Over the years, and using its financial might and perceived technological advancement, South Africa has exported power houses across African countries but none more sizable than into Nigeria.
Nigeria being the largest economy and population on the continent has historically appeared a favoured destination for businesses.
Many of these economic power houses provided economic advancement and some have dominated their industries with positive experiences.
There are, however, also negatives that sometimes outweigh the positives. Due to their sizes, some of them have come to dominate the markets they operate in.
The issue of dominance becomes more pertinent during economic downturns especially as Nigerians get poorer by the day.
Nigeria’s GDP per capita for 2022 stands at $2,184, materially down from around $3,200 in 2014 and almost the same as it was in 2008.
South Africa’s GDP per capita is $6,770 in 2022, three times that of ordinary Nigerians by contrast albeit it is also struggling with its own issues.
Multichoice, SAB Miller, Stanbic are some of the large beneficiaries of the Nigerian open approach to market. But no company on the continent gets to benefit from Nigeria’s size and openness to foreign companies more than MTN as it has dominated the telecom sector for the past decade and keeps expanding its dominance.
Dominant companies are generally considered to be bad for consumers and the economy.
When markets are dominated by one or few players, there’s a danger that these players can abuse their power to eventually increase prices to customers or reduce quality to increase profits.
This kind of excessive market power can also lead to less innovation, losses in quality, stifling local entrepreneurship and higher inflation.
Dominant companies can also influence the direction of the market to favor their own profits above all.
For instance, a firm with deep pockets can set prices below costs and absorb losses until competitors can no longer survive. Then, once the competition is eliminated, the surviving firm can raise prices high enough to more than cover the losses it took while establishing its now-dominant market position.
The problems with dominant companies also go beyond the economic effects. Many large, economically powerful companies also have considerable political influence and the ability to “capture” the political and regulatory process.
This allows a powerful firm to tilt the legal and regulatory processes against any potential threat to its market power, and to bring about changes that further enhance the profits it earns.
MTN was founded in 1994 in South Africa as M-Cell. In 2001, MTN started operations in Nigeria as the country decided to privatize the telecom industry and issued four GSM licenses then. In 2001 when MTN entered Nigeria its total revenue was around Zar 8 billion.
By 2015, only Nigeria was contributing more than Zar 50 billion of MTN’s total revenue. This was the extent that the size and impact Nigeria has had on MTN. It has only increased.
MTN, Econet Wireless (later became Airtel), Glo and Nitel each got a GSM license in 2001 after each paying $285 million in government fees.
Today, MTN’s subscriber share of the market is around 50% or less, their revenue share, however, is estimated to be at least 65% of the telecom market profits and everyone else (Airtel, Glo, 9mob and all the smaller companies) share the remaining 35%. NCC designated MTN as a dominant operator since 2013.
In 2018, the Nigerian Senate, Central Bank of Nigeria and the Attorney General of the Federation each began an investigation into MTN’s potential illegal repatriation of close to $9 billion from Nigeria to South Africa between 2007 and 2017 in addition to tax irregularities amounting to more than two billion dollars.
One third of the size of the Nigerian budget for that year was repatriated out of the country by MTN it was declared over that period. What was contentious then, is that all three government agencies alleged that MTN conspired with banks to repatriate the funds illegally by not getting the appropriate documentation done for such massive amounts but ended up settling for a miserly $53 million dollar payment.
I don’t intend to tackle the legality (or lack of) of the repatriation, but we would like to highlight that MTN repatriated more than 10 billion dollars in hard currency from Nigeria when the initial license fee paid was $285 million.
Nigeria is adding close to five million people a year and getting poorer by the year as MTN is transferring hard currency back to its shareholders in South Africa at such a scale.
MTN, of course, has invested billions in infrastructure to create a successful business in Nigeria. But these billions, you can argue, were generated by the millions of Nigerian phone users and whole a portion got reinvested in equipment and infrastructure in Nigeria, the rest is shipped out as profit to MTN South Africa.
Because Nigeria doesn’t have fixed telephony infrastructure, Nigerians use their phone for every connectivity application. They use it to browse the internet, for social media, to collect information and exchange emails, to bank and exchange money, to download movies….etc.
The fact that the cellphone is so important in the life of ordinary Nigerians substantially compounds the dominance problem. MTN is effectively the largest phone company in Nigeria, the largest social media company, the largest banking services provider, the largest cable company, etc. just because of how Nigerians use their cellphones.
Why is the above harmful? One would say, we are Nigerians. We believe in open markets, and we encourage foreign investment and foreign presence among us. That is true, but the interests of dominant player’s sometimes (maybe most times), can diverge from national interests to the detriment of national goals. This happens for many reasons.
Firstly, the size of MTN means it can intentionally or unintentionally maneuver competition out of business to the detriment of the ordinary Nigerian phone user. Over the years, MTN has been allowed to swallow many of its smaller competitors directly or indirectly – The indigenous Visafone was bought by MTN in the year 2013.
The spectrum of the Indigenous Intercellular was bought by MTN in the year 2017 rendering them inoperational. In 2023, MTN took over Natcom’s spectrum.
They followed this with an announcement that they had bought OpenSkys Services Limited, a company that got the spectrum from NCC and commenced the discussions to sell to MTN before they had even paid for it.
Why would the then EVC, Danbatta-led NCC and Minister Pantami’s supervisory Ministry of Communications & Digital Economy (“MoC”), then allocate a valuable government and Nigerian resource at depressed values to a private company (Openskys) that turns around and sell it at massive profits, with the approval of NCC and MoC, to MTN almost instantaneously?!
This is an example of how dominant companies can thwart and somehow “capture” the regulatory process to the detriment of open markets, competition and ultimately the national interests and the interests of the ordinary Nigerian.
These activities have allowed MTN to accumulate massive amounts of spectrum; substantially more than Airtel and all the other operators combined. A few days ago, we read about MTN’s discussions to enter national roaming services with 9mobile.
This means that 9mobile’s valuable spectrum will be used by MTN on MTN’s network effectively placing 9mobile’s spectrum under the control of MTN.
This transaction, if approved by the regulators, will further enhance MTN’s dominant position and of course hold one of the three competing GSM operators by the throat.
The new leadership of NCC is strongly encouraged to deny the agreement as it is not in the country’s best interest.
The NCC’s EVC, Aminu Maida and the Hon. Minister, Communications, Innovation & Digital Economy, Bosun Tijani should know better than follow in the path of the previous administration who by all measures appear to have been swayed over for whatever reasons by the size and position of MTN to allow them further their dominance on account of indigenous and other competition.
When Etisalat came to Nigeria in 2007, it came with a lot of fanfare. The Emirati government-owned entity brought Mubadala, one of the largest sovereign wealth funds in the world, with it. After a few billion dollars of investment and a few years, Etisalat Nigeria became bankrupt and, unable to compete.
It therefore handed over the operation to its debtors for free. They couldn’t achieve a critical profitable mass that was enough to compete with the dominance of MTN.
Even Econet couldn’t hold its own and its ownership changed several times until eventually Airtel took hold of the operation and somehow stabilized but still at a fraction of MTN’s market share.
What is next? How long can the likes of Airtel and Glo hold their own before they are weakened enough for the pounce? Like what is happening with 9mobile today!!
Interestingly, none of the companies that MTN acquired, or their spectrum were healthy when MTN made its move.
They were weakened to very bad financial levels before the pounce upon them by MTN. These moves come with a double benefit for MTN. They lose a competitor, and also acquire frequency spectrum which makes them more efficient and allows them to even become more profitable so they can pounce on their next prey.
MTN has become a league of its own and everyone else is competing for the crumbs. Nitel is gone.
Swiftnet reduced to a state where it is almost unable to pay its cost. Glo and Airtel are holding their own for now but how long before a curve ball exposes them to the paws of MTN.
Secondly, they say absolute power corrupts absolutely. It breeds a sense of entitlement and complacency.
This encourages behavior that pushes the lines of morality and social equity. We’ll give a few illustrations on how this applies to dominant companies that potentially believe they are above the law and the citizens they are supposed to serve.
An analysis was done of MTN Nigeria’s public filings with the Nigerian Stock Exchange over the past few years and realized that MTN Nigeria has repatriated around one billion dollars to pay dividends to its South African shareholders during 2021 and 2022.
In 2020, MTN Nigeria repatriated almost zero hard currency from Nigeria. All this changed when Ralph Mupita and Karl Toriola took over the leadership positions of MTN in South Africa and Nigeria respectively. In the next two years, 2021 and 2022,
MTN Nigeria repatriated almost one billion dollars (using official Dollars provided by the Nigerian Central Bank) so that they can pay the profits to their shareholders as dividends.
How could this have happened at a time when the country was going through a forex availability crisis and basic manufacturing and other critical sectors of the economy couldn’t even import goods to sustain their existence and serve the market? petrol line shortages, the prices of basic food staples multiplied and Nigerian companies shutting down and laying off their employees.
The story of Emirates Airlines suspending flights to the country is still felt because the government couldn’t repatriate under $100m of their proceeds depriving Nigerians the possibility of travel to one of their favorite destinations, yet, MTN repatriated almost 1 billion Dollars.
During the past few years, Nigerian students who had been accepted at universities in the United Kingdom and other countries have had their enrolments canceled and had to return home because they were unable to pay their tuition fees on time due to a lingering foreign exchange (forex) crisis in the Nigerian banking system.
How was MTN able to convince the then Central Bank Governor, Godwin Emefiele, to allocate almost one billion dollars to them at the official rate to pay its shareholders in South Africa during Nigeria’s darkest economic hour when students abroad were coming back because local banks couldn’t honour their few thousands of dollars or pounds in credit card lines?
This is a clear example of how national interests can diverge from the interests of a dominant operator to the detriment of the country and its people.
In 2015, we all remember how MTN repeatedly ignored the governments calls to register all their SIM cards at a time when the country was battling a fanatic insurgency threatening to destabilize the fabric of the nation.
Boko Haram and ISWAP insurgents were at the height of their intensity killing and ravaging Nigerian villages and were using unregistered SIM cards from MTN to communicate and avoid identification.
Comfortable with its dominant position, MTN turned a blind eye to the government’s requests to deactivate unregistered SIM cards in order to seek profits so that it can continue to pay its dividends.
Only when the government rightfully applied the legal code and hit MTN with a $5.2 billion fine, did MTN realize that it needed to sit up and take notice.
Of course, over time and through “negotiations” with the people in government then, the fine was materially reduced and MTN eventually paid less than a quarter of that amount. Some even question whether all the money made it into the official government coffers.
Just recently, a tribunal in Nigeria ruled that MTN has contravened the country’s tax laws and ordered MTN to pay a whopping 72 million dollars in penalties.
Why MTN that makes billions in profits cheat the government of 72 million dollars is an attestation of the psyche that comes with dominance. We are big and powerful: we can get away with it so we will do it!
This is a call to our regulators, in particular the Nigerian Communications Commission and the relevant anti-trust agencies to plan and push for a more distributed telecom industry that encourages more competition to the benefit of our cellphone users.
We should start by rejecting MTN’s thinly veiled attempt to take over 9mobile and consider ways to help the competition to flourish and grow.
We should bring in anti-trust and competition experts that have seen the ills of dominance and help unlock more potential in the market.
Regulators should not shy away from considering serious measures that have proven to be effective in other jurisdictions including potentially breaking up MTN vertically or horizontally. In 1982, in the USA, American Telephone and Telegraph Company (AT&T), one of the largest and most powerful monopolies of the 19th and 20th centuries was broken up into multiple companies.
The shift gave rise to many local providers and enabled a long lasting, innovative and vibrant telecommunications market which has endured and expanded for years.
At a time when Nigeria is trying to re-invent itself and unlock the potential of the largest black nation on Earth with a population expected to surpass that of the USA in few decades, we shouldn’t be afraid of pushing the envelope in our quest to compensate for the lost last decade.
The telecom sector is one of the most vibrant sectors of any economy in the world, not only in our country. It is not driven by companies who may want to scare us about their importance.
It is driven by modern day users who will cut their food intake to keep paying their phone bills.
This is where the power lies: with the users who’s interests are supposed to be protected by the regulators.
And NCC and others should make sure the power comes back to our citizens. It’s one thing we can do with some will power and thoughtfulness! We should not be afraid to rise to the occasion.
*Olayinka Adigun, a Business Analyst writes from Alimosho, Lagos.
CANON