Venn: Communication Tax Law will Reduce Revenue from VAT


Managing Director of Spectranet Limited, David Venn, comes to the table with a lot of experience, having worked in four different continents. In this interview with Olaseni Durojaiye, Venn identifies indices that favour Nigeria to become a great ICT country as he also shares his thoughts on the proposed telecommunication tax law, highlighting the implications

How has it been running Spectranet in Nigeria?

It’s been almost two years since I came in here and the business has come a long way, likewise the market. When I first got here not many people had broadband and certainly have not heard of Spectranet; but now a lot of people would love to have broadband and fast internet access because people use the internet for all sorts of things in this country.

Spectranet has also grown substantially since then. We have expanded the network into different cities across the country and we have taken on a much bigger customer base; we’ve also grown the network in terms of capacity. As a business it is also growing very well.

One expects that Spectranet would have expanded its coverage area beyond the four markets in which it currently cover…

We had plans to expand to another 10 cities in 2016 and probably form association with banks as well. But what we’ve had is that we can’t buy equipment from overseas or even open letters of credit with the banks, that’s the major issue. But we managed to get some equipment ordered towards the end of last year and that arrived towards last December and we used that to launch our Port Harcourt operations in January this year.

Again, what we’ve decided to do in the meantime is to reserve the equipment that we have for our existing markets and to keep building capacity and that is why every month we keep putting up more base stations to cope with the demands from more and more customers. We can’t afford to allow the demand become more than the capacity; so we decided that this year we should just focus on the existing markets apart from the Port Harcourt market that we launched.

The Central Bank of Nigeria recently mandated banks and FX dealers to sell 60 per cent of foreign exchange traded in the country to the manufacturing sector. How do you see the directive impacting your business?

Nigeria has enjoyed a huge amount of foreign investments over the past 10 years into the telecommunications industry; in dollar terms, it will be tens of billions of dollars, people who are bringing in money to invest.

However, if 60 per cent of available FX goes to the manufacturing sector, the remaining 40 per cent will go to other categories of which the telecommunications sector is one. Everything that we need is brought into the country from global suppliers. If we’re constrained by that directive, then we cannot roll out as much as we should; we will be limited.

The problem then is if the telecoms sector is denied of facilities to import equipment that is needed to provide the services, we cannot offer the services.

The capacity of the networks is linked to the amount of equipment that we could bring in. We offer services based on capital expenditure of the equipment that we need to offer the services.

A couple of established telecommunications firms are revving up to play big in that space. How geared up is Spectranet brand for competition?

There is always the risk of being the first; everyone else is going to follow. There is no doubt that Nigeria needs a lot more broadband operators. We came in first, we’re leading; at least we have the advantage of a head-start but we’ve always expected other companies to come in, and other companies have got their licences already even though they are not as big as we are and not growing as fast as we are, while many others will get 4G and broadband as well. But we like to think we used these past years to know how to provide fast broadband and internet services to Nigerian consumers and I think we’ve got it right, and we’re always learning; others may come in but they won’t have the same experience that we have. Running a mobile phone company is very different from running a broadband company.

Buffering is a major problem for internet users, how can downtime be minimised when using internet service?

You tend to measure the quality with video by watching the buffering wheel, if it is buffering that means it is slow. Ideally, you want to watch video without buffering, normally when you open a video, it buffers for a few seconds that it needs to catch up and play ahead. And what you want is you should never see that buffering signal again because it starts running faster so that you can watch it; that’s why you need a broadband connection.

Again, that is the difference between the normal 3G mobile phone connection and the modern 4G broadband connection.

So buffering happens because you need a lot of capacity to watch a video, the speed has to be consistent and coming ahead of the video so that you can watch without it returning the buffering sign.

Earlier this year, Netflix announced to the world that they are opening up service in about 100 new countries, including in Africa countries and that includes Nigeria. A lot of people here watch Netflix; that’s not a service that we offer but a lot of people use our service to connect to Netflix, they use our data because we can do high volume, speed and data quality.

What are your thoughts on the proposed communication bill?

My understanding is that it is a proposed tax on the consumers. It’s going to push up the cost on the consumer, based on usage. What I’ve seen in other countries that have done that is the operators will push the tax on their customers so users will pay more; so at the end of the day, customers pay more not the telephone companies.

I understand the whole purpose of it in Nigeria is to generate revenue for government but volumes will decrease because people here tend to work on fixed budget. So, if I’ve got N3000 per month to spend on phone calls, I’m still going to spend that amount, but with the tax, it means I’m going to make less calls. Eventually, what government will gain with introduction of the tax, it will lose on VAT because volume will decrease and there is an existing tax on telephone use.

Of course there are people in the country who don’t have fixed budget for telephone calls, they just make calls, but they are not in the majority. Majority of people tend to work with a budget.

What has the market reception been for your business?

You can win one award and you think you’ve done well; but when you win two, three awards in one year as the best broadband service provider in the country in the same year, it sends a message that what we’re providing is very good and people appreciate it.

We know that our customers are watching videos, in fact that is the way that the world is going, that’s the way Nigeria is going and we adapt our service offerings to what our customers want and ensure that we serve them well for video use and they have shown very good acceptance towards what we provide.

The federal government is keen on diversifying the economy of the country away from over-reliance on the oil sector. Does the ICT sector have the potential to get a look in, in terms of revenue generation for the country?

What I see in this market is that the country has a high level of education, much more than I have seen in a lot of other countries that I have worked in. You also have very hard working and entrepreneurial people that want to make money, and also English speaking; that fits very well with internet entrepreneurship. That’s not the case in many of the countries that I’ve worked in.

Most things on the internet are in English. For a country like Nigeria I think there is a lot of potential for ICT.

Fine, you need to bring in a lot of equipment not just computers; apart from that, there’s not much raw materials that is needed apart from brain power to create software and business. Nigeria is pretty well connected to the rest of the world now in terms of fibre optic cables. Within the country it’s not so good but the country has got about six underwater cables that is connecting it to the world and that’s a lot better than what you have in many other countries. In fact, better than some of the countries that have very stronger ICT industries.

So, we are very much aligned with the government policy to diversify the country’s economy. We believe that rolling out our broadband service will have a huge impact on society the same way rolling out mobile telephones did. 20 years ago, when we didn’t have mobile phones most parts of the country were cut off from the rest of the world and the rest of Nigeria; we see broadband having the same effect.

Some say the industry is underachieving. Why is this so?

There is a lot of opportunities but there is the need for encouragement. The country needs to encourage education that is targeted at the technical university type and then encourage entrepreneurs in that sector.

What would you attribute the success of the brand in this market to, considering that it’s not been in the market for a long time.

I think it boils down to the very good marketing communication plan that we adopted; of course you must deliver a very good service before you can have a brand.

Sometimes ago, we conducted a survey and part of that survey revealed that most people have not heard of Spectranet. Those that have heard of the name were already customers and they spoke very well about the brand, but most people haven’t heard about it. So, about 18 months ago, we decided to focus more on the marketing side and get our messages out there that we exist and that was what we did, and that had translated to benefits for us.

That has worked well for us. Many people now know us, they now know what we do and that we exist, which weren’t the case about 18 months ago.

Another thing that has worked for us is word of mouth. When people buy a service they give recommendations to their friends and family members, we’ve found out that that is part of the culture here and it has really worked for the Spectranet brand, people tell their friends and families about us, who we are, what we do and the quality service that we offer.

How feasible is it that the Nigerian market develops into a situation where subscribers cease to pay for SMS and Voice calls?

That is what obtains in a lot of developed markets. What will happen in Nigeria in a couple of years is that subscribers will be buying data bundles from telecoms companies; they’ll be buying in gigabytes as they prefer. They won’t be buying in terms of minutes.

Then, consumers will download apps, there are loads of them, Apple, Skype, Vonage, name it; the mobile companies won’t give it to you. So you make your calls through those apps. It is pretty much the same thing and when you make a call it is crystal clear and you won’t have to pay for it separately because what you’ll be using is your data.

The phone companies cannot stop the development; they can only try and slow it down, and hold it back but they can’t stop it.

A very good example is WhatsApp. It hasn’t been around for a long time it’s made huge impact. People are used to sending lots of text messages; then WhatsApp came along and within two years decimated SMS messages.

Text messages revenue of telephone companies all over the world reduced by 6o per cent in the second year of WhatsApp; that’s a huge amount of revenue because mobile telephone companies get a lot of money from SMS. WhatsApp is free, but it’s not really free because you pay for your data, but the data that is used is very minuscule; you can also make calls with WhatsApp as well.

Where does that evolution leave Spectranet as a company and your consumers?

If we’re a big telephone company that is making millions of dollars from consumers out phone calls we will be worried, because it is inevitable that the scenario I just painted is the route to go; but we are not, simply because we don’t sell phone calls, all we sell is data. We’re a data only company, that’s the only thing that we sell and it’s not really in the interest of the big telephone companies.

We actually encourage people to come on board and use voice which is great; you can use it to make calls to anywhere in the world; we can do so because we don’t have any legacy revenue to protect.

When will Spectranet be going to the capital market?

At the moment everything about that is on hold simply because of the economy; the FX position is a challenge. For you to list there needs to be a very good investment environment; at the moment there are a lot of uncertainties not for us but for potential investors.

Again, for you to list you have to bring in a lot of money so this is not a good time to do that. We don’t need it at the moment.

How does the Nigerian market compare with other markets that you have lived and worked in?

Description: I’ve worked in a lot of markets around the world. I’ve lived and worked in Asia – in Hong Kong, Indonesia. I have also lived and worked in Australia, America, Pakistan, Zambia, Gambia, Ghana; and the UK of course. These are different parts of the world with different cultures.

That said, I think this is one of the most dynamic markets that I’ve been in; people here are very entrepreneurial, and compared with other African countries that I’ve lived and worked in, the economy and the market here is huge despite the problems. Of course everywhere is different, with different cultures.