Nigeria's Reversal of Fortune

Etisalat Woes Could Take Mobile Market Back to 2001


The current travails of Etisalat Nigeria raise the very realistic prospect of the Nigerian mobile market reverting to three large national operators. This is the same number as when mobile services were launched in the country in 2001 and compares with a peak of nine operators in 2005. What a roller coaster.

Nigeria is Africa's biggest economy. With over 183 million people on the continent's west coast and a GDP of over $400 billion, the country has always been attractive for international investors looking to provide services there.

In 2001, three operators introduced the first mobile services: MTN, Econet Wireless Nigeria (now Airtel) and the state-owned Mtel. Today, MTN is the dominant operator in terms of connections with 62 million, followed by Glo with 38 million, Airtel with 34 million and Etisalat with 23 million.

Nigeria has been the crown jewel of MTN's portfolio in Africa, despite the government imposing a large regulatory fine on the operator in 2016. At one point, it accounted for more than half of group earnings before interest, tax, depreciation and amortisation (EBITDA). Number-two operator Glo, owned by the entrepreneur Mike Adenuga, has remained privately owned and profitable. Airtel has been through two changes of ownership and has had to award compensation to the original shareholder Econet over a long-standing shareholder dispute.

Fourth operator Etisalat launched in 2008 using the Etisalat brand, despite the operator from the United Arab Emirates (UAE) owning a minority stake in the business. In addition to the big three operators, Etisalat was competing with four licensed CDMA operators and state-owned Mtel.

Over time, the market has consolidated through acquisitions or business closures. South Africa's Telkom made a big splash in 2009 when it acquired CDMA operator Multi-Links, only to retreat within three years and exit the country.

Etisalat's case is intriguing, because it's a classic fourth operator, rocking up and down on the EBITDA "see-saw". In most markets around the world, the three leading operators are EBITDA-positive, the fourth operator may or may not be and the fifth and smaller providers rarely are.

Etisalat has been struggling to service over $1.2 billion in bank loans. Following a non-payment earlier in 2017, there have been reports about protracted negotiations between the banks and shareholders. The chairman, chief financial officer and CEO have all resigned, UAE shareholders have pulled out and a consortium of banks has reportedly assumed operational control and is seeking investors in the business.

Orange and Vodafone have been mooted as candidates. It's hard to envisage either operator entering Nigeria to compete against three such large incumbent rivals. Orange has been disappointed with its investments in Uganda and Kenya, which have similar market structures, as has Vodafone in Ghana. Nigeria looks even more daunting.

In the event that no new investment arrives, the consortium has two main choices. Firstly, it could bring in a new management team and convert part or all of the current debt to equity and try to generate enough value to ensure the banks are repaid. Secondly, it could decide to close down the business and sell off all the assets separately, including 23 million connections, to cover as much of the outstanding debt as possible. One of the problems with this option is that the towers, which have a good deal of value, are already pledged to tower operator IHS. The consortium has a busy second half of 2017.

In the worst-case scenario, Etisalat disappears from Nigeria, leaving three large national operators once again. If this happens, we expect consolidation to be spectacular — a similar fate to that of the Indian market (see India: Halcyon Days Ahead in a Four-Operator Market). Those operators that remain should stay comfortably profitable. Those that exit will feel a little bruised, to say the least.

CCS Insight plans to produce a more comprehensive report on the mobile industry in Nigeria later in 2017.

This entry was posted on July 14th, 2017 and is filed under Services. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Posted By Tony Worthington On July 14th, 2017


Comments
(There are no comments yet)
Leave a Comment

Hot News

Team Tweets

CCS Insight
What will @Google's $1.1 billion deal with @htc mean for its #Pixel smartphone business? Read our analysis here: https://t.co/8Q8EGzfVAn
Follow CCS Insight
Shaun Collins
RT @benwood: Another example of Apple disrupting a mkt. UK wireless earphone sales up 343% YoY acording to retailer Argos. Gd for othr head…
Follow Shaun
Ben Wood
@thedavedev Sadly limited choice in UK with Show and Look still not shipping here :(
Follow Ben
Martin Garner
@orange announces 1st Live Booster IoT modules, bundled with pre-enough paid data for the module's life. Innovative… https://t.co/WcL0e6FFPJ
Follow Martin
Marina Koytcheva
RT @CCSInsight: Our new #wearables forecast predicts 60 million smartwatches and 44 million fitness trackers will be sold in 2018: https://…
Follow Marina
Nicholas McQuire
RT @benwood: iPhone thinks I’m driving when on train. A perfect artificial intelligence use case. Should use location data to know I’m on r…
Follow Nicholas
Paolo Pescatore
Significant for a telco who sees itself as an aggregator. Content is a key battleground for all providers, telcos &… https://t.co/Qlzsw6nBmv
Follow Paolo
Kester Mann
RT @benwood: Can tell it is iPhone day in the UK. Papers stuffed with adverts from all channels. @EE @O2 @VodafoneUK @ThreeUK @CPWTweets @S
Follow Kester
George Jijiashvili
RT @benwood: Another example of Apple disrupting a mkt. UK wireless earphone sales up 343% YoY acording to retailer Argos. Gd for othr head…
Follow George
Katie Taylor
RT @TheBMA: Two junior doctors were left looking after more than 400 patients during very unsafe shift at stretched hospital https://t.co/q…
Follow Katie
Tony Worthington
@benwood But the palm charger didn't look THIS good!
Follow Tony

Recent Blog Posts

Blog Post
Particle Accelerator Wireless Technology Has Become a Piece of Ikea's Strategy A... Read more
Blog Post
Google Announces $1.1 Billion Deal with HTC Investment Aims to Bolster Google's Smartphone Business Yes... Read more
Blog Post
Electric Cars Set the Tone in Frankfurt At the World's Largest Car Show, Electric Vehicles Make Big ... Read more
More blog

Latest Company News

Blog Post
One Third of Employees See Artificial Intelligence as Job Creator Survey reveals more than half of employees expect artificial... Read more
More news