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.