Telecommunication service companies are currently facing a myriad of challenges that are significantly impacting their ability to provide quality services. These challenges include increased operating expenditure, difficulties in accessing foreign exchange, recurrent vandalism of infrastructure, and high costs of diesel due to alleged theft. The rising cost of diesel is a major concern, with prices reaching as high as NGN 2000 per litre in some parts of the country.
Furthermore, the sector is plagued by significant interconnect debts between players, as well as political incursions hindering survival. Additionally, low foreign direct investments (FDIs) are raising concerns about the sustainability of the industry. The operators are advocating for tariff hikes as a measure to sustain their operating expenditure, but obtaining approval from the Nigerian Communications Commission (NCC) remains a challenge.
The financial reports of MTN Nigeria and Airtel Africa reveal the impact of these challenges, with both companies experiencing losses due to currency revaluation. MTN Nigeria reported a loss after tax of N392.7 billion for the first quarter of 2024, despite growing its service revenue by 32.0 per cent to N747.3 billion year-on-year. The company’s net loss for the quarter increased its accumulated losses and negative shareholders’ funds to N599.2 billion and N434.7 billion, respectively.
MTN Nigeria’s chief executive officer, Karl Toriola, attributed the challenges to severe macroeconomic headwinds, including rising inflation and naira depreciation. The operators are trying to justify the tariff increase because “Consumer prices in other sectors have seen a steep rise over the last six years as they adjust to reflect macroeconomic realities. However, telco prices have remained flat and even declined. Contrary to the price trends in other sectors, telcos have had to adjust for the macroeconomic headwinds caused by an increasing erosion of margins. Other highly regulated sectors such as power and insurance have implemented price increases over the last year. Insurance prices have risen 200 per cent with power raising prices by over 40 per cent.”
Telecommunication service companies are currently facing a myriad of challenges that are significantly impacting their ability to provide quality services. These challenges include increased operating expenditure, difficulties in accessing foreign exchange, recurrent vandalism of infrastructure, and high costs of diesel due to alleged theft. The rising cost of diesel is a major concern, with prices reaching as high as NGN 2000 per litre in some parts of the country.
Furthermore, the sector is plagued by significant interconnect debts between players, as well as political incursions hindering survival. Additionally, low foreign direct investments (FDIs) are raising concerns about the sustainability of the industry. The operators are advocating for tariff hikes as a measure to sustain their operating expenditure, but obtaining approval from the Nigerian Communications Commission (NCC) remains a challenge.
The financial reports of MTN Nigeria and Airtel Africa reveal the impact of these challenges, with both companies experiencing losses due to currency revaluation. MTN Nigeria reported a loss after tax of N392.7 billion for the first quarter of 2024, despite growing its service revenue by 32.0 per cent to N747.3 billion year-on-year. The company’s net loss for the quarter increased its accumulated losses and negative shareholders’ funds to N599.2 billion and N434.7 billion, respectively.
MTN Nigeria’s chief executive officer, Karl Toriola, attributed the challenges to severe macroeconomic headwinds, including rising inflation and naira depreciation. The operators are trying to justify the tariff increase because “Consumer prices in other sectors have seen a steep rise over the last six years as they adjust to reflect macroeconomic realities. However, telco prices have remained flat and even declined. Contrary to the price trends in other sectors, telcos have had to adjust for the macroeconomic headwinds caused by an increasing erosion of margins. Other highly regulated sectors such as power and insurance have implemented price increases over the last year. Insurance prices have risen 200 per cent with power raising prices by over 40 per cent.”
The telecom industry is currently facing significant challenges that are impacting its ability to deliver robust services. The internal hemorrhage plaguing the sector, including increased operating expenditure, difficulties in accessing foreign exchange, recurrent vandalism of infrastructure, and high costs of diesel, is a cause for concern. The financial reports of major telecom companies such as MTN Nigeria and Airtel Africa reflect the impact of these challenges, with significant losses being recorded. Moving forward, it is crucial for policymakers and regulators to address these challenges and work towards creating a more sustainable operating environment for telecom service providers.
They also decry the strong macroeconomic headwinds which have occasioned tough operating conditions, leading to a decline in CAPEX (domestic) and foreign direct (capital Inflow) investments into the industry by 30.37 percent and 46.9 percent respectively between 2021 and 2022.
These headwinds include the inability to source foreign exchange and attract foreign direct investment, as investors have become uncomfortable due to the grave economic uncertainty in the country.
Without meaning to link the crisis to a flip-flop economy, the operators think that unless something urgent is done, providing quality service will not be sustainable because of the multiple effects of rising operating costs.
Owing to the macroeconomic crisis, resulting in increased costs of operation and overheads, most telecom companies in Nigeria have been posting losses, making it difficult for them to pay their annual operating levy (AOL) to the commission as and when due.
The operators are worried about the restrictive regulatory approach, which is unconducive to the highly needed innovation in this evolutionary era of newer communication technologies.
“We invite the EVC to note that the convergence of telecommunications with digital and multimedia services has greatly reduced the revenue streams from traditional telecommunications services (voice, SMS, etc.). To survive in this digital era, telecommunications operators have no choice but to quickly evolve into digital and platform service providers. This evolution is only possible in a regulatory environment that enables the development of innovative products and services, with a flexible regulator who is well-informed on the latest technology developments and requisite regulatory frameworks, and has an appreciation for the reverberating impact of derailing this progression,” they lamented.
In 2023, MTN declared its first loss after tax of N137 billion. Its retained earnings and shareholders’ fund fell to negative N208.0 billion and N40.8 billion, respectively. For Airtel, the profit before taxes result for the first half of 2023 was much worse; it dropped by a staggering 97.7 per cent – from $516 million to $12 million – compared to the results from 2022.
The report showed that Airtel had consistently grown its revenue in Nigeria since Q2 2018. The only time there was a drop in revenue between quarters was in 2020 when revenue dropped from $377 million in Q1 2020 to $341 million in Q2 2020. This $36 million drop in revenue is nothing compared to the decline seen in 2023.
Its revenue for Q1 2023 was $543 million, a $2 million drop compared to the previous quarter – $545 million in Q4 2022. By Q2 2023, the drop in revenue increased by $15 million, from $543 million to $528 million.
Although figures of losses sustained by the other unquoted telcos are unavailable, there are strong indications that all is not well. Several of them are owing interconnect fees and are generally unable or late in paying AOL. Consequently, the late and inability to pay AOL to the NCC tells a troubling story about the current situation.
In general terms, the sector is believed to be wobbling and in fits. Deposit Money Banks are also part of the telcos’ headaches, as they are believed to be indebted to the tune of about two hundred billion naira (₦200 billion) in unsettled unstructured supplementary service data (USSD) services rendered by telcos to the banks.
The telcos also bemoan the fate of their equipment and infrastructure across the country. They have advocated for comprehensive protections for their infrastructure by suggesting to the government to designate telecommunications equipment as critical national infrastructure (CNI). However, government officials say this is “work in progress” as the telcos wait in limbo.
Apart from these issues, they have had to contend with multiple taxations, whereby the Federal Government, states, and local governments put immense pressure on telcos for various taxes at different levels. In addition to the taxes, the Right of Way is an ongoing issue that has yet to be resolved, forcing telcos to endure it.
The telcos say that, “Notwithstanding the much-touted resilience of the telecommunications sector and its commendable double-digit contribution to the GDP, we wish to strongly impress on the NCC the pressing need to avert the grave risk looming in the industry’s horizon by taking clinical and definitive action towards repositioning the industry for growth and increased investments. Ultimately, it is our considered view that a thriving telecommunications sector will have a far-reaching effect on:
- Mobile network operators, as they will remain going concerns who can carry on sustainable operations with the overall intention of value creation and enabling connectedness;
- The maximisation of consumer welfare for Nigerians who, as the NCC rightly noted, are the most critical stakeholders in the telecommunications value chain; and
- The government itself, given that the net effect of a sustainable communications industry is bolstered investor confidence, increased contribution to GDP and, by extension, revenue growth in the form of payment of increased direct/indirect taxes and annual operating levies.”
