ALTON: Funding Challenges Forced Early Telcos into Extinction

Emma Okonji

Ahead of the 20th anniversary celebration of Global System for Mobile Communications (GSM) operations in Nigeria, the Chairman of the Association of Licensed Telecoms Operators of Nigeria (ALTON), Gbenga Adebayo, has narrated the ordeals of the telecoms sector, despite’s its many achievements.

Adebayo who witnessed the rollout of GSM services in 2001 said telecoms operators passed through difficult challenges in the past 20 years, especially the lack of access to funding, which he said forced most of the early operators out of market.

Adebayo, in an interview with THISDAY, said: “While the telecoms industry still looks promising in terms of growth, the truth is that it is still a very fragile sector. It is fragile because there are many variables and dependencies that are not within the control of the players, like policy, regulation, access to funding and environmental factors. I am not sure that our risk factors are emerging technologies because we have adapted to changes in technology very rapidly as an industry.

The challenges that led to the extinction of some of the early players in the telecoms sector, are the listed variables that are not within our control, and the greatest of them is lack of access to funding.”

According to him, the early players like Multi-Links, Intercellular, Starcomms, VGC Communications, faced challenges of access to funds to run the capital intensive telecoms business, because the economy we find ourselves does not grant long term loans for investments.

“Since telecoms operation is capital intensive, the players need regular cash to stay afloat in business, but our financial sector in the early days, did not see the need for long term loans, a situation that forced most of the early players into extinction. What the banks were after at that time, was short term loans, and because of the capital intensive nature of the telecoms business, it became absolutely difficult for some of the players to take short term loans with lower interest rates, and alone, pushed many operators out of the market,” Adebayo said.

The technology driving telecoms operations, is fast changing and operators need to constantly update their facilities in line with emerging technologies in order to serve their customers better, and that was a challenge for telecoms operators who could not afford the money to purchase new equipment in line with the trend, a situation that forced most of them out of business, Adebayo said.

Adebayo further explained that policy implementation in protecting smaller operators, was another compelling factor, such that the Tier 1 operators that had the financial muscle, were doing everything possible to stop the growth of Tier 2 operators, who were smaller in size and in financial strength.

He said the lack of policy to protect smaller industry players, forced many Internet Service Providers (ISPs) out of market. “While the Tier 1 operators have the size and scale, the Tier 2 and Tier 3 operators do not have such scalability and it was easier for the Tier 1 operators to force them out of market, through sharp practices. So the telecoms industry was regulated in a way that there were no provision for smaller operators to survive stiff competition with the bigger operators who are the Tier1 operators that have the size and scalability,” Adebayo said.

Although he is of the view that the telecoms sector is fast growing, with ample of opportunities, he however said not all the operators were surviving in the sector, insisting that the challenge is not technology or lack of skills, but lack of access to funds, policy implementation and regulation. If policy implementation and regulation take cognizance of size of operators, then there will be room for the smaller players to survive. To address this issue, there should be some forms of regulations to control dormant operators, Adebayo advised.

Asked if the market could still accommodate more Tier 1 operators, Adebayo said the market may not be able to accommodate more industry players because the telecoms market is one market with a defined capacity and and scope of demand. He however said the only way the market could accommodate new players, would be when the new players decide to operate a new line of business that is completely different from what the existing players are operating.

“The truth is that our subscriber base has grown to over 200 million and the reason for this is that a single subscriber has multiple lines that summed up the over 200 million lines that we currently have in the telecoms sector. So the only way a new Tier 1 operator can survive, is to buy into the existing Tier 2 and Tier 3 operators, and merge them into one big Tier 1 operator,” Adebayo said.