| Mobile Money and Telcos |    2631 VIEWS  |
| Mobile Money and Telcos | |
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Wednesday, February 12, 2020
03:43 PM / by Cordros Research/ Header Image Credit: Intercom Enterprises
Diving into Nigeria's New SIM Card Policy
Event:
According to press reports last week, the Federal Government of Nigeria (FGN),
via the Minister of Communications and Digital Economy, issued a directive to
the regulator of the telecommunications sector, the Nigerian Communications
Commission (NCC), to revise the policy on SIM card registration and usage. The
Minister stated that the policy update was based on the need to combat the
spate of insecurity in Nigeria. In our view, this will have a neutral effect on
telecoms companies (telcos) earnings in the near-term. However, there are risks
to the long-term earnings potential of the telcos.
The regulation has the following stipulations:
1. The National Identity Number (NIN) will be a
compulsory requirement for new SIM card registration in Nigeria.
2. All existing registered SIM cards are to be updated
with the NIN before December 1, 2020.
3. There will be a maximum number of SIM cards that
can be tied to a single individual, possibly a maximum of three (3).
4. Passport and Visa numbers are requirements for
foreigners to register SIM cards in Nigeria.
SIM Registration: Back
to Square One
We note that the first stipulation is not new, with
NCC stating this as far back as October 2019. However, enforcement has been
weak, with customers still given the option of using any of the range of
"National IDs" to register.
The second stipulation, however, is where our concern
lies. Although the NIMC Act was passed in 2007, the National Identity
Management Commission (NIMC), the body in charge of issuing NINs and
maintaining the database, was not established until 2010. Worse-still, the
commencement date for the enforcement of the NIN was on 1 January 2019, 6 years
after the initial SIM registration process ended. This implies majority of all
registered SIMs in the country do not have NINs attached. Mandating that all
SIMs are updated with the NIN effectively re-starts the entire SIM registration
process from square one, especially if done in the same manner as the initial
phase.
We note that the initial phase of SIM registration in
Nigeria began in 2011, with telcos given just six months to complete the
process. However, capacity constraints and technical infrastructure issues led
to the processing taking 27 months. Various phases of re-registrations have occurred
since then, mostly limited to subscribers of particular telcos.
The plan for the implementation of the
"re-registration" has not been confirmed by the regulator. Thus, it is not
clear if customers will be able to update their details online or if they will
have to do so physically at designated registration points. Additionally, the
process faces another stumbling block given the existing challenges surrounding
the NIN registration process. According to the NIMC, only 39.30 million
Nigerians had registered for their NINs as at October 2019 - c.20% of the
Nigerian population and 21.3% of active GSM subscribers as at December 2019. In
our view, the December 1, 2020 deadline given by the Minister is ambitious.
Much Ado About SIM Cards
One SIM is not good enough for
Nigerians
Nigeria is the largest dual SIM market in the world
(see Fig 1) with at least two-thirds of active lines among two or more numbers
shared by a single user, according to Open Signal.
Two key reasons explain this - (1) Quality of service,
and (2) price competition. Nigerian telcos have historically struggled to
maintain quality service, and in order for subscribers to keep themselves
connected and minimize downtime, they subscribed to multiple network providers.
Also, price competition has been historically intense as various telcos offer
myriads of deals and promotions of which subscribers wished to take advantage.
As a result of the proliferation of SIM cards, the percentage of active lines
as a percentage of total connected lines has fallen from 82.5% in 2011 to 68.7%
in 2019.
The NCC highly regulates promotions and introduced a
price floor in the market in order to drive telcos focus away from luring
customers at the expense of improving quality of service. The NCC reviews the
industry's Quality of Service (QoS) KPIs, which cover service and network
targets, with a typical fine per contravention of NGN15.00 million. Across
networks only AIRTELAFRI's QoS indicators met the regulators' target ranges in
all the periods tabled below (see Fig 3). MTNN, however, saw the most
improvement across all KPIs in the period, ranking top across all QoS measures
in October 2019, according to the NCC.
SIM Card Ownership Limits
SIM
card ownership limits are commonplace across the world, especially in
developing countries (Fig 4), as various governments attribute high crime rates
and even terrorist activity to the proliferation of multiple unregistered SIM
cards. With a 3 SIM limit, Nigeria is line with Cuba, Lebanon and Singapore. At
this time, it is unclear if there will be exemptions, e.g. for corporates with
large numbers of SIMs registered (revenues from corporates made up about 12.0%
of MTNNs revenue as at 9M-2019.)
Neutral Impact in the Near-Term; Long Term Risks Abound
We see
the NIN stipulation as a risk to mobile money adoption and potential revenues
(expected to reach USD889 million by 2023) for telcos, and financial inclusion
targets (95% by 2024) for the government. The unbanked population (60 million),
which is the target of mobile money services, will be most affected by the NIN
stipulation due to the significant challenges surrounding registration process.
In our
discussions with some telecoms industry players, the SIM limits are not
expected to materially impact telco earnings as the view is that activity, and
thus revenue, dissipates beyond a subscribers' 2nd SIM. This is true but only
in the short term as this view does not consider the other use cases of SIMs.
As the country moves along the technology adoption cycle scale and with the
increased adoption of the Internet of Things (IoT), there is a growing use of
various consumer devices, not including mobile phones, which require SIM cards
e.g. tablets, wireless hotspots (Mi-Fi), smart watches, Point of Sales (POS)
devices, vehicle trackers, etc. One subscriber may own multiple devices which
require multiple SIMs. Thus, SIM card restrictions will essentially cap the
long-term earnings potential of the telcos.
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