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Tuesday, June
18, 2019 / 06:42PM / By Adebola Adeyemi / Header Image Credit: NDTV Gadgets
The brief provides information on the spectrum licensing regime of the
Nigerian Communications Commission (NCC) and evaluates options for transferring
Access Spectrum License in Nigeria. The brief considers the approach of the NCC
to the acquisition of a spectrum by an acquirer. The former NCC approach to
transfer of spectrum was strict and inflexible to the extent that an acquirer
is only able to acquire a spectrum license by acquiring the company holding the
spectrum and seeking NCC's authorisation to use the license. While the current
approach contained in the NCC Spectrum Trading Guidelines 2018 (the Guidelines)
promotes flexibility in spectrum trading. The NCC formulated the Guidelines
pursuant to its powers under the NCC Act.1
The NCC is responsible for authorising
and supervising firms operating in the communications industry. This includes
granting, licensing and transfer of a spectrum license. The law grants the NCC
certain powers and responsibilities in relation to its role as communication
services regulator.2 In addition, no entity shall operate
communications system or provide communications service without authorisation
of the Commission.3 The law also provides that the Commission
shall have the sole right to manage and administer the frequency spectrum for
the communications industry by granting licenses and regulating the use of the
frequency spectrum by licensees.4
Under the former spectrum transfer regime, a transfer of a spectrum
license or any dealing with respect to the license must be done through the
acquisition of the entity that obtained the license from the NCC. The approach
of the NCC was to restrict the transfer of an allocated spectrum as spectrum is
considered a national asset in Nigeria. Further, in an effort to ensure that it
is able to track ownership and control, the NCC mandates firms to report
transfer of ownership or control in shareholding structure that amounts to over
ten per cent (10%) of the total share capital of a licensee at least ninety (90)
days prior to the date of the transfer.5
The transaction between Alheri Mobile
Services Limited and Etisalat demonstrates the inflexibility in spectrum
trading under the old spectrum licensing regime. At the point of acquisition,
Alheri Mobile was a fully owned subsidiary of Alheri Engineering a subsidiary
of the Dangote Group. In order to have access to and exploit the spectrum
license, Etisalat acquired Alheri Mobile the holder of the spectrum license.
This may not be a commercially sensible approach depending on the liabilities
of the Target. The case study suggests that under the former NCC spectrum
transfer regime, a spectrum license is tied to the Licensee and can only be
exploited where the prospective acquirer acquires the Licensee.
Notwithstanding the restriction under the old spectrum licensing regime,
the acquisition of a spectrum license from the spectrum holder could be
achieved where the prospective buyer is able to set up corporate vehicles to
absorb different parts of the business of an existing spectrum holder. The
business arrangement is structured in such a way that the spectrum license can
be extracted while excluding the liabilities of other aspects of the business
of the spectrum holder. A prospective acquirer of a spectrum will exclude
certain liabilities of the holder of a spectrum by breaking the entity down
into separate business units and then using other corporate entities to absorb
these business units. By doing this, the acquirer will exploit the spectrum
license without bearing the entire burden of the liabilities of the business of
the spectrum holder.
The Guideline introduces a flexible trading, sharing and transfer scheme
for dealing in spectrum licenses.6Under the Guidelines, spectrum
trading extends to spectrum lease, spectrum transfer, and spectrum sharing. The
Guidelines cover the criteria for selling and leasing of spectrums;
requirements and procedures for spectrum trading; and renewal of traded
spectrums. On eligibility to sell a spectrum, the Guidelines provide that the
seller must have held the spectrum for a minimum of two years and must have achieved
at least twenty five per cent (25%) of the roll-out obligations specified in
the spectrum license. To be traded, the spectrum license must have at least one
(1) year validity period.7 It is important for the Buyer and
Seller to be in good regulatory and financial standing with the NCC with no
breach of licensing conditions. A buyer will be able to exploit the acquired
spectrum by deploying any technology through the spectrum after approval by the
NCC.
The Guidelines promote flexibility by allowing a Licensee lease a part
of its spectrum holding or the whole of the spectrum holding with respect to a
particular part of the licensed area.8 In addition, the impact
of traded Spectrum will be considered in restructuring of the Roll-Out
Obligations in the Licensed Areas or respective parts of the Licensed Area. In
approving the application, the NCC will pay attention to a number of factors
including competition rules.9 With respect to competition, the
parties will need to consider whether the spectrum acquisition by a particular
acquirer is likely to lead to concentration of a frequency in the hands of a
particular operator.
The eligibility requirements described above carries practical
significance for lawyers advising their clients with respect to the level of
due diligence to be performed on the holder of a spectrum license and to ensure
the requirements are met. As part of the consideration, the level of due
diligence will be determined by the mode of spectrum, and the existing
financial and licensing obligations that are yet to be met by the target. The
buyer should extract indemnities from the seller with respect to any
outstanding financial, legal, and third party obligations that may impact on
the spectrum. These issues need to be taken into consideration and the parties
advised accordingly.
It is important to state here that the challenging part of the
Guidelines for prospective sellers is with respect to the commercial aspect of
the deal. The Guidelines provides that the NCC will earn sixty per cent (60%)
commission on the net proceeds of the transaction when a licensee trades in
frequency spectrum acquired through administrative process while the commission
is pegged at forty per cent (40%) of net proceeds for spectrum acquired before
December 31, 2017. This is in addition to the administrative fee of 1% payable
to the NCC from the gross proceeds of the transaction.10 It
remains to be seen how this will affect the motivation of Licensees to part
with spectrum licenses acquired through administrative process. The fee payable
to the spectrum holder will be determined by a number of factors including the
fee that the spectrum holder initially paid to obtain the license from the NCC,
demand and supply considerations, and the mode of the transaction (lease,
transfer or spectrum sharing).
The demand for faster and robust voice and data services provides a
background for the review of the spectrum transfer guidelines of the NCC. To
reiterate, the regulatory powers of the NCC apply to firms in the
Communications sector ranging from the application for a spectrum license,
renewal and transfer. Under the former Spectrum transfer regime, the party
intending to acquire a spectrum needs to gain control of the business entity
holding the spectrum license. To be able to exploit a spectrum license, the
Guidelines introduce a flexible approach that enables an acquirer buy or lease
a spectrum in full or in part. The flexible arrangement promotes a situation
where a Licensee is able to sell the entire spectrum or lease a part of the
spectrum in the entire licensed area or grant a lease of the whole of the
spectrum with respect to an identifiable part of the area to be serviced as
specified in the spectrum license. The flexible spectrum trading regime
promoted by the Guidelines is commendable as it facilitates the involvement of
smaller players and promotes the efficient use and transfer of spectrum that is
not used or under utilised. The Guidelines will address protracted issues with
spectrum transfer and facilitate the deepening of the services that depend on
spectrum in Nigeria. Flexible transfer of spectrum will improve access,
increase competition and reduce the cost of services that depend on spectrum.
Footnotes
1.
Nigerian Communications Act 2003 (c19),
section 70(2).
2.
ibid; Licensing Regulations 2013.
3.
NCA (n 2), section 31.
4.
ibid, section 121; Licensing Regulations
(n 3), chapter II, para 4.
5.
Licensing Regulations (n 3), chapter VI,
paras 40 and 45.
6.
Spectrum Trading Guidelines 2018.
7.
ibid, para 4.4(v).
8.
ibid, para 5.7.
9.
ibid, para 1.3; Competition Practices Regulation
2007 (vol 94, 101).
10.
Spectrum Trading Guidelines (n 7), para
7.1 (i) and (ii).
The content of this article is intended to provide a general guide to
the subject matter. Specialist advice should be sought about your specific
circumstances.
Credits
The article Nigeria:
Opening Up Access To Spectrum Transfer In Nigeria: Examining The NCC Spectrum
Trading Guidelines first appeared in Mondaq on
Friday, June 13, 2019; but was originally published by author in May 2018. Article by Adebola Adeyemi of PAC Solicitors, Lagos, Nigeria.
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