Nigeria: Opening Up Access To Spectrum Transfer In Nigeria: Examining The NCC Spectrum Trading Guidelines

Last Updated: 13 June 2019
Article by Adebola Adeyemi

Background

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

1. Licensing and Transfer of Spectrum

a) The Former Spectrum Trading Regime

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

b) Examining the Impact of the Former Spectrum Transfer Regime on the Industry –Case Study of Alheri and Etisalat

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.

2. The NCC Spectrum Trading Guidelines 2018 (the Guidelines)

The Guideline introduces a flexible trading, sharing and transfer scheme for dealing in spectrum licenses.6 Under 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).

3. Conclusion and Practical Significance

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).

Originally published May 2018

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.

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