure from smaller players. But more importantly, Nigeria’s low mobile Average Revenue per User (ARPU) is discouraging investment in last mile networks required to take internet capacity to the end user, industry analysts have said.

According to the industry analysts, infrastructure providers are increasingly shying away from making requisite investment in distribution and last mile networks because recouping the investments for infrastructure deployment is an uphill task in a country where ARPU for mobile and fixed networks are at the lowest ebb of the spectrum by international standards. Nigeria’s ARPUs have continued to decline on a-year-on-year basis, and according to analysts investors do not perceive the last mile segment of the broadband internet ecosystem as feasible from a return on investment perspective. A new report from the Business Monitor International (BMI) shows that Nigeria’s mobile ARPU rate fell by 21.2 percent in 2011 to reach N1, 011.

This, analyst at BMI say was considerably more than a 4.3 percent in 2010 to reach N1, 283, adding that Nigeria’s blended ARPU will decline by 6.9 percent in 2012 to N949. To address this challenge, Eugene Juwah, executive vice chairman, Nigerian Communications Commission (NCC) in an interview, weekend said the commission plans to give financial incentives to infrastructure providers. “This is to enable service delivery at affordable prices for the end-user, where it may not be economically viable to do so; the NCC intends to offer financial incentives to the infrastructure providers to enable them operate reasonably profitably.” It was gathered that over 9.54 terabyte of internet capacity from four cables is lying untapped on Nigeria’s shores.

The challenge, according to industry watchers is the unavailability of distribution network to move this available bandwidth capacity across the length and breadth of the country. This is hindering the country from benefiting from the huge investment in underwater cables. It is estimated that the landing of the 7, 000 kilometre MainOne Cable in June 2010 gulped $240 million. Glo-1 cable which stretches 10, 000 km from the United Kingdom (UK) to the west coast of Africa, costs about $800 million. NITEL’s South Atlantic 3 (SAT-3) is valued at $600 million. About $600 million was spent in building the West African Cable System (WACS), a project driven by a consortium of 14 firms, MTN Group inclusive. The total investments and other miscellaneous expenses rose to $2.24 billion within five years. Industry analysts further argue that the arrival of these underwater cables was expected to push up internet speed and reduce cost but little has been achieved in terms of accessibility, availability and affordability.

Presently, internet connectivity is basically concentrated in the major commercial hubs: Lagos, Abuja and to some extent Port Harcourt. The large chunk of the blame has been stacked on the big players in the industry who restrict smaller players from sharing infrastructure, by this means denying Nigeria the much expected benefits of broadband. World Bank studies show, quite conclusively, that in Low Countries, every 10 percentage point increase in broadband penetration accelerates economic growth by 1.38 percentage points. Funke Opeke, chief executive officer of MainOne Cable told Benuzorreports that intervention in access to critical last mile infrastructure for the delivery of services to end users remains essential for progress. 

“Regulating access to, and prices of, existing backbone and last mile distribution infrastructure will create competition and provide further incentives to new entrants to deploy only unavailable infrastructure. The objective should not be to stifle growth in infrastructure development but to ensure that efficient competition is fostered and infrastructure builds are appropriately directed to meet areas where those needs truly exist, whilst services requirement in areas with existing backbone infrastructure could be immediately addressed. The nature of competition contemplated is the fair and competitive unbundling of local loop access to existing infrastructure by an infrastructure owning operator to other service providers”

This, she further added should be done at prices that are reasonable and reflective of economic cost of the provision and maintenance of the infrastructure and sundry investment by the facility owners. Pieter du Preez, group executive at Spescom, argues that the first principle of promoting competition is the availability of options. “But availability is nothing without demand.” He further pointed out that the demand for broadband capacity in Africa is still in its infancy, inspite of the country being seen by the global business community as a telecoms gold mine to be harvested by international conglomerates. “And with a large amount of capacity available on the shores, Nigeria has to ask what is keeping demand at bay.

“The answer is found in underdeveloped regional Internet usage, relatively low demand for bandwidth intensive applications such as video and cloud services, cost and accessibility. “A large component of the solution to these challenges – and one that could add a new dimension to offerings – is participation by service providers in carrier neutral co-location. No single player will drive the demand for broadband capacity, but an open market place for connecting to multiple carriers and services will aid in the ultimate distribution of bandwidth availability”, he further concluded. Government is conscious of the potentials of broadband for economic prosperity, and is already targeting a fresh stream of revenue from broadband services.