The auction that changed everything: How Nigeria’s 2001 GSM licence sale built the foundation of a tech economy
What followed in January 2001 was a government auction designed to let the private sector build what the state had failed to do.
What followed in January 2001 was a government auction designed to let the private sector build what the state had failed to do.
The Nigerian Telecommunications Limited (NITEL) was established in 1985 through a merger of the Posts and Telecommunications Department and the Nigerian External Telecommunications Company. Prior to the late 1990s, when other telecom operators were granted licences to operate in the space, NITEL operated a monopoly characterised by weak infrastructure, poor service, congested lines, and scarcity.
Ernest Ndukwe, who later led the Nigerian Communications Commission (NCC) through the GSM revolution, recalls that in 1999, there were over 10 million people on NITEL’s waiting list for telephone lines, and the wait time for a connection was as long as two years.
Often, subscribers received high bills after their phones were disconnected. This failure had far-reaching consequences on Nigeria’s productive economy. Businesses could not reliably reach customers, partners, or suppliers, and those who needed to make international calls had to travel to the NITEL international call centre at NECOM House in Marina, Lagos.
Five months after taking office, the Obasanjo administration published a new National Policy on Telecommunications in October 1999. The publication highlighted the need to reform Nigeria’s telecom sector and to attract private-sector investment. The policy specified that there would be only four digital national cellular operators in an initial five-year period and set a short-term goal of reaching 1.2 million mobile lines in two years.
The bigger question was how to make the process transparent and credible, especially in a country with a long history of opaque government contracting. An earlier attempt to issue GSM licenses in late 1999 and early 2000, at a proposed cost of $100 million each, led by the Communications Minister as head of a specially set up Inter-Ministerial Committee, failed and was cancelled in February 2000 after doubts were raised about the integrity of the process.
In 2000, the government decided that telecom licences would be assigned by auction, making the process transparent and less susceptible to corruption. The process, often referred to as the world’s first ascending clock spectrum auction, was founded on the Nigerian government’s resolve to host an auction that would foster competition in the sector, lend credibility to the country’s government among international observers and investors, and boost confidence in the country’s government processes.
So, in March 2000, Obasanjo’s government inaugurated a new NCC board, which included Alhaji Ahmed Joda, a veteran journalist and skilful administrator, and Ernest Ndukwe, an engineer with experience in Nigeria’s telecoms sector, as chairman and executive vice-chairman, respectively.
To assist with designing the auction, the NCC appointed Radio Spectrum International, a London-based company, as its primary consultant.
The auction was the third stage of the licence award process. Before, it had been the invitation stage, during which the NCC published the auction stages, application forms, and pre-qualification requirements. Following the invitation stage was the pre-qualification stage, when prospective bidders submitted their application forms and a $20 million deposit.
The auction took place on January 19, 2001, at the Transcorp Hilton Hotel in Abuja. There were five bidders — MTN Nigeria, Econet Wireless Nigeria Ltd (later Zain Mobile; now Airtel), Communications Investment Limited (CIL), and United Networks Mobile.
Unknown to many watching, certain officials within the Obasanjo government had made last-minute moves to disrupt the process; however, then-Vice President Atiku Abubakar, NCC chairman Ahmed Joda, and Ernest Ndukwe played decisive roles in keeping the auction on track against those attempts. This was not the first time attempts had been made to stop the auction. Motophone, one of the nine licencees issued GSM licences by the government of General Sani Abacha but never began operations, had unsuccessfully challenged the NCC in a High Court after the regulator returned their application fees and revoked the validity of their licences.
Nevertheless, the auction went on, producing three winning bidders: MTN Nigeria, Econet Wireless, and Communications Investment Limited. A free licence was reserved for the Nigerian Mobile Telecommunications Limited (M-Tel), the mobile arm of NITEL. Each licence cost $285 million, and the winners were given a 90-day deadline to launch commercial services.
Since each bidder had paid a $20 million deposit, they were expected to pay the remaining $265 million within two weeks. However, by the February 9 deadline, the NCC announced that CIL’s balance payment had not been received. CIL disputed this account, citing a query it had raised about frequency allocation that was already subject to litigation from a previous licensee. The company eventually lost its licence.
However, Mike Adenuga, a dogged businessman who had been unsuccessful with the CIL bid, was not to be denied; he returned with another bid as Globacom through a subsequent process in 2002, bringing an indigenous operator into the competition.
In total, the auction raised $855 million, a figure that, when measured relative to GDP and spectrum sold (per MHz), exceeded that of much larger economies like the UK.
Nigeria’s first GSM call was made on May 6, 2001, by Econet Wireless chairman Strive Masiyiwa. Masiyiwa made a call to the NCC, announcing, “we are live.” By August 7, 2001, Econet had begun commercial operations, with MTN following a day later. M-Tel failed to meet the August 9, 2001, deadline.
The 2001 auction launched Nigeria’s digital revolution. Mobile connectivity laid the foundation for everything else.
Within less than one year of launch, MTN and Econet had added 1,569,050 subscribers, surpassing the government’s target of 1.2 million GSM lines in two years. By 2003, the figure had doubled again, to 3.1 million subscribers, and by 2008, Nigeria’s telecoms sector had about 60 million subscribers. Globacom’s entry into the market in 2003, with its introduction of per-second billing, changed the competitive landscape entirely.
A country that had spent decades failing to connect 400,000 people connected 60 million in seven years.
Today, Nigeria’s telecoms sector has 184 million active subscribers and a teledensity of 85%. The sector’s contribution to Nigeria’s GDP as of the first quarter of 2023 was 14.13%.
