Concerned by the possible collapse of the telecommunication sector, which has been plagued by high inflationary pressures and currency devaluation, telcos are demanding a change in its tariffs but government is unconcerned, DAMILOLA AINA writes
The Nigerian telecommunications sector is in jeopardy as it grapples with a raging storm of underinvestment and inflationary pressures. The challenge fueled by inconsistent government policies in form of an all-time high inflation rate and forex crises among others has set the industry on a downward trend with customers bearing the brunt of subpar data and call services.
Operators find themselves in a challenging position, anxiously awaiting government intervention to help them remain viable. Despite their urgent pleas for regulatory and policy support, these requests have been met with an outright deafening silence, leaving them in a precarious situation.
Hence, the industry that was once the poster boy of capital investments in Nigeria is gradually becoming a shadow of itself, no thanks to global volatility, and country-specific risks, driven by record losses and weakened financial performance among operators.
This significant fall is attributed to a challenging operating environment characterised by burgeoning inflation and currency depreciation. Industry players are contending with coma-inducing challenges, particularly regarding operational costs. These challenges are exacerbated by factors such as foreign exchange devaluation and scarcity. Others are soaring diesel prices, escalating input costs due to the naira’s depreciation, and rising inflation, which reached 33.88 per cent in October 2024.
Since its emergence in the early 2000s, the telecoms sector has been a cornerstone of the Nigerian economy, which heavily relies on its services sector. Notably, it played a crucial role in helping the country recover from a recession in the fourth quarter of 2020.
According to a Global System for Mobile Communications Association report, Nigeria has experienced rapid growth in mobile broadband coverage due to its highly competitive telecommunications sector.
It stated that with several large mobile service providers and some significant fibre-only network operators, “MTN is the largest mobile service provider with 50.50 per cent subscriber market share. This is followed by Airtel, Globacom and 9mobile with 34.76 per cent, 12.39 per cent and 2.35 per cent respectively.
“The digital sector contributes to the overall economy that is broader than the direct value-added by companies in the sector itself. The largest contribution to overall GDP is through the sector’s impact on productivity of other sectors.”
But the sector now lies at the brink of collapse, as the soaring costs of servicing a rapidly growing population of 218 million mobile subscriptions and 92 million broadband internet subscriptions threaten its sustainability. Investment in infrastructure is dwindling, leading to a sharp decline in network expansion and maintenance. As a result, network services are increasingly strained, causing widespread connectivity issues that affect millions of individuals and businesses alike.
Government oversight remains a distant observer rather than an active participant in addressing the sector’s mounting crises. The sector’s vulnerability underscores a critical need for strategic intervention and support to stabilize and rejuvenate this essential component of Nigeria’s infrastructure.
It’s no gainsaying that the telecommunications industry is facing its hardest moment since the liberalisation of the sector in 2001 with over $68bn investment facing threats.
Sector’s many problems
The removal of fuel subsidy and the harmonisation of foreign exchange rates exacerbated inflation in 2023 and have sustained momentum in the current year. Between January and May (before the two policies kicked in), inflation rose from 21.82 per cent as of January 2023 to 22.41 per cent as of May 2023. Inflation jumped from 22.79 per cent as of June 2023 to 29.90 per cent as of December 2023 after implementing the policies.
Headline inflation increased further by 16.72 per cent between January (29.90 per cent) and June 2024 (34.40 per cent before a momentary drop to 33.40 per cent in July, the first decline since December 2022. Costs of products resumed their upward in August and have remained bullish.
Analysts expect another inflation surge in the coming months following a recent hike in the price of premium motor spirit to above N1,060 per litre. The poorly implemented policies, according to Nigerians, have resulted in a weakened purchasing power for many citizens with attendants’ effects on businesses.
High inflation is creating hardships in Nigeria, the International Monetary Fund recently disclosed. It also explicitly stated that broad-based economic reforms embarked upon by the current federal government are still struggling for a positive impact, 18 months after commencement.
Additionally, the naira has experienced a dramatic decline across both official and parallel markets, with the government’s ongoing efforts to stabilize and strengthen the naira against the US dollar ineffective, and the value of the currency plummeting at an alarming rate.
In one year, the currency has lost 108 per cent in value, between a period spanning November 2023 and 2024 at the official foreign exchange market due to dollar shortages, despite the policy measures implemented by the Central Bank of Nigeria.
This is despite the external reserves, which give the CBN firepower to defend the naira increase in 13 months by 20.3 per cent or $6.78bn to $40.8bn as of November 26, 2024. This amount was from $33.46bn recorded on September 4, 2023, according to data from the CBN.
At the parallel market, popularly called the black market, the naira lost 88.17 per cent in value as the dollar was sold at the rate of N1,750 on Friday, November 29, 2024, as against N930/$1 sold in the corresponding period of September 8, 2023, data from street traders and some online platforms that collates exchange rates at the unregulated market revealed.
These developments paint a bleak picture of the current economic situation in Nigeria and amid all these, discourse around telecoms tariff review is beginning to take centre stage, drawing attention to the need for a delicate balance between economic realities, quality of experience, which impacts directly on customer satisfaction, and telecommunications industry sustainability.
In Nigeria’s telecommunications sector, diesel consumption is a critical factor influencing service reliability and progression. With numerous sites dispersed across the nation, a substantial portion operates on generators 24/7, necessitating continuous fuel supply. This escalating cost of diesel needed to power over 40,000 base stations not only directly impacts operational expenses but also cascades into broader challenges of infrastructural maintenance. As prices soar across various sectors, the telecom industry continues to grapple with the dilemma of maintaining quality services while operating within constrained pricing frameworks. This has overshadowed the subscriptions and revenue growth recorded by the operators.
The nine-month report of major telcos listed on the Nigerian exchange showed that MTN made a profit of N4.1bn but recorded a significant loss after tax of N514.9bn, primarily driven by substantial foreign exchange losses. The largest telecom operator also disclosed an adjusted profit after tax of N118.5bn, reflecting a 59.2 per cent decrease compared to the previous year.
This adjusted figure indicates that, without the forex losses, the company would have reported a profit during this period.
Airtel Nigeria Profit after tax of $79m was impacted by $151m of exceptional derivative and foreign exchange losses (net of tax), arising from the further depreciation in the Nigerian naira during the period.
MTN boss reacts
Speaking at the launch of the Nigeria Digital Economy Report published by the GSMA in May 2024, the Chief Executive Officer of MTN, Karl Toriola, lamented the investment climate for Mobile Network Operators stressing that the difficult macro-economic challenges have drastically reduced investors’ appetite to stake their money in the capital-intensive sector.
The report launched by the GSM Association, an international organisation that represents the interests of mobile network operators worldwide, analyses the Nigerian economy and the government’s digital transformation strategy.
Toriola noted that the return on capital for the telecom industry is currently negative due to a dearth of continuous heavy investments to maintain and upgrade its infrastructure unlike the banking and other sectors.
He said, “Let me start by saying that we have been very successful in this industry. Unfortunately, to some extent, we are now victims of our success because when you hear headlines of N2tn revenue, the instinctive reaction is that we are making so much money.
“But the reality is, our return on capital for the telecom industry is at the moment negative and even at its best periods if you take N100m and put it in banking, telecoms and other sectors, telecoms have the lowest return and that was pre-naira devaluation.
“Before the naira devaluation, our dividend payout was around 5 per cent and most of the banks were doing 12 per cent. Now devaluation has hit us which means our returns are negative because of the cost of running services and the cost of continuous expansion of the networks.
“The difference between our industry and others is that we are continuously reinvesting between 10 and 20 per cent of our top-line (capex-intensive quality) into the networks to maintain steady CAPEX and power infrastructure, we need the investments to replace fibre-optic cables that have been cut multiple times or are not usable. Investments are also needed to upgrade base stations to today’s technology and to go into new technology like 5G and expand the fibre space.”
The MTN CEO added, “So from being the poster child of investment across Africa, the telecoms sector is now a painful destination for investments for foreigners, the stock market and Nigerians as well.”
For over a decade, major telecom operators like Airtel, MTN, GLO and 9mobile have maintained their pricing structures, despite mounting challenges such as currency devaluation and inflation while other sectors have adjusted prices to cope with economic fluctuations.
Telcos have intensified calls for a price review since 2022 when ALTON wrote to the Nigerian Communications Commission for regulatory approval to raise tariffs by 40 per cent due to surging diesel prices and economic headwinds.
The operators stated that its general service pricing framework has not been reviewed upward in the last 11 years because of regulatory constraints.
The telecom providers are advocating for cost-reflective tariffs, claiming that adverse economic headwinds are threatening their financial viability.
The prevailing reality suggests that the long-term viability of the telecoms sector now hinges on striking a delicate balance between affordability and quality of experience for consumers on the one hand, and profitability and survival for operators on the other hand.
“For a fully liberalised and deregulated sector, the current price control mechanism, which is not aligned with economic realities, threatens the industry’s sustainability and can erode investors’ confidence,” the telcos said in a communique signed by the Association of Licensed Telecom Operators of Nigeria and the Association of Telecommunication Companies of Nigeria.
If this request had been approved, the floor price of calls would have jumped from N6.4 to N8.95 and the price cap of SMS from N4 to N5.61.
Speaking at another virtual telecom investment forum in Lagos in August, Toriola, the CEO of the company that, for the first time in 2023, failed to pay dividends to its shareholders, emphasised that an increase in the cost of services was inevitable due to mounting economic pressures.
According to him, the combined effects of naira devaluation, higher general inflation, energy costs, and the introduction of the 2023 Finance Act VAT on tower leases resulted in higher operating expenses in 2023.
He also remarked that Nigeria’s telecommunications sector was currently “in intensive care,” a stark assessment that highlights the severe challenges the industry is facing and the urgent need for intervention to prevent further decline.
The MTN boss said although the sector had exceeded expectations over the past two decades, it is now threatened by rising costs and unsustainable pricing.
“The telecom sector is facing a lot of challenges which if urgent action is not taken, it will dry up. The truth is that investors are not going to come to invest in the sector if the fundamental issues are not addressed. The telecom sector is in ICU stage,” he said at the investment forum organised by Financial Derivatives Company.
The MTN Nigeria CEO added, “There’s no way under the surface of the earth, in the kind of inflationary environment and forex devaluation that we’ve seen, that an industry can maintain prices the same for 11 years. From the cost of capital to the soaring expenses of maintaining infrastructure like base stations and diesel generators.
“Without pricing adjustments, the industry’s ability to function and attract investment is in jeopardy.”
A sustained and reliable inflow of investment is crucial for driving technological advancements and fostering growth in the sector. However, capital tends to avoid regions where there is little prospect of financial returns.
According to the GSMA report, the telecoms sector battles major challenges across multiple areas of its business which has slowed the financial performance of the mobile industry, chief of whom is energy costs. It said the increase in the cost of power particularly diesel for sites has impacted operating costs while the price of building and operating fibre-optic networks is rapidly increasing.
Diesel is crucial for powering telecom infrastructure, like base stations. Industry data estimates that operators use an average of 50 million litres of diesel per month to power telecom sites.
Telcos’ average spending on diesel rose to N70.3bn (at N1,426 per litre) in November, a 110.48 per cent increase from the N33.48bn (at N836.91/litre) spent in the same period of 2023.
Mobile service providers need to generate sufficient revenue to cover their operating costs and support this level of capex over the medium term. If this is not realised, they are likely to cut back on either capital or operating expenditure or both.
The cost of building and operating fibre-optic networks has increased because of the difficulty and expense of obtaining Rights of Way from state authorities and the very high number of fibre cuts, primarily caused by construction work and vandalism.
Therefore, telecommunications companies need to identify solutions to their power challenges.
However, as noted by the Chief Regulatory Officer of Airtel Africa, Daddy Mukadi, implementing these solutions will require significant capital investment, which is unlikely to be accessible given the current poor investment climate.
Speaking also at the GSMA event, Daddy said, “There are solutions but they require investment. You need to invest heavily, for instance, in solar and strong batteries and reap the benefits over a long period much longer
“Also, changing from diesel to hybrid generation using solar costs a lot. Before the devaluation, the payback to investors was year nine but now the payback is around 13 years. Investors don’t want to wait that long to get their returns.”
However, with plans to adopt solar panels, lithium batteries, and connect to the grid, telcos could reduce their energy costs by 15 to 30 per cent annually, according to a McKinsey report.
The exact savings will depend on their current energy management practices and the extent of solar integration, the report stated.
Mtn has obtained a license to build a mini-grid but it remains to be seen how this would be perfected due to the heavy cost involved.
Investments decline
While the full impact of a challenging investment climate in the telecommunications sector only became apparent after the government implemented certain policies in 2023, data obtained by our correspondent revealed that there has been a consistent and gradual decline in investor appetite for the sector since 2021, signalling underlying concerns that had been building for years.
This decline, which had been largely overlooked by policymakers until recent years, reflects a broader trend of reduced confidence in the sector. This data also proves that it may take a longer period to reverse the downtrend caused by the inaction of stakeholders.
An analysis of the telcos shares price index, an indicator of investors’ willingness to invest showed that its stock has recorded a steady decline for three consecutive years.
Using data sourced from AfricanFinancials.com, a website that provides updates on the stock exchange of listed companies in Africa, MTN Nigeria price stock reduced by 40.32 per cent in 16 months from N284.90 as share price on July 25, 2023, to N170 as of November 15, 2024.
Before this period, the company had recorded a steady growth since 2019 when it was listed on the Nigerian Stock Exchange market. It made its entrance into the market with a share price of N108.90 (May 17, 2019) but it dropped to N105.00 by year-end of 2019.
The figure however increased by 61.8 per cent to N169.90 at the end of 2020. In 2021, its share price surged further by per cent to N182 by December 31 of the same year. In 2022, the company’s stock price reached its peak of N255.50 but dropped to N215 by December 31, 2022.
For Airtel Africa, 2022 was a turbulent year as its price share had the heaviest fall from N2,000 on October 4, 2022, to N1,270 by November 16, 2022. It however ended the year at a share price of N1,488.
In 2023, the investment fall continued to N1,175 on May 23, 2023, but ended the year with an improved value of N1,887 as of December 29, 2023.
This year, the company’s share price has traded at an N2,000 threshold with occasional drops below the N2,000 mark. It sold at N2,156 as of November 15, 2024. The year-on-year change is a positive of 20.50 per cent.
When compared with other sectors, Zenith Bank has maintained an upward trend in times of economic headwinds, increasing its share price by 304.67 per cent from N10.70 recorded on March 23, 2020, to N43.30 as of November 15, 2024.
The market share price of Dangote Cement, one of the conglomerates of the African richest man, Aliko Dangote, increased by 236 per cent from N142 as of January 2, 2020, to N478 as of November 15, 2024. This year, the company recorded its highest market share price of N763 as of February 13, 2024.
Guaranty Trust Holding Company increased its market share price index by 140 per cent between January 2023 and November 2024.
Experts say these companies have been able to float and remain economically viable primarily because there are no regulations in place that prevent them from charging cost-reflective tariffs on their products. By adjusting prices according to prevailing market conditions, they can align their costs with the demand and supply dynamics, ensuring that they maintain profitability even in fluctuating market environments.
Nigerians lament
Notably since the beginning of 2024, the quality of network services has become a significant hurdle, with audio calls plagued by persistent disruptions and dropped calls that undermine effective communication. Internet services are similarly unreliable, with frequent fluctuations and poor performance, particularly during the critical productive hours of the day.
The myth of holding a mobile phone facing the sky to get better service now seems to be more than just superstition as it has become a proven method for some users seeking a stronger signal. This phenomenon highlights the stark reality of the current state of network infrastructure. Our correspondent crisscrossing the length and breadth of the nation observed that these signal-chasing habits typify the uneven and insufficient level of internet penetration across the country.
While urban cities struggle with dwindling connectivity due to network congestion and infrastructural strain, rural areas are often left with little to no access to reliable internet, further deepening the digital divide and limiting opportunities for economic growth and social inclusion.
The era where networks are available in one community and absent in another is fast approaching, and this growing disparity is set to affect everyone, including journalists. For media professionals, sending messages, posting videos, and even conducting basic online research has become a slow and frustrating process. What should take mere minutes now takes hours, with uploads that seem to stretch, severely hampering the ability to report news in real-time and stay connected with audiences.
Despite these challenges, Nigerians have urged the government not to approve a single percentage tariff until the operators improve their services by becoming innovative.
In separate interviews with The PUNCH, the respondents, who use their phones for business purposes, said there was no justification for the increase.
A businesswoman, Esther Ocha, speaking during a survey conducted, vehemently kicked against the plan. She said, “Why would they want to increase data in call tariff, for what? What is the reason they want to increase this, is it that inflation is affecting them or what exactly? Network should show me shege, I prefer that one. Government must not increase tariff.”
Another respondent, who preferred not to be named said, “Telcos are extorting us, you buy data and it’s not even up to the time or the longevity of the time it’s supposed to be. You don’t even maximize this data as it should. Anything that they want to do now that will make them increase their tariff is extortion, they were already extorting us in the past, but now this is the extreme.
A third respondent, Micheal, however, urged the government to improve the value of the naira, “We can’t have every sector put an increase in the services and products they are offering. I mean, the standard of living is getting higher, and it’s not like money is valuable, so the best government can do is improve the value of our naira.”
But the National Association of Telecoms Subscribers said it would support a marginal increase in tariffs.
NATCOM president, Adeolu Ogunbanjo, in an interview, said, “From a customer’s perspective, your first reaction is no price increase, but they have been operating the tariff in the last 11 years, now tell me in the last twelve months what have not gone up. The radio equipment they put on Mars for us to have quality service is also in dollars, we don’t manufacture them here.
“For them to remain in business, we need to pay for services, so for us, they shouldn’t, but the reality is that if we want quality services, we must be prepared to pay a little bit more so that we won’t kill the telecoms industry. Telecoms is the only thing that puts a smile on our businesses, daily lives, and all the things we do on social media. I think I would allow a marginal increase of not more than 5 per cent so we can now demand good quality service.”
He further stated his optimism that approval would be given before the end of the year, “I am sure they will give approval before this year runs out. Don’t forget that in another week or two, there will be so much pressure on the network due to the yuletide, so I am sure between now and December, the end of the year, NCC will definitely grant it because we are meeting regularly now.”
The NCC Public Affairs Director, Reuben Mouka, didn’t respond to enquiries on these issues.
(punch)
