ICTs and National Development Trends and Opportunities Michael Ikpoki CEO, MTN Nigeria Sept. 2015

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1 ICTs and National Development Trends and Opportunities Michael Ikpoki CEO, MTN Nigeria Sept. 2015

2 Agenda Executive Summary Powering National Development Telecoms/ICT Infrastructure as Enabler. ICT Evolution Trends, Prospects and Opportunities Getting to the Future: Required Policy and Ecosystem Support Conclusions

3 Executive Summary The Nigerian Telecoms/ICT industry is at a watershed several factors are at play, changing the face of the industry, and affecting its prospects. The industry has recorded exponential growth over the last decade, and it remains a veritable platform for driving national development. However, the industry is yet to reach its full potentials. We are at the cusp of the Digital Revolution - there are still huge opportunities untapped particularly in the roll-out of broadband networks and digital services. But several factors are impeding the development of the Industry. High-impact interventions are therefore required to steady the ship and deliver national growth; some of these are discussed in this Presentation.

4 Telecoms/ICT as Enabler of National Development Telecoms & ICTs are a critical Social Overhead Capital Like Water, Roads and Power, robust provision of telecoms powers socio-economic growth across all sectors and social demographics. It enhances productivity; creates future opportunities; it also enables economic growth, social welfare and security. ICT Applications deployed for education, health, security & other social services egovernance, ehealth, etc. In Developing Economies: 10% increase in broadband service penetration = 1.38% increase in GDP per capita. 10% increase in internet penetration = 1.12% increase in GDP per capita. 10% increase in mobile phone penetration = 0.81% increase in GDP per capita. 1% reduction in tax on mobile broadband = 1.8% increase in penetration and 0.7% increase in GDP. Globally: ICTs enable innovation, decreases costs & improves overall efficiency. Growing ICT adoption requires more ICT investments; ICT Investments lead to job creation, self-employment, enhanced productivity. Huge multiplier effects on overall economic growth the higher the penetration, the

5 The Digital Revolution Trends, Prospects and Opportunities

6 Grand Convergence is the global trend, making our industry the engine-room for innovation & growth in all other sectors Insurance Banking Credit Computers Watch Internet Camera Mapping Mobile Telecom s Communications Advertising Print Broadcast Music Gaming Virtual Marketing Research Social Media Adapted from Tomi T Ahonen 2014 Our industry (operators and regulator) have been heavily impacted, as evidenced by a number of key features, challenging us to develop new capabilities and orientations.

7 The Nigerian Industry is challenged by Changing Market Dynamics which are eroding value. Issues Multi ple SIM >40% Overpenetration into the poverty zone MNP About. 66% of new devices sold in Nigeria are multi-sims e.g. Nokia, Samsung; LG, & Techno multi-sim smartphones. Operators are leveraging this development for growth Low-value customers below poverty line have the highest share of first-time SIM purchases in the Nigerian market: seek highly discounted entry devices & call rates. represent 90% of total monthly churn Increase the Costs of Market Development Over 65% awareness of MNP in key cities empowering to change networks not their numbers. MTN has championed the largest media campaign on awareness. Market Impact Empowers Customers Continuous investment in market penetration & access to the underserved Empowering Customers with greater choice & more market competition Mobile Terminatio n Rate Reduction 39% decline in Interconnect Revenue with consequent 4% decline in Total Revenue (average loss of 2.89b/month) in 2013 A further decline in MTR in 2015 by 12% implies decline in interconnect revenue by 12% if usage remains flat. MTR Reductions threaten investible revenues

8 Stagnating Value Penetration is a clear Threat to Future Capital Investment Economic and Financial Investment and Technology Competition and Regulation Consumer and Markets High inflation rate impacting consumer confidence Reduce capital expenditure Increased price competition Stagnating penetration levels at/near current levels Declining/flat Revenues/margins Constrained access to capital / reduced CAPEX 40.2% reduction in MTR Inability to monetize Value-Added Services (VAS) Investor s concern on general market sentiment OTT services cannibalization of voice /SMS Dominance declaration and risk of below-mtr prices Consumers cut-back spending/turn to lower cost alternatives Survivor Consolidation Model with Below-MTR Price Points is leading to value erosion across the Industry

As a result, there is a general decline in YoY industry revenues Statistics 1Q13 1Q14 1Q15 YoY change (% or p.p.) Service revenue ($m): Mobile 2,270 2,328 2,062-11.

1* 2G % of total base vs 3G/4G subs 91/9 86/14 81/19-10/10* Mobile revenue ($m) Voice 1,933 1,926 1,634-15.6 Data 337 403 428 6.

9 As a result, there is a general decline in YoY industry revenues Statistics 1Q13 1Q14 1Q15 YoY change (% or p.p.) Service revenue ($m): Mobile 2,270 2,328 2, Fixed n/a n/a n/a n/a ARPU ($): Mobile Fixed n/a n/a n/a n/a Prepaid/postpaid split 99.6/ / / /0.1* 2G % of total base vs 3G/4G subs 91/9 86/14 81/19-10/10* Mobile revenue ($m) Voice 1,933 1,926 1, Data Operator capex ($m) n/a n/a Source: Ovum; *percentage points 11% decline in dollar terms and 7% in Naira terms NBS: Telecoms contributed N1,344, million % to total economic output in Q recording a marginal decline from the 2014 average of 8.46%. Key Determinants: Greater choice for customer and more market competition increasing inflation leading to reduced consumer spend Drop in tariffs

10 Broadband is the next growth frontier but there is still much to be done LTE/4G Spectrum Licensing & the Digital Switchover Vision 20: Broadband Goal A society of connected communities with high speed internet & broadband access that facilitates faster socio economic advancement of the nation & its people Wireless broadband coverage to 80% of the population Fixed wired broadband coverage to 16% of the population Target Type Medium Current (2013) Short term Targets (2015) Medium Term Targets (2018) Long Term Targets (2020) National Availability/ Coverage Wireless 35% 60% 80% 95% National Penetration Wireless 6% 21% 42% 76% City Availability/ Coverage City Penetration / Usage Wired 1.5% 10% 16% 25% Wired 0.5% 3.3% 5.3% 8.3% Community Public Access Venues Wired or Wireless Hotspots 15% 25% 62% 100% Wireless Broadband Objectives Largely Unmet Due to lack of Spectrum & Investments. To meet 2018 targets, we should have 21% national penetration by 2015 but we are only at 10% according to NCC statistics

Indeed, there is still much to be done Nigeria now ranks 113 (out of 144) in the Networked Readiness Index prepared by the World Economic Forum, and INSEAD.

11 Indeed, there is still much to be done Nigeria now ranks 113 (out of 144) in the Networked Readiness Index prepared by the World Economic Forum, and INSEAD. The index measures key factors for digital readiness such as: the quality of the regulatory, business and innovation environments, the actual usage of ICTs, the societal and economic impacts of ICTs availability of Internet access adult literacy mobile phone subscriptions availability of venture capital patent applications gauge the social and economic impact of digitization (i.e. availability of e-government services, etc.) Nigeria ranks low on the Digital Readiness Index 2013 Rank Country Score 2014 Rank 1 Finland Singapore Sweden Netherlands Norway Switzerland United States Hong Kong SAR United Kingdom Zambia Pakistan Nigeria Suriname Senegal Guinea n/a Myanmar Burundi Chad

12 Getting to the Future: Required Policy and Ecosystem Support

13 STRENGTHS OPPORTUNITIES Industry SWOT: Required Policy and Ecosystem Support Conducive policy environment Huge investment appetite. ubiquitous national footprint to drive growth across all sectors banking, agriculture, entertainment, etc.. Deep resilience against massive ecosystem challenges. Huge multiplier effect i.e. funding government services (MTN alone has paid over N1trillion in taxes & charges). Major employer of labour (MTN s ecosystem alone employs over 500,000 Nigerians). Industry s direct GDP contribution on growth path. Large unserved population (but mostly at BoP). Growing Value-added and digital services ecosystem Service gaps in adjacent markets. Huge untapped appetite for new/broadband services. Well-developed local talent MTN as test case. Conducive policy framework for broadband penetration. WEAKNESSES Value-destruction through extreme price competition & price regulation. Poor internal governance and short-term focus of many players, Lack of differentiation. Perception of regulator penalizing growth. micro-regulation (i.e. Micromanagement). THREATS Short-term focus and value-destroying price competition of many players. Pressures on revenues/profitability economic slowdown affecting spending patterns, Systemic rot huge interconnect debts & PTO extinction over the last 6years are symptoms of potential industry failure. Inconclusive broadband spectrum licensing. The OTT Paradox

14 Required Policy and Ecosystem Support Lingering Dearth of Supporting Social Infrastructure up to 70% of outages in Nigeria related to power issues; MTN expended N34billion on diesel alone enough to build +5,000 additional BTS Spectrum Evolution Policy Required investments can only be encouraged with assurance of fair availability of LTE/4G spectrum to support evolution. Digital switchover needs to be expedited. Inter-agency co-ordination & harmonization To enable growth for adjacent sectors and services i.e. to deepen finance inclusion, facilitate inclusion in financial services. Harmonized tax regime Supportive Regulatory Framework Regulation should accommodate industry dynamism, and acknowledge that technology & services cannot be micro-managed Provide Investment Guarantees To encourage growth of FDI in telecoms and other sectors. Smart Incentivisation & Smart PPPs to address eco-system issues, protect telecoms infrastructure & deepen broadband penetration - recently concluded MoU with LASG - a positive template

15 The Digital Revolution: New Services; New Paradigms Our industry is critical to powering National economic/sociopolitical growth. The telecoms sector must be stable and set on a new path of growth. The challenges holding the industry back are NOT insurmountable; they require collective action and dedication of all stakeholders.

16 Thank You

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