Nigerian ISPs sinking under the weight of competition with MNOs

Internet Service Providers (ISPs) in Nigeria are facing increasing challenges as they continue to lose customers in a fiercely competitive market, where they are up against mobile giants like MTN, Globacom, Airtel, and 9mobile.

While players in this segment of Nigeria’s telecom industry have consistently expressed concerns about the intense competition they face from the mobile operators, who dominate the market, the situation has taken a turn for the worse with ISPs experiencing a continuous decline in their customer base.

Industry analysts suggest that this recent development may be closely linked to the rollout of 5G technology by MTN and Airtel.

This has led some enterprise customers of ISPs to switch to 5G routers, abandoning their previous service providers.

While the mobile operators could also be regarded as ISPs because they provide internet service alongside voice and other services permitted by their Universal Access Service Licence (UASL), the core ISPs are licensed to provide only internet service and are mostly indigenous companies.

Declining customers

The latest ISP data released by the Nigerian Communications Commission (NCC) revealed that the core ISPs have been recording a steady decline in customers since last year.

According to the data, as of June this year, 126 ISPs whose data were submitted had a total of 193,199 active customers.

This was a 9% decline in active customers when compared with the 210,597 they recorded in the same period last year.

This also means that a total of 17,398 customers, mostly enterprises, have dumped their ISPs in the last year.

The ISPs’ situation is a stark contrast with the MNOs’ steady growth when it comes to internet customers.

As of June this year, the four mobile operators recorded a total of 158.9 million active Internet connections.

Amid the decline in ISP customers, the MNOs added 8.2 million new internet subscriptions in the last year, representing 5% growth against 150.7 million subscriptions they had in June 2022

Among the four, the operator with the least number of Internet customers, 9mobile had 3.9 million active Internet subscriptions at the end of June.

This single MNO had multiples of what 126 ISPs had in total as customers.

Spectranet, which controlled the largest number of customers among the 126 ISPs, had 103,815 active customers and accounted for 54% of the total ISP customers.

Affected by low pricing

While all the telecom operators in Nigeria have been clamouring for an upward review of the current price regime to reflect the rising cost of doing business in Nigeria, the ISPs have been the worst hit as their customers move to the mobile service providers whose prices are still cheaper.

The Executive Vice Chairman of the NCC, Prof. Umar Danbatta admitted this during a meeting with CEOs of all telecom companies in Lagos last week, noting that the medium and small businesses in the industry, have been bearing the brunt of the high cost of doing business and the regulated low price regime in the telecom sector.

“When we met with the Honourable Minister of Communications, Innovation, and Digital Economy recently, he acknowledged that indeed, there is concern about the rising cost of doing business. This is an issue the Honourable Minister is prepared to address in the not-too-distant future,” he said.

While noting that the talks of reviewing prices to reflect the rising cost of doing business is still ongoing with the Minister, Danbatta said:

“When you pronounce a price that is very regulated for your product, it should come with a margin of profit in order for you to recoup your investments and be able to repatriate your profit, if your company is not an indigenous company.

“We observed that recently, services are being sold below the cost of production and as such for the first time, telcos recorded losses, especially the middle ones. The smaller ones are being squeezed and their growth is being stifled by the big ones.”

ISPs and broadband penetration

While emphasizing the role of the ISPs in the country’s quest for ubiquitous broadband, the Chief Executive Officer of VDT Communications Limited, Mr. David Omoniyi had recently appealed to the government to come to the aid of the business.

According to him, the ISPs who could be classified as Small and Medium Enterprises (SMEs) in the telecoms market are dying by the day.

“Indigenous ISPs are disappearing, more than 200 have been licensed so far by the Nigerian Communications Commission (NCC), but only a few of them are still operating. They are largely SMEs and need support to survive,” he said.

Omoniyi added that the implementation of the National Broadband Plan 2020-2025 requires the input of every stakeholder to succeed, hence the ISPs, which play significant roles in taking the services to the last mile must be supported.

“We need to carry everybody along and one way is to keep the ISPs alive. We need the majority of them around to keep employing people and to take the service closer to the people. There is a need for targeted intervention for them to survive,” he added.

The tasks before the regulator

According to Omoniyi, the telecom industry regulator would need to understand the mitigating factors to address the problems of the ISPs.

“What is obstructing the growth of these ISPs? Is it funding? The operating environment? Is it regulation itself? If it is regulation, that is within the ambit of the regulator.

“The regulation probably favours the bigger ones. What I mean is that the regulation should be targeted at promoting the ISPs, the smaller ones. Can we have the smaller ISPs have at least 5% of the market share to heighten competition, for instance?

“Can we have a plan as we have the national broadband plans? There has to be a strategy. How do we get there? What do we do? If the smaller ISPs are uncovered, the bigger players can price them out of the market.”

“The smaller players play in the same market. They sell to the same subscribers. Otherwise, the tendency is for the bigger players to be monopolies. When you are a big fish, you would want to be the only fish in the pond. Of course, when you are the only fish in the pond you would become a target for another bigger predator.

“The regulator needs to play the role of an umpire and frown at any anti-competitive practice from the bigger players,” he said.

Meanwhile, the NCC in a recent study by the Emerging Technologies Research Unit of its Research and Development Department acknowledged that the licence renewal rate of ISPs in Nigeria continues to drop, even as new firms take up the licence.

The researchers, therefore, called for a regulated increase in the prices of data to save the ISPs from dying.

According to the study, there is currently a regime of “artificially low data prices” in the market due to stiff competition among the operators.

“To solve the issue of artificially low internet/data prices, a regulated minimum price level has to be put in place by the Government and the Commission, for both big and small telecom operators to compete on the quality of the network and customer services they provide,” the study recommended.