A cursory look at Nigeria‘s Telecoms Industry’s Monopolistic competition

For more than 50 years, up until the early 2000s, the Nigerian Telecommunications Company (NITEL) was a government-sanctioned monopoly which provided local and long-distance telephone services. Despite the huge potentials that existed in the Nigerian economy for telephony services, it was yet unprofitable. Until the liberalization of the industry, as at October 2000, NITEL had approximately 700,000 telephone lines, of which only approximately 400,000 lines were connected. Its monopoly ownership had potentially meant lucrative captive business of all telecom equipment and leasing of lines in whichever manner it wanted.

In 2001 the sector was liberalized and that ushered in the first Global System for Mobile Communication (GSM) operator and the subsequent award of the first Digital Mobile License (DML). Massive progress had been witnessed since then. The Nigeria Communications Commission (NCC) reports that there were over 140million active subscribers riding on the GSM technology in Nigeria, at the end of 2015. Each of these consumers subscribes for voice or data services and had contributed to the over N1.9 trillion revenues jointly reported by the GSM operators in this industry.

With less than 6 major operators serving the mass of the Nigerian people and corporate organizations with broadly similar but only slightly differentiated services, the Nigerian telecoms industry is no doubt a monopolistic competition. As the consumer becomes more sophisticated and the operators master the game of cost minimization, both the monopoly power and competitiveness of the industry is stepped up. Because consumer sophistication requires increasing levels of uniqueness and detail in meeting their demands, operators are delving into retailing (via the sale of content), financial services (via borrowing of airtime) among other services. They are also divesting ownership of network infrastructure to minimize cost and focus on the “core” business.

However, the monopoly powers of each operator is firmed up with the high entry barriers in the industry occasioned by the huge capital outlay and the licensing costs required to enter the industry. This is such that even when incumbent operators earn any profits above their operating cost, they remain unchallenged in the market. As each operator competes for a percentage of total demand, the absence of any new entrants means that profits may remain unchanged, where it exists already. Each operator’s ability to maintain monopoly powers will then largely rest in the extent of product differentiation and cost minimization. The very low level of mastery of operators in these two areas have ensured that price competition has not really produced sustained profitability in the Nigerian telecoms sector.

Secondly, the competitiveness of the industry has not been `mature`. This stems partly from the near absence of any clear service differentiation across operators and the absence of clear brand loyalty. Much of the service offerings of operators have remained largely substitutable. There are only service type pioneers who may with time even loose their lead in terms of share of subscribers. All operators currently collaborating with different industries, to reach out to potential customers with services like mobile money, insurance services as well as marketing music and video. Similarly, the absence of restrictions on the range of operators consumers can subscribe to, and the low cost of switching across operators has produced low levels of brand loyalty among customers. The result of this has been a less than efficient price competition amongst operators in the face of mostly unsatisfactory services. Some operators are relying on this inefficient price competition to help make up for their lack of efficiency in service delivery. A similar strategy is also behind advertisements undertaken by operators. 

Suffice it to say that the above-enumerated scenario will continue for the quite some time until operators start to become proper purpose brands to their subscribers. Becoming purpose brands will enable operators to create enormous opportunities for differentiation, premium pricing, and growth into existing non-consumption consumer-base in the country. A clear purpose brand guides on product design, marketing, and advertisement as product offerings are developed and improved. 

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