With a teledensity of 64.70 per cent and a total connected lines (GSM and CDMA) of 115,140,681 (and still counting), network congestion has continually been the bane of poor quality of service (QoS) levels in mobile telecommunications services in Nigeria, Africa’s largest telecommunications market. This article seeks to propose an innovative way of applying the Infrastructure Fund created by the Nigerian Sovereign Wealth Authority Act to fund projects expanding mobile network capacity by building additional base stations. This investment decision would not only be consistent with the statutory objective of assisting the development of critical infrastructure in Nigeria that will attract and support foreign investment, economic diversification and growth, but would have the resultant effect of improving the QoS levels currently experienced in mobile telecommunications service in Nigeria.
On the 10th of May, 2011, the Senate passed the Nigerian Sovereign Wealth Investment Authority Bill into Law, this was subsequently followed by passage of the same Bill by the House of Representatives on the 19th of May, 2011. The Bill now an Act establishes the Nigerian Investment Authority which is statutorily charged inter alia with the mandate to enhance the development of Nigerian Infrastructure by establishing the Nigerian Infrastructure Fund. The Nigerian Infrastructure Fund is part of the Nigerian Sovereign Wealth Investment Fund and is primarily set up to support through investment predicated financial returns the development of basic, essential and efficient critical infrastructure in Nigeria (such as mobile telecommunications networks) in order to stimulate the growth and diversification of the Nigerian economy and create jobs for Nigerians.
This article proposes that part of the Infrastructure Fund should be applied to funding projects expanding mobile networks by building additional base stations only in geographic areas where QoS parameters such as network coverage, service accessibility and service retainability are perceived by mobile telecommunications users to be low. The proposed structure would involve the grant of long term (say 25 years) soft loan to cover at least 70 per cent of the cost building these base stations to the project company or the Special Purpose Vehicle (SPV) set up by Mobile Telecommunications Service Providers in Nigeria. This SPV would be specifically incorporated to build-own-operate (BOO) the additional base stations throughout its lifecycle. In line with this arrangement, the project company would also be required to enter into a long term Infrastructure Service Agreement with the existing mobile telecommunications service providers (both GSM & CDMA service providers). This contractual arrangement is similar to an Offtake contract or Power Purchase Agreement (used for a project producing electricity) which assures; on one hand, the GSM & CDMA service providers (the purchasers) that these mobile networks will always be available and on the other hand, that the SPV will have a ready market to lease out the base stations on a long term basis at a preagreed price.
As this is a type of public sector funding, arguments against this approach would contend that it lacks the discipline inherent in private sector financing. Typical due diligence undertaken where a private sector lender is involved usually entails the careful evaluation of all the risks involved in the project and their proper allocation to parties other than the SPV. This practice is derived from the principle that risks should be allocated to the party best able to manage it; however the argument supporting this investment approach contends that the Infrastructure Fund would provide a form of low-cost public sector finance for mobile network expansion that retains the benefit of private sector management and control (since the SPV is constituted by both the GSM and CDMA service providers), this is beside the fact that long term investment like this would also improve upon the return for the Sovereign Wealth Investment Authority (as the major investor), taking advantage of the fact that debt is actually cheaper than equity. The major point argued is that why not have the project benefit from the best of both worlds by having the public sector provide the project with debt, in partnership with equity stakes to be held by the private sector investors in the SPV.
Improving the QoS of mobile telecommunications services by investing in the construction of additional base stations is likely to have an effect on deciding potential locations of foreign direct investments as the nature of an economy’s overall infrastructure plays a key role in its ability to respond to changes in demand and prices or to take advantage of other resources. In terms of economic growth, additional investment in telecommunications infrastructure would see an improvement of the GNP and the production of higher value added services and products driven by the secondary or tertiary telecommunications industries. As the economy grows and telecommunications services improves, there is likely to be a correlating increase in investments by foreign companies (such as Alcatel-Lucent, Nokia, Siemens, Ericcson) dealing in modern communications technologies.
No doubt it goes without saying that telecommunications services drive the development of new businesses, as evidenced by the enormous growth throughout the world in recent years of cellular and internet-based business models. In return, the growth of these business activities would drive demand for telecommunications services, thus forming a virtuous circle. Increasingly as businesses, especially private businesses develop in Nigeria, the need to address and develop the market for advanced telecommunications services will also arise. One consequence is a strong support to the development and transition of the economy as a whole which is given impetus by the rationale for investing with the Nigerian Sovereign Wealth Fund.
