Mapping the Broadband Investment Opportunities in Nigeria

  Editor’s Note: A World bank report points to the fact that in developing countries like Nigeria, a 10% increase in Broadband penetration can actually drive an economic …

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Editor’s Note:

A World bank report points to the fact that in developing countries like Nigeria, a 10% increase in Broadband penetration can actually drive an economic growth of 1.38%, This offers great opportunity but infrastructural deficiency in Nigeria is a big challenge. As government shows more focus with her ICT policy framework, Broadband Plan and also with the 5- year strategic plan for Nigeria, these and more open the door for investors in the Nigeria Broadband Ecosystem.

Dr Adekunle Suraj of the Department of Communication Technology &Broadcasting, School of Communication,Lagos State University,Nigeria,in this detailed article clearly outlines these opportunities for investors.

Happy reading!

 

 

Introduction

In a world of increasing internet activity and dependence, prospective investors are in for high return on investment in broadband infrastructural development or in content delivery services. Nigeria investment opportunity will definitely be remembered as the story before broadband and after broadband!

The consensus of many telecom financial experts after Nigeria telecoms mobile growth trajectory is that data transmission will be the next major area of investment opportunity. The investment becomes justified due to near absolute dearth of the broadband service across Nigeria. Data content transmission has been identified as one of few areas where the kind of growth witnessed over the last ten decade can be replicated in the next decade.

As with mobile voice story, the potential for profit in broadband data infrastructure penetration and service delivery is great despite the inherent risk and uncertainty. The prospect is expected to be even more robust once the penetration reaches a critical mass. Since Nigeria is at an early stage of broadband development, prospective investors are likely to gain the most from investing in these networks before the diminishing returns take effect.

As a result, there is need for prospective investors to invest substantially in availability of bandwidth for wider transmission of large packets of information. Hence, prospective investors must understanding the key market factors driving market demand; demonstrate critical technical and operational competence to deploy required solutions and muscle enough financial resources to manage required capital project expenses (CAPEX) and operating running expenses (OPEX).

In a country with dense urban areas and sparsely geographically diverse rural areas, broadband infrastructural investment opportunities appear to lie in both access and back-haul / core network. This lopsided geographical structure call for prioritizing the intended investment projects: investing in short term and niche areas as against investing in major new infrastructural projects. In other words, prioritizing between investing in Sustainable Coverage Gap (areas with enough commercial viability to support operating costs, but not capital costs of ICT infrastructure and investing in Universal Coverage Gap (areas that lack sufficient market viability to cover either capital or operating costs) becomes a critical economic choice.

Broadband Infrastructural Investment Opportunities Option in Nigeria

Based on Nigeria geographical structure and market visibility study, there are two main options for investing in broadband infrastructure in Nigeria: the access network and the backhaul /core network.

 

  • The access network comprises the connection between the end user and the nearest network node (e.g. local exchange or central office). Various options (including existing copper lines, new fibre-optic cables and wireless networks) are available depending on the requirements and available funding.

 

  • The backhaul and core network provides links between network nodes to allow connectivity over large distances (e.g. between towns and cities). Because traffic from a large number of end users is aggregated as it passes through the backhaul and core networks, fibre optic cable and High-capacity wireless microwave links are often the technology of choice due to their high capacity.

 

Access network

  • Fibre to the home (FTTH):

Fibre to the home (FTTH) involves laying a fibre-optic cable all the way from the central office / local exchange (or suitable local access node, such as a public sector building) to the home. FTTH is the technology with the highest capacity, and therefore provides the highest degree of future proofing. However, due to the long distances involved in deploying a connection all the way to the home, the deployment costs of FTTH can be very high. There are two main options for an FTTH architecture: GPON and point to point (P2P). GPON networks may require less capital expenditure (CAPEX) to be deployed (in particular in less densely populated, rural areas). Previous studies have shown that the cost of deploying a P2P architecture is on average between 10-20% more than an equivalent GPON architecture. The cost difference is higher in rural (less dense) areas than in urban (more dense) areas. However, the benefit of P2P networks can be best evaluated from competitive point of view in that they allow all operators full usage of a fibre between the local exchange and the end user, hence allowing full unbundling.

 

  • Fibre to the cabinet (FTTC)

Fibre to the cabinet (FTTC) involves laying fibre from the central office (or local exchange) to a street cabinet or basement of an apartment block. Because the fibre is only laid for some portion of the distance to the home, significant cost savings can be realised relative to FTTH. However, as the copper network is used for the last part of the connection to the home, the speeds available on an FTTC network are also significantly lower than with FTTH (around 80% in terms of the cost to connect a home). As with FTTH technologies, the cost is strongly affected by the ability to reuse existing infrastructure.

 

  • Terrestrial wireless technologies

Terrestrial wireless technologies provide a link between the home and the nearest network node without the need for a physical wire line connection. Terrestrial wireless networks are complementary to fixed networks, and can be advantageous in areas where the installation of a wire line network is difficult and/or expensive (e.g. in mountainous terrain). However, because several users access the network via the same last-mile link (i.e. the wireless link), the contention for services can be much higher than on wire line networks, and the realised speed may be much lower than the expected maximum speed. In order to ensure an end user receives an assured level of service more base stations will have to be added, which will increase costs. It should also be noted that demand for high-speed rates from a large number of users on a wireless network tend to require additional investment in the fixed infrastructure that supports the wireless network.

 

  • Satellite networks

Satellite networks offer a useful solution for areas that are not covered by terrestrial networks (either wire line or wireless), especially where the existing networks have left ‘not-spots’. As with terrestrial wireless technologies, many users are accessing the same node (i.e. the satellite transponder) and so the effects of contention may have a greater impact than on fibre networks. Wireless technologies which could provide effective next-generation broadband services include terrestrial wireless broadband technologies such as the 3GPP LTE-advanced or IEEE 802.16m WiMAX standards, and high-capacity satellites, using Ka-band multi-spotbeam technology. The costs of terrestrial wireless technologies vary according to a number of factors, including the terrain over which they are deployed, the data rate that must be delivered at the furthest point from the base station and the overall traffic demand. Indeed, for both terrestrial wireless and satellite access technologies, the cost of deployment depends very heavily on the traffic demand to be supported. This is in contrast to the fibre technologies, for which costs do not vary as strongly with traffic demand.

 

  • DSL (copper-based) broadband technologies

Basic broadband services are most often delivered over the existing copper network, using DSL technology. DSL technology has the advantage that it makes use of the existing access infrastructure and is therefore relatively cheap to deploy. However, the nature of the technology means that download speeds are heavily affected by the distance between the local exchange (central office) and the home, and in many cases are limited to below around 10Mbit/s.

 

The backhaul and core network

A fitfor-purpose backhaul network is essential for providing effective broadband services. Due to the way that a backhaul/core network connects large areas, this is a cost-effective way of providing coverage to a large number of end users. However, investments in backhaul/core networks rely on the existing access network (or a new access network deployed through a separate investment) to deliver services to end users. Backhaul/core investment can be effective at delivering services to end users where access infrastructure is already sufficient for broadband (e.g. basic broadband over copper lines) or where the investment provides a catalyst for investment to upgrade the access network.

 

The deployment of these infrastructures (both access and backhaul/core network) in Nigeria appear to be of the following discernable pattern:

 

  • International connectivity and leading stations
  • Cross-border and national connectivity (as seen by Mtn, Globacom, Airtel, Phase 3 Telecom etc.)
  • The last mile: Metropolitan networks and beyond (as seen in the case of Globacom’s fibre links in Abuja Metropolis and MTN’s fibre links in Benin city)

While the international connectivity and leading base stations might afford large capital base and high technical expertise as currently being championed by the National Carriers (GLOBACOM, SATCOM etc), there exist abundant opportunities investment in cross-border, national connectivity and the last mile infrastructural development. AfricaNext Investment Research, had already suggested that sub-Saharan Africa will face a lit band width surplus (i.e. the oversupply gap between equipped bandwidth and purchased bandwidth) that will average around 1.7Tb/s over the majority of the 2010-2020 period as a result of submarines cables (TEAMS, SEACOM, Main One, EASSy, GLO1, WACS and recently ACE (2012). Hence, this brings about infrastructural investment opportunities in wholesale fibre optic and terrestrial retail capacity which also largely depend on identified models (either already existing, people driven or government policy initiatives). Massive investment in Local Access network and terrestrial cable networks are also required to meet the broadband need of the universal broadband access policy (especially in bridging the digital divide between densely populated urban and sparsely populated rural parts of Nigeria) of Nigerian Government. Presently, the investment in these areas has been found to be grossly inadequate due to the fact that the mobile operators investing in these infrastructures built them for their own current transmission needs. Besides, the investments in these areas appear so far too few and too sparse to sustain the ever growing large numbers of mobile data subscribers in Nigeria.

Models for broadband infrastructural investment

Based on careful analysis of Nigerian telecommunication market, prospective investors might decide to invest in broadband infrastructural development in Nigeria using the following identifiable investment models as a guide.

  • Bottom-up model

The bottom-up, or local community model involves a group of end users (comprising local residents and/or businesses) organising themselves into a jointly owned and democratically controlled organisational group (frequently a co-operative) capable of overseeing the contract to build their own local network. In this model, the group itself oversees the investment project. Given the composition of the local group it is likely that the day-to-day running of the network will be outsourced to a telecoms operator with the necessary expertise. Bottom-up funded projects tend to be of a smaller scale investment projects. Overall, the bottom-up model provides investment opportunity for targeting localised areas.

 

 

  • Private design, build and operate (PRDBO) model

The private design, build and operate (PDBO) model involves a private sector organization receiving some level of public funding (often a grant) to assist in its deployment of a new network offering open wholesale access. Critically, in this model, the public sector has no specific role in the ownership or running of the network, but it may impose obligations relating to either of these in return for the funding.

 

  • Public outsourcing

Under a public outsourcing model a single contract is awarded to a private sector organisation, covering all aspects of the design or construction of the network. The major characteristic of this model is that the network is built and operated by the private sector, but the public sector retains ownership and some control of the network.

 

  • Joint venture

A joint venture is any agreement where ownership of the network is split between the public and private sector. Construction and operational functions are likely to be undertaken by a private sector organisation. Overall, the joint venture model is used only where the interests of the public and private sectors can be closely aligned.

 

  • Public design, build and operate (PUDBO) model

A public PUDBO model involves the public without any private sector intervention, except at a service provider level (involving either wholesale or retail service providers). All aspects of network deployment and operation are managed by the public sector. It’s primary use appears to be for relatively small-scale deployments (e.g. those confined to a single city or to provide core/backhaul connections between different towns).

 

In summary, the identifiable broadband infrastructural investment opportunities in Nigeria include among others:

  • Investment opportunities in wireless broadband solution (WIMAX and CDMA), fibre optic cable infrastructure, electricity transmission and distribution lines, railways and oil and gas pipelines. This present ideal model to address the backhaul and terrestrial challenge to wider availability of broadband in Nigeria.
  • Expanding access across terrestrial broadband segment could also be achieved through joint infrastructural investment in co-location and Tower sharing. However, for better collaboration for the development of backhaul broadband systems, there is need for regulating agencies framework.
  • Multi-country rolls outs of terrestrial broadband infrastructure such as stations and sub-stations, concentrated nodal points for further distribution and transmission of data.
  • Short term investment in wholesale backhaul services both to offer complementary coverage and targeting of growth in currently uncovered areas.
  • Broadband infrastructural investment opportunities involving backward integration with data centre (i.e. creating wholesale clusters)
  • Securing long-term contracts from single off takers (e.g governments or large corporations) in currently under-served or land locked areas as a basis for a primary cable investment into the specified region. However, understanding the market terrain and demand-supply dynamics is required.
  • Broadband infrastructural investment in partnership and Alliances. Such alliances and partnership could be in form of Public-private partnership (PPP).
  • Partnership and alliances with Mobile Network Operators (MNO) because of their firm grip on the consumer mass market. This could involve ISPs, large corporates, and other wholesale users incorporating into broader long term partnership that goes beyond sales and purchase agreements.
  • Partnership with sub-sea cable operators that go beyond purchase of bandwidth for transmission.
  • Partnering with Governments and various government agencies due to public benefits of the infrastructure, public sector capacity to stimulate demand, the extensive licensing and Right-of-way requirements for various elements of the business.
  • Infrastructural broadband investment in Public Passive Infrastructure. In this case, governments build an infrastructural broadband platform without becoming a network owner but found the installation of passive infrastructure (poles, conduit etc) which can be used by various operators.
  • Rural strategy: based on universal service targets for broadband access, investment in high speed backbone networks to rural communities (schools, hospitals and other public institutions as anchor points for high speed connection in the community) may be more efficient than projects that pay for lost-mile connection to homes. If government provides this, then the business opportunities for private ISPs might be to interconnect at these points and distribute access directly to users on their own facilities and services.
  • Out-sourcing business opportunities: existing large scale operators outsource the less profitable parts of their operation, small local companies take in the edge of market coverage areas and get a reasonable interconnect with the large-scale operators.

 

Having discussed the investment opportunities in broadband infrastructure, we hereby focus on the broadband investment opportunities in content service delivery.

Investment business opportunities in broadband content and web service delivery

The increasing internet penetration and net activities call for broadband investment opportunities in content services in Nigeria in the following sectors. The opportunities in these areas are almost limitless.

Education

  • Investment opportunities in Open and distance learning, Digital and virtual library, Universal basic education,  IT Literacy training deployment and internet education biometrics, School networks and sharing of educational portal, Digital archiving of local content and online documentation (Registration portals, data processing), Video conferencing and surveillance devices

 

Financial services (low end and high end)

  • Mobile payment, Mobile banking, e-banking and transactional devices, Electronic Bill payments (POS, e-teller etc) and new means of monetizing electronic content, Intercontinental money transfer, Insurance services (premiums, claims, VAT etc), Credit checks and loan services, Stock and forex exchange services

 

E-government services

  • Facilitating e-citizens, m-government, Data capturing services (e-voting, registration cards, e-polls etc), Rural development, Community radio and national hot spots, Emergency and disaster recovery services (Fire services etc), Federal Government Millennium Development Goals Agenda (MDGs), Regional Economic Integration (Yoruba Economic agenda, Onhanse Consultative forum etc), The entire 36 states and Entire 704 local government MDGs Agenda,  developmental agenda, Africa Regional Integration Agenda (ECOWAS, African Union, Parliamentary,Judiciary system), Trans border and continental security and surveillance activities

Digitalization of National archives, libraries and government classified information, Integration of Nigerians in diasporas and National database system, Oil and gas (upstream and down streams sectors, pipeline monitoring), Electronic Tax monitoring and incentives, Geographical Information Systems (Climate and weather forecasting, urban planning).

 

Transportation & Logistics

  • Auto-registration, Plate number e-registration and electronic driving licence (Federal Road Safety Commission, Vehicle Inspection Operation, electronic traffic  control etc), State traffic enforcement agencies (LAMATA, LASTMA etc), E-Immigration (e-passport, electronic identification and verification services), E-transport (GPS, Pagers, e-ticketing etc), E-Car registration exercise and monitoring (NURTW, RTEAN etc), Maritime services (electronic on-shore and off-shore monitoring and navigation services), Electronic Intelligence transportation  systems (railway, speed boats etc).

 

Security

  • Geographical Positioning Systems for Car theft, Police activities, Geographical mapping, CCTV monitoring devices, Community policing, state and local government vigilante groups, non-governmental and private security agencies, Forensics and personal identity capturing systems (electronic imaging, OMR, OCR, MICR etc)

 

Work related

  • Telecommuting, virtual office, Internet business and online entrepreneurs, Digitalization of work processes and digital convergence, work group computing and Groupware, Electronic data exchange, electronic mail and Voice-mail, Home networks etc., Real estate management and postal services (tracking, monitoring, scanning and sorting etc), Biotechnology, Food and Research institutes, web based business enterprise solutions and small scale enterprise, development of useful web based applications, e-tailing and electronic auctions

 

Emergency health services

  • Delivery of new video based e-health services, telemedicine, health web, digital medical services, electronic and web based patients’ records systems etc.

 

Entertainment and Information

  • Nollywood, Nigerian home videos, newspapers web archives, integrated digital communications, social networks, citizens journalism, cable and digital TV networks, specialized and local entertainment content (jobs, dating,music and video downloading, content providers, online gaming, webcasting, podcasting etc), video navigation and home video devices, internet telephony, online services, web portals, niche portals, narrowcasting services, internet radio, internet television, 3-D on the net etc.

 

Thank you and happy broadband investment.

 

Author

Dr Olunifesi Adekunle Suraj

Olunifesi Adekunle SURAJ (PhD) is a lecturer  with the Dept. of Communication Technology & Broadcasting, School of Communication, Lagos State University,Nigeria.He is also into Knowledge Management and Social Media Consultancy.

Contact: Email: sjamiu2002@yahoo.com, Phone: +2348023982413

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