On May 29, Muhammadu Buhari formally took over as Nigeria's new president, following his election in early May in what was the West African country's first ever democratic transfer of power to an opposition party. Expectations are stratospheric for the Buhari government. The new cabinet will be immediately faced with a host of deep-seated transient and structural issues ranging from a shortage of fuel (a perennial dysfunction in this otherwise oil rich country) to epileptic power supply, bulging national debt, a depreciating currency and Boko Haram in Nigeria's north-eastern region.

The communications sector is waiting for Buhari as well. Nigeria is Africa's largest mobile market in revenue terms; it has the continent's largest mobile subscriber base with around 140 million subscriptions, nearly twice as many as in South Africa. After a boom phase between 2002 and 2010, recent revenue growth has been somewhat subdued, only around 5%-6% over the past five years (and flat in US dollar terms). Mobile data usage has accelerated, with around 56% of mobile subscriptions using data services in 2014, according to figures from the Nigerian Communications Commission (NCC).

A strong telecoms market, not yet a digital economy
For all its upside, however, the Nigerian market still operates well below potential. Only around 15% of mobile subscriptions are 3G or above, about half the level of penetration in South Africa (though in line with Kenya's penetration levels). There is no large-scale 4G network deployment and there is limited visibility on when adequate 4G spectrum will be awarded, at a time when other African countries are pushing forward with it.

Figure 1: Underexploited Market - Proportion of Mobile Subscriptions that Are Active Mobile Data Subscriptions - Sample African Markets Source: Xalam Analytics estimates; operator and regulator data.

Nigeria has more than 500 Gbit/s of international lit capacity available, but its international capacity utilization is less than 10%, due to data traffic volumes that are lower than anticipated and a competitive yet ineffective metro and intercity fiber backhaul market. The country's National Broadband Plan calls for a penetration of 42% by 2018 (from around 12% in 2014), a target that is unlikely to be reached without a more aggressive executive action.

Perhaps most concerning of all, the market looks structurally deficient, with one player (MTN Nigeria) accounting for at least 70% of all the operating income generated by the country's service providers while others struggle to eke out a profit.

This combination of concerns around supporting infrastructure, lackluster profitability and uncertain regulatory outlook has held up the pace of investment, creating an absurdly paradoxical picture of a market seemingly yearning to explode, yet hopelessly stuck in its tracks.

By our estimates, telecom sector capital expenditure contracted by around 20% in 2014 at a time the country needs more of investment. Like the rest of Nigeria, the ICT sector is pinning its hopes on the Buhari administration to take the necessary policy and regulatory steps that would unleash additional investment and accelerate Nigeria's transformation into a digital economy.

Potential steps are plentiful, but four areas require particular attention:

The Buhari administration has its work cut out for it, to be sure. But it also has a unique opportunity to transform the Nigerian communications market in a manner not seen since the award of GSM licenses in 2001 -- for Nigeria to finally leap forward to become a truly digital economy -- no longer merely a great telecoms market. As such, each of its steps in the ICT sector will be extremely scrutinized.

— Guy Zibi, Chief Analyst, Xalam Analytics, the Africa and Middle East research unit of Heavy Reading