Consolidating Digital Dividends: Elixirs for indisposed communications sector

Commentary@ITRealms:

There have been some momentous events in the telecommunications industry very lately. The visit of Google CEO, Sundar Pichai (following on the heels of earlier visits by Facebook’s Mark Zuckerberg and Microsoft’s Satya Nadella) readily comes to mind.

Equally significant are the recent approvals of an ICT Roadmap (2017 -2020) which adopts the spirit of the National Broadband Plan of 2013 and is supposed to stimulate the creation of around 2.5 million jobs, boost broadband penetration to 30 per cent and increase ICT contribution to GDP to 20 per cent by 2020, as well as the establishment of a multi-campus ICT University, by the Federal Executive Council.

Also, the internationally renowned mobile operator, Etisalat, pulled out of the Nigerian market and pursuant to this, the local replacement brand, 9mobile, emerged. These events are noteworthy from two perspectives: they revalidate the three key stakeholder segments in the Nigerian broadband ecosystem – the content providers, government and network operators, and also serve as a reflection of the enthusiasm levels of each of the said segments for the industry and the attainment of the broadband goals.

It is unanimously agreed among all stakeholders that the opportunities offered by broadband are virtually boundless. Content providers are excited at the prospect of eager subscriptions and patronage in a massive national market of over 180 million people, over half of whom are under thirty years old. Government, naturally, is bullish about the socio-economic developmental benefits that will accrue from extensive broadband uptake. But while the operators are expected to make extensive investments in building and managing the networks upon which broadband traffic will be carried, every indicator points to the fact that they have strong reservations about the continued viability of their businesses in the face of base-level average revenues per user (ARPU), earnings before interest, tax, depreciation and amortization (EBITDA) and non-existent profit margins.

The two major local industry associations – the Association of Licensed Telecommunications Operators of Nigeria (ALTON) and the Association of Telecommunications Companies of Nigeria (ATCON) – as well as the worldwide body for mobile communications service providers, the GSMA, have consistently offered guidance, for some time now, on this state of affairs which effectively threatens the continued growth of the communications industry and has been reaffirmed somewhat dramatically by the Etisalat incident.

The causes of profit value erosion in the industry have been well-highlighted:  rampant multiple taxation, steady dip in tariffs since industry inception in 2001 as against all other sectors which have since been enjoying tariff increases, heavy import dependencies for network components (most of which have a life cycle of between two to four years), wide foreign exchange variations among others.

Engagements are ongoing within the industry ecosystem and with government to address a good number of these issues, and the aim of this piece is not to focus on same.  Rather, the purpose is to project that in the face of these unrelentingly constricting market conditions, after having voluntarily implemented various cost-saving practices like outsourcing, infrastructure sharing and staff-streamlining in recent years which have not ipso facto translated to profitability, in line with trends in more established markets, the next logical step for the network operators will be to go into “market self-correction” mode, to effect a reduction in the number of market players in order to remedy certain structural in-balances therein and re-energize market growth and, consequently, the attainment of the broadband aspirations.

Typically, this will be effected through mergers and consolidations as the market landscape presently displays the trappings of a consolidation-ready environment  seen from the presence of multi-operators who are mostly in negative financial health and having disparate subscriber numbers as well as random frequency spectrum holdings.  

The benefits of this option would include ensuring that  existing investments are fully protected, the network and operating assets of the consolidating parties fully optimized/deployed to deliver more robust services to subscribers, and the emergent consolidated entity will have more subscribers as well as a larger market share than the component entities. The bottom line from these will be that the consolidated entity will be a much more profitable enterprise than its progenitors and therefore be attractive to additional investments for further expansion to facilitate the provision of truly world-class broadband services.

it is axiomatic that frequency spectrum is the oxygen which gives life to 4G LTE mobile broadband networks and so there must be assurances to investors who seek to consolidate incumbent networks that this resource will be available for the use of the re-engineered emergent entity. This is even more so in a situation where one of the consolidation targets owns  slots of spectrum which are the points of attraction for the transaction. Assurance of availability will be in the form of prompt regulatory confirmation by the Nigerian Communications Commission (NCC) of the right of the emergent entity to use the frequency spectrum that had been assigned to each of the component consolidating networks without let or hindrance, upon due diligence inquiry. Such assurance will also be offered by the instant withdrawal of the “digital dividend” spectrum of 700/800mhz from the broadcasting industry by the National Frequency Management Council (NFMC) and allocation of same to the communications sector, followed by the publication of a transparent process for its assignment to the operators for the provision of 4GLTE services within a definite time frame as has been advised by the International Telecommunication Union (ITU) which had prescribed two  separate cut-over dates that Nigeria has been unable to meet.  Such institution of certainty and predictability should also arrest the incidence of indiscriminate acquisition of slots of the said frequency spectrum by eager operators, as has been witnessed in recent times.

The importance of frequency spectrum availability as a success factor in the  merger of mobile companies has been underscored in various jurisdictions in Europe, North America, Asia and Africa where changing market conditions such as are currently being witnessed in Nigeria have driven such consolidations. Our summation is that this internationally recognized trend will also play out here and so urgent steps need to be taken by the relevant government offices to address the issues around frequency spectrum availability as outlined above. To this end, pursuant to the commendable work it is doing in the area of spectrum use reform via the ongoing spectrum trading and active infrastructure sharing consultations, the NCC will be required to publish rules around frequency spectrum administration in a consolidated market while the NFMC, working with the Ministries of Communications and Information (which have responsibility for telecommunications and broadcasting respectively) effects the devolution of the “digital dividend” frequency spectrum to the NCC (and retrieval of irregularly held slots of same) for transparent assignment to operators.

The implementation of these measures will certainly infuse the promoters of the incumbent network operators and prospective fresh investors with the confidence to commence definite discussions around the merger and consolidation of the operating companies. The result of successful consolidations will be beneficial to not just the investors who will enjoy enhanced returns but also to the content providers and other sub sectors in the service delivery value chain in the form of greater business volumes, the subscribers by way of modern and world class service offerings as obtainable in other more developed markets. Equally and more importantly, government stands to gain specially – directly and indirectly - as its broadband target and other relevant goals which are set out in the National Broadband Plan  and the ICT Roadmap will be attained. This will therefore be a win-win for all stakeholders in the ecosystem.

The operators and investment community are expectant of the implementation of the  afore-highlighted frequency spectrum availability proposals by government as a green light for the commencement of discussions on consolidation.

*Courtesy: Osondu C. Nwokoro who is Director External Affairs, ntel.

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Zenith Bank shareholders approve total payout of N63.4b dividend

ITRealms:

The shareholders of Zenith Bank Plc have approved final dividend worth N55.573 billion for the year ended December 31, 2016, which brings the total payout to N63.422 billion, reports ITRealms.

The dividend, ITRealms gathered, translates to N1.77 per share, was paid out of N129.65 billion recorded for the year under review.

Giving the approval at the Annual General Meeting held in Lagos on Wednesday, shareholders noted that in all, the bank paid a total dividend of N63.422 billion, having paid an interim dividend of N7.849 billion before now.

Also, the shareholders applauded the board, management and staff for growing its profit after tax by 23 per cent from N105.531 billion in 2015 to N129.65 billion in 2016. Just as the bank ended the year with gross total assets N4.739 trillion, up from N4 trillion in 2015.

The Chairman of the Zenith Bank Plc, Chief Jim Ovia, said despite the challenging operating environment, the bank was able to fully exploit the available opportunities to post the impressive results.

He pointed out that in line with the bank’s commitment to delivering superior returns to its much-valued shareholders, the bank made certain that a good chunk of the profit is set aside for them.

“In this regard, we have declared and paid you an interim dividend of 25 kobo per share in the course of 2016 financial year. We hereby propose a final dividend of 177 kobo per share. This brings the total dividend for the year ended December 31, 2016 to 202 kobo per share as against 180 kobo per share paid he previous year,” he said.

Ovia also said, that even in the face of a very challenging operating environment, Zenith Bank has maintained its culture of outstanding performance and industry leadership.

As a bank, Ovia emphasized, Zenith is monitoring developments both in the local and global economy and applying pragmatism and dynamism as appropriate.

“Our strategy and approach to the pursuit of financial inclusion and sustainability gives us a lot of competitive advantage to explore even new frontiers in the market,” he said.

Equally speaking, the Group Managing Director and Chief Executive Officer of Zenith Bank, Mr. Peter Amangbo, said as an institution of well-primed people, the bank relied on a its pool of exceptional staff to make sound and timely decision and addressed issues in a manner that anticipated developments and demonstrated excellent understanding of the dynamics of the market and economy in 2016.

“We shall continue to demonstrate extraordinary commitment to our customer s while maintaining focus on all the areas fundamental to adding value to our partnership,” he said, even as he looks ahead with optimism, though noting that 2017 will come with its challenges and opportunities.

“… But I am confident that our determination, resolve and rare commitment to customer as well as our adaptive ability will ensure resounding results” Amangbo said.

Chuks Egbune/GEE

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