MTN Nigeria Communications Plc, the country’s largest telecommunications operator, has been brought to its “knees financially”, its CEO Karl Toriola said amid pushback against tariff hikes recently approved by the regulator for telecommunications companies.
The 50% tariff increase, half of what the telcos requested and the first in over a decade, has yet to come into effect, with stiff opposition coming from the country’s biggest union and telecom subscribers’ associations.
“With low tariffs, the bigger players are the ones that will be able to survive the longest,” says Toriola. “At the same time, smaller players will collapse and [will be picked up by] the biggest players. But the tariff increase is necessary for us; we are on our knees financially.”
In the last two to three quarters, the company has been “borrowing on a negative equity position just to pay our fees…at 30% interest rate”, he said.
He said telecom tariffs have been increased in many markets including Ghana and South Sudanfollowing the weakness of their currencies against the United States dollar. “Ghana had a 40-something percent devaluation. In one year, the regulator there had two price increases. [South] Sudan had a 100% tariff increase,” Toriola said. “Right now, we are the second cheapest in the world in terms of tariff for data.”
Telcos take hit from naira devaluations
In Nigeria, the naira has lost more than 70% of its value against the dollar since President Bola Tinubu took office following two devaluations – first in June 2023 and then January 2024.
The currency weakness resulted in massive forex losses across sectors and hurt company profits, with telecommunications companies MTN and Airtel Africa among the hardest hit.
The forex reform, which saw the naira fall from around 460 per dollar to over 1,700 on the official market, “dealt a very heavy blow on telecom operators because most of them have a lot of exposure to forex in terms of financing, shareholding and procurement”, Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, tells The Africa Report.
When you peg a price for so long, and then suddenly raise it, it creates a lot of problems
“When you have liabilities that are heavy in dollars, once you have that kind of sharp currency depreciation, it will disrupt a lot of things in your balance sheet and income statement,” he says. “It was a major issue. It affected practically all the big multinationals; even Dangote too was affected. So, the heavier your forex liabilities, the bigger the impact.”
MTN Nigeria, a subsidiary of South African multinational MTN Group, saw its net forex loss widen to N740.4bn ($470.7m) in 2023 from N81.8bn in the previous year. This resulted in a loss before tax of N177.8bn, compared with a profit of N518.8bn in 2022.
The company ended the year with negative retained earnings and shareholders’ equity of N208bn and N40.8bn, respectively, and decided not to declare a final dividend.
In the first nine months of 2024, MTN posted an after-tax loss of N514.9bn compared to N15bn in the same period a year earlier. Its negative retained earnings and shareholders’ equity stood at N723bn and N573.6bn, respectively, as of September.
Airtel Africa, with operations in 14 countries, swung to a loss after tax of $89m in the year ended 31 March 2024 from a profit of $750m in the previous year as revenue from Nigeria, its largest market, plunged to $1.5bn from $2.13bn. It said currency devaluation, mostly in Nigeria and Malawi, resulted in $1.26bn of derivative and foreign exchange losses.
For the six months to September 2024, the telco said profit after tax of $79m was impacted by $151m of exceptional and derivative and forex losses arising from the further depreciation in the Nigerian naira.
Mounting headwinds reignite calls for tariff hike
The sharp devaluations of the naira, coupled with soaring inflation and interest rates, reigned calls from telecom operators for an increase in tariffs.
In April last year, the Association of Licensed Telecom Operators of Nigeria and the Association of Telecommunication Companies of Nigeria pointed out that “despite the adverse economic headwinds, the telecommunications industry remains the only industry yet to review its general service pricing framework upward in the last 11 years, primarily due to regulatory constraints”.
The regulator does not have to wait for operators to get choked before reviewing tariffs. They have not been fair to investors in that sector
They said in a joint statement that the price control mechanism was threatening the industry’s sustainability and could erode investors’ confidence, and highlighted the need for substantial investments in network expansion, maintenance, and technology upgrades.
Section 108 of the Nigerian Communications Act of 2003 states that holders of individual licences shall not impose any tariff or charges for the provision of any service until the Nigerian Communications Commission (NCC) has approved such tariff rates and charges.
On 20 January, the NCC announced that it would be granting approval for tariff adjustment requests by network operators in response to prevailing market conditions.
“Tariff rates have remained static since 2013, despite the increasing costs of operation faced by telecom operators,” it said. “The approved adjustment is aimed at addressing the significant gap between operational costs and current tariffs while ensuring that the delivery of services to consumers is not compromised.”
Mixed reactions greet regulator’s decision
Yusuf, a former director general of Lagos Chamber of Commerce and Industry, is among those who have described the approval for a tariff hike as a welcome development. “From an investment point of view, I think it’s something that is inevitable. The telecom sector has a very high exposure to forex and energy prices, which are the two biggest drivers of cost in the Nigerian economy today,” he said.
But he said the regulator should have allowed incremental increases over the years, rather than keeping prices unchanged for over 10 years and then slamming a 50% tariff hike. “When you peg a price for so long, and then suddenly raise it, it creates a lot of problems,” he said. “The regulator does not have to wait for operators to get choked before reviewing tariffs. They have not been fair to investors in that sector.”
The Nigerian Labour Congress (NLC) and telecom subscribers’ associations, meanwhile, want the NCC to reverse its decision because of the cost-of-living crisis facing consumers.
The NLC said on Thursday that it would embark on a nationwide protest on 4 February, with its president Joe Ajaero describing the tariff increase as “insensitive, unjustifiable, and a direct assault on Nigerian workers and the general populace, who are already burdened by worsening economic hardship”.
MTN Nigeria boss Toriola said in a statement on 21 January that the tariff adjustment “represents an important step towards addressing the impacts of the prevailing economic challenges on our business and industry”.
”It will enable us to maintain the critical investments required to deliver reliable, high-quality services to Nigerians. We remain committed to supporting Nigeria’s digital transformation agenda and driving inclusive growth for all stakeholders.”
(The Africa Report)
