Nigeria Telecommunications Report Q1 2008

As ever, mobile remains the dominant story in Nigeria's telecoms market. In the first nine months of 2007, the country's four mobile operators - MTN, Globacom, Celtel and M-Tel - added over 7mn net additions to take the market total to almost 37mn subscribers. Given this robust growth, we believe that the mobile sector will have comfortably met our year-end target of 39.4mn, taking mobile penetration to almost 30%. A number of major contract announcements prove that operators are still in full expansion mode, with MTN securing a US$2bn loan to fund its network development over the next five years.

Meanwhile, in December 2007 Globacom became the first operator to launch commercial 3G services in Nigeria. The service will initially be available only in the cities of Lagos, Abuja and Port Harcourt, although Globacom has said that they will be extended to other major urban areas in due course.

Despite the frantic pace of network expansion, concerns over service quality persist, leading to the suggestion of drastic measures. In November 2007, a government report proposed that Nigeria's mobile operators could be prevented from selling new SIM cards for 12 months, as it was felt that their desire to add to their customer numbers was leading to over capacity on the country's networks. While we would be against such draconian measures, we agree that there is a need for improved quality, which would ultimately benefit operators by allowing them to support greater numbers of customers and offer a wider range of services. Furthermore, reducing the number of dropped calls and lost SMS should result in higher ARPU rates, as customers are encouraged to use their phones more often.

Rather than through regulation, we believe that competition could be the key to improving network quality in Nigeria. Q108 should see the launch of the country's fifth national mobile operator, Mubudala.

The UAE-based investment company has sold a 40% stake in its mobile operation to compatriot Etisalat, which has significant experience in the mobile market, as well as a considerable portfolio of telecoms operations in West Africa. Furthermore, the growth of fixed-wireless services and investor interest in Nigeria's regional telecoms operators will put added pressure on the national providers to improve their services or risk losing market share to smaller rivals.

Despite these concerns, Nigeria remains an exciting market with excellent potential. This is reflected in our new business environment rankings for the African telecoms sector; thanks to a new methodology, which we believe better captures the opportunities and risks of 21 different national markets, Nigeria has risen to the top of our rankings table. This is partly due to demographics - as the largest state in sub- Saharan Africa, Nigeria is incredibly attractive from a sheer volume point of view. However, we are also encouraged by the improving standard of regulation - as witnessed by the ongoing liberalisation of all segments of the market.