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Cablegate: Nigeria: Globacom: Six Months On

This record is a partial extract of the original cable. The full text of the original cable is not available.

261439Z Mar 04

UNCLAS SECTION 01 OF 02 LAGOS 000676

SIPDIS

STATE PLEASE PASS TO FCC, EX-IM, AND OPIC

E.O. 12958: N/A
TAGS: ECPS ECON EINV NI
SUBJECT: NIGERIA: GLOBACOM: SIX MONTHS ON


1. (U) Summary: Late February marked the six-month
anniversary of Globacom's introduction of global system
for mobile communications (GSM) services. The firm won
mobile, fixed, and international gateway licenses in
August 2002 (as Nigeria's second national operator) but
experienced lengthy delays rolling out its mobile
network. The firm is now expanding rapidly, and
company executives say Globacom is on track to become
Nigeria's leading mobile service provider. Outside
observers are skeptical. End summary.

2. (U) Globacom's highly anticipated August 29 rollout
attracted thousands of subscribers. Scores of people
signed up in the company's first four or five hours of
operation, and many of those who failed to acquire
lines in Abuja snatched them up in Lagos a month later.
Since then, the firm has expanded rapidly, signing up
600,000 subscribers in its first six months and adding
another 100,000 in March. Service is available in 49
major cities and hundreds of smaller towns and
villages, and company executives say they connect two
or three towns every week, far exceeding their target
of 36 major cities within a year of operation.
Globacom's microwave radio transmission backbone spans
thousands of kilometers in four of Nigeria's six geo-
political zones, and executives say they plan to expand
into the northwest and northeast later this year.
According to one executive, the network is growing
faster than any other in Africa.

3. (U) Globacom executives say the firm has spent an
estimated $1.2 billion to construct its mobile and
fixed networks and build an international gateway to
connect GSM users to the outside world. Fixed lines
run to a handful of corporate customers (mostly members
of the firm's ownership group), and company executives
expect to begin building the first phase of a 10,000-
kilometer (6,250-mile) fiber optic backbone in the next
few weeks. Once completed, the network will link
Lagos, Ibadan, Port Harcourt, and Abuja, and as many as
half a million customers will have access to fixed or
fixed wireless communications services.

4. (U) Globacom executives say the fiber optic backbone
will allow for cheaper, more frequent domestic and
international connections. The backbone will turn the
company into a "carriers' carrier" by allowing it to
transmit calls for other operators and simultaneously
allow it to distribute SAT-3 bandwidth to local
Internet service providers. Globacom executives hope
to do what Nigerian Telecommunications Limited (NITEL),
the country's national operator, has not: take
advantage of the high capacity underwater fiber optic
cable (the South Atlantic Telecommunications Cable No.
3/West African Submarine Cable/South Africa Far East
Cable, or SAT-3) linking Nigeria to the rest of the
world. As Nigeria's second national operator,
Globacom's access to the cable is guaranteed. The
company is not yet connected, but executives say
logistics and pricing negotiations with NITEL are
nearly complete.

5. (U) Globacom has cut prices, introduced flexible
payment plans, and offered regular promotions in an
aggressive attempt to attract subscribers. The
company's tariffs beat those of its competitors, and
customers say they appreciate the choice between pre-
and post-paid payment plans and per second or per
minute billing. Globacom was the first of Nigeria's
GSM providers to offer per second billing, and company
executives believe the innovation plays a key role in
attracting customers. They believe their promotions
are equally important, pointing out that potential
subscribers line up in droves to buy N6,000 ($45) pre-
paid Classic lines. The rate beats the N6,480 ($49)
offered by Globacom's major competitor, MTN Nigeria
Communications Limited, and Globacom executives expect
the trend to continue. The key to making money, they
say, is in the amount of time customers spend on air,
not in the amount of money they spend to subscribe.

6. (U) Globacom executives expect to undercut
competitors in more ways than one. They say Globacom
offers better service, and customer surveys support
that assertion. At only 7 percent, Globacom's
estimated call drop rate is significantly lower than
those of its competitors: 70 percent of calls on MTN's
network are dropped, and more than 40 percent of calls
on Econet's network are dropped. Globacom executives
hope to supplement the company's basic quality of
service with a variety of value-added, pay per use
features such as photo transmission and text to email
services, something the firm's 2.5G network can support
more easily than competitors' less sophisticated 2G
networks. Several features are already included in
Globacom's Magic Plus package. Company executives say
they want to focus on introducing high quality, high
technology services, something they see as a
particularly effective means of attracting and
retaining customers.

7. (U) Comment: Globacom executives expect to match
their competitors' transmission capacity relatively
quickly. The firm is expanding at an ever-increasing
pace, and executives say they are on track to install 4
million lines by the end of 2005. If they do so, they
will certainly make a name for themselves. The firm's
biggest competitors, MTN and Econet, have just over 2
million and 1 million subscribers, respectively, and
both have been plagued by over-subscription problems
and customer complaints. Their inability to match
Globacom's tariffs will likely lead to losses of market
share, and if they lose existing customers while
recruiting relatively fewer subscribers, they may well
give up their dominance of the Nigerian mobile services
sector.

8. (U) Comment continued: Not everyone believes that
Globacom will have quite the success its executives
expect. Its GSM network rollout was delayed for
months, and like other firms, it has had to spend more
than it expected to build its transmission backbone,
supply the infrastructure that NITEL does not provide,
and put generators and diesel storage tanks at
individual cell sites and switching centers. Industry
observers say the company has had trouble securing
financing, and many doubt that it will be able to
continue expanding at such a rapid pace. Insiders say
the firm is also troubled by a heavy-handed management
approach and a lack of direction. Chief Executive Mike
Adenuga has a reputation for micromanaging, stifling
ingenuity and innovation, and dismissing employees for
questioning company doctrine. Globacom employees have
expressed dissatisfaction with company management, and
outside observers publicly wonder if the firm will be
able to meet the requirements of its three licenses
quickly enough to satisfy the average consumer. Given
Globacom's internal weaknesses, meeting the Nigerian
public's expectations of improved services and lower
prices may be difficult. If it does succeed in meeting
those expectations, however belatedly, Nigerian
consumers and the broader Nigerian economy will reap
rewards. End comment.

HINSON-JONES

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