Currency risks, delayed counterpart fund, insecurity slow InfraCos takeoff
• Despite mere N2.5m licence, 20-year tenor
• Danbatta claims counterpart fund is to low economic viable areas, based on service delivery
• 90% broadband population coverage target by 2025 not realistic
• Lagos fibre duct project may affect MainOne’s execution in the state
• Challenges of InfraCos multifaceted – Teniola
The planned nationwide broadband deployment is being threatened by the slow takeoff of the licenced Infrastructure Companies (InfraCos), despite a longer tenor and cheaper licence costs.
The InfraCo licence costs N2.5 million for a 20-year period and is subject to renewals. However, there are other payments that follow such as administrative fees.
Until recently when some governors commenced a review of Right of Way (RoW) fees, the cheap licences were undermined by huge RoW fees.
The InfraCo project, which has dragged on for about six years now, has become a source of worry to the telecommunications industry. This is even as broadband penetration and speed continue to drop.
The penetration, currently at 39 per cent, and the snail-speed commitment on the part of licencees, have dimmed hope of Nigeria connecting 90 per cent of her population by 2025. This may further weaken the realisation of the Federal Government’s digital economy potential in the country.
The slow take-off has been attributed to many challenges. These include insecurity, foreign exchange (forex) turbulence, poor projected return on investments, especially in the less viable regions and the inability of licencees to access Nigerian Communications Commission (NCC)’s N64 billion counterpart funding (subsidy) for the project.
InfraCos are licenced by the NCC to provide Layer 1 (dark fibre) services on a commercial basis with a focus on the deployment of metropolitan fibre and transmission services, available at access points – Fibre-to-the-Node or neighbourhood (FTTN) – to seekers. They were licenced regionally for maximum impact.
With 114 access gaps in Nigeria, which showed that some 25 million people still lack access to basic telephony services, InfraCos are expected to plug this gap and wire underserved and unserved areas.
The InfraCo project started at the latter part of the administration of former Executive Vice Chairman (EVC) of NCC, the late Dr. Eugene Juwah, in 2015. But it was reviewed, expanded and given a fillip by the current EVC, Prof. Umar Danbatta.
Checks by The Guardian showed that while some licencees got theirs about three to six years ago, which had been subjected to several reviews, the seventh licence was awarded earlier in the year. Feelers from the industry suggest that some of the regions could have been divided into units, to necessitate more InfraCos, in addition to the current seven. Sadly, 80 per cent of the already licenced operators are yet to commence operations.
While defending the cost of obtaining the InfraCo licence and tenure, Danbatta said the N2.5 million placed on the licence was deliberate. He said the government is not looking to make money out of the licence.
“It is affordable so that interested entities within and outside Nigeria can come and obtain it, which is the most important thing. There are several other licences at the Commission that are very costly.
“The duration of the licence is 20 years because we took into consideration the life of the fibre. You can investigate the life span of a fibre cable. So, we need to allow licencees time to recoup their investment in laying the fibre. Everything about the InfraCo project was done scientifically and with due consideration of affordability.”
Despite the 20-year tenure, which analysts claim may impact the efficiency of service on the part of the operators, the NCC boss said there is a monitoring process. He explained that the InfraCo licence has clear conditions, one of which is that within a year, licencees must show evidence of deployment.
He said licencees are not supposed to hold the licence for two, five and 10 years without anything on ground.
“One year was what was given that there must be evidence of deployment. If there is nothing on ground, there would be enforcement of actions against such licencee, to examine reasons for non-compliance, after which regulatory actions may follow. Assessment would be a year after the order for deployment was granted based on the new review of the InfraCo model,” he added.
Danbatta had at a virtual conference a month ago disclosed that InfraCos have been licenced to deploy fibre on an open-access basis across six geo-political zones and Lagos. He said final approval to commence rollout was given in April 2021.
The licenced InfraCos are MainOne for Lagos, Zinox Technology Limited for Southeast and Brinks Integrated Solutions Limited for Northeast. Others are O’dua Infraco Resources Limited for Southwest, Fleek Networks Limited for Northwest, Raeana Consortium Limited for South-South and Broadbase Communications Limited for North Central.
Brinks Integrated Solution, which has licence for Northeast is expected to cover Adamawa, Bauchi, Borno, Gombe, Taraba and Yobe states. Fleeks Networks Limited with Northwest licence will provide services to states including Jigawa, Kaduna, Kano, Katsina, Kebbi, Sokoto and Zamfara.
Southeast, which is being handled by Zinox Technologies Limited, would cover Abia, Anambra, Ebonyi, Enugu and Imo states. Raeana Consortium Limited would focus on Akwa Ibom, Bayelsa, Cross River, Delta, Edo and River states, all in the South-South.
While MainOne would cover the entire Lagos, Broadbase Communications is expected to handle Benue, Abuja, Kogi, Kwara, Nassarawa, Niger and Plateau. But findings suggest a new mapping by NCC would require Broadbase Communication to focus on wiring Abuja only, which has been carved out as a special focal area as in the case with Lagos.
MainOne has already got a boost as California-based digital infrastructure firm, Equinix, yesterday acquired the nation’s leading data centre and connectivity solutions provider at a whopping $320 million.
Confirming the acquisition, MainOne said Equinix is now in pole position to help grow digital infrastructure investment across Africa, which has been the long term vision of the company.
According to the terms of the acquisition agreement, Mainone will melt into Equinix by March next year, if the parties satisfy all customary conditions including the regulatory approvals. The terms also stipulate that the management team, including CEO Funke Opeke, will continue to serve in their respective roles.
Apart from Lagos and Southwest that appear relatively peaceful, other regions have continued to battle one form of insecurity or the other. In some states, telecommunications services were shut down, to contain the activities of bandits. Though, the ban has been partially reviewed now.
Insecurity, especially kidnapping and vandalism, according to some of the licencees, is a major threat to the deployment of fibre infrastructure in some of the regions.
From January to July this year, telecoms operators recorded 16,000 outages owing to various acts of vandalism, including fibre cuts, battery thefts, and damage among others. The Minister of Communications and Digital Economy, Prof. Isa Pantami, confirmed this.
FURTHER, access to the yet-to-be-approved N64 billion subsidy to be granted as counterpart funding to operators is another underlying challenge weighing on deployment.
The N64 billion would provide 50 per cent counterpart funding to match the broadband infrastructure investment the InfraCos will make towards moving Nigeria from the current over 54,724 kilometres optic fibre infrastructure to 120,000km nationwide.
The Guardian also gathered that the volatility of the forex market, with naira currently hovering around N520 to a dollar, has weighed significantly on investments in equipment procurement.
It is also interesting to note that the current Lagos Unified Fibre Project, which is expected to gulp about N82 billion at completion, might hamper MainOne’s InfraCo project.
Confirming the non-readiness of the InfraCos to deploy due to teething challenges, a very close source to MainOne, who said nothing has happened on the project, told The Guardian that 60 per cent of the licencees relied on the counterpart funding coming from the Federal Government.
He said MainOne appeared to be the only licencee that wants to commit its money ahead of any counterpart funding, “but the situation in Lagos is dicey for MainOne. I doubt if MainOne will eventually be able to deploy. The Lagos Unified Fibre Duct project has put paid to the efforts of MainOne. MainOne started as far back as 2017, but nothing concrete on the ground for now.”
Against claims that the InfraCo licencees are not ready, a source close to Zinox claimed the firm has made some significant headway with its plans for the laying of fibre optics cable ahead of the rollout of high-speed broadband connectivity in the entire Southeast region.
The source said the recent efforts by some governors in the region, such as Imo State, Hope Uzodinma, and his Anambra counterpart, Willie Obiano, to reduce and cancel RoW charges, have equally gone a long way in boosting the rollout plans by Zinox.
However, the source confirmed that a few other challenges have presented a cog in the wheel of progress concerning the planned rollout and contributed to the delay encountered so far.
“Central to this is the ongoing challenge with accessing the counterpart funding for the project implementation, especially given the cost-intensive nature of the project. The foregoing has resulted in a measure of frustration for Zinox and other licenced InfraCos,” the source stated.
He, however, said Zinox is not deterred by the current situation, noting that there is optimism that the logjam would be resolved soon.
“Even Zinox has continued its ongoing liaison with other governors in the Southeast region as well as feasibility studies and engagement of critical resources in preparation for the substantial groundwork required for the project.”
Another licencee firm, which begged not to be mentioned for fear of sanction, said though they are working on implementation, “but you will recall that the Federal Government was supposed to give grants. Most people are waiting for that. Maybe they are working on it.
“The InfraCo project was supposed to take broadband (fibre cables) to all the 774 LGAs in the country. FG was to provide subsidies to go to those states. The CAPEX involved is very high. FG was supposed to add funding to our CAPEX but they are yet to do that. No clear-cut position for now, which is the reason the InfraCo project is stalled somehow.”
According to him, the current state of insecurity in the country, the economy and naira to dollar fluctuations are sets of new challenges slowing take-off.
“This is the reality. The way the InfraCo network is structured is that you have to run a network on a ring architecture, which means you don’t just go to one place and run a single cable there, you have to run it across all the local government areas in a given state and put them in a rig, with one leading to another and another to another and you put equipment around all of them so that in case there is a failure, then there will be automatic rerouting. That is the way it is set up. You will do that and you run the cable on two different paths.
“So, take a state where there is insurgency, in the past, it used to be Northeast, now Northwest and North Central have become a very difficult terrain to operate in. Remember you will go to every LGAs, run cables on highways and there are now some highways people are afraid of driving on, so obviously the level of insecurity will affect the speed of deployment and universal coverage to every LGAs.
“Secondly, the materials required for this stuff are imported. The cables, network equipment, switches, routers among others, and you know what is happening to forex, it means if you had N1 million today, it will differ from what it can buy the next day, and you are getting these things from overseas. So, obviously, these would affect deployment.”
The Guardian also gathered that Odu’a Investment would be implementing the project through a technical partner, which has competence in fibre optic business.
Odu’a, which has 20 per cent stake in the project, as an investment company, will provide some funding, and work with the technical partner that is based in Lagos on the job. It hopes to begin implementation soonest, but also banks on the grant from NCC to expedite action.
Reacting to the matter, Danbatta, in a telephone conversation with The Guardian, said there was a review of the InfraCo Licensing Framework, after which it was resolved and information was conveyed to all the six licencees, including the new one for the North Central zone.
“A letter on the directive of the board of NCC was sent to all the InfraCos that they should mobilise to site and deploy broadband infrastructure consistent with the regulatory framework, but in the opinion of the board, the subsidy will only be paid in areas that lack economic viability based on evidence on the ground. NCC will not pay subsidies for all areas.
“The essence of the InfraCo project is to deploy broadband infrastructure in unserved and underserved parts, and across the 774 LGAs in the country. The subsidy is to serve as an incentive for the deployment of infrastructure in those two areas. So, there is no exclusivity on the counterpart funding (subsidy). It will be wrong on the part of licencees to say they are waiting for the subsidy to be paid to them.
“So far, I have not received any request from any InfraCo licencee to the effect that they have deployed in their chosen regions, so that we can embark on an assessment exercise to establish the milestone that has been attained and if it is an area that subsidy needs to be paid, we will work out the length of the fibre infrastructure deployed and we will come up with the amount of counterpart funding to be paid.
“It is not right for the InfraCos to say they are waiting for the NCC to give them funding when they have not even started anything. So, that is the position.”
The EVC further noted that the InfraCo licence also has a validity period, stressing that if at the end of that period, “we conduct the level assessment and discover that no important milestone has been attained, then we change them because it has been expressly stated that you cannot hold the licence for long and not do anything with it.”
On the readiness of the N64 billion counterpart funding, the EVC said NCC has written to the government and made a very convincing case and “we have been directed by FG to make a memo to FEC. We are almost there. We are not envisaging any problem again.”
Contributing, the National Coordinator, Alliance for Affordable Internet (A4AI), Olusola Teniola, said the InfraCo project is still active with a few licencees finalising their plans to begin rolling out their fiber by the end of this year into Q1 of 2022.
Teniola said the COVID-19 pandemic impacted InfraCos that had planned to roll out last year both operationally due to global supply chain challenges and financially due to the impacts to the global economy and revised country risks concerning capital-intensive projects.
“At the moment, their challenges are multifaceted; commonly they all struggle with the currency risks that have occurred during the last 18 months. Secondly, some are still negotiating RoW charges and thirdly, ongoing review of the project based on expectations are still to be concluded with NCC.
“The issue of security challenges across the country is very real and something that each infraCo has had to factor in their revised plans. FG is working to ensure telecoms and especially optic fiber is fully protected under Critical National Infrastructure.”