The telecommunications industry is facing significant challenges, burdened by nearly 46 different taxes imposed on mobile network operators (MNOs) and intermittent demands from state governments for funds to boost internally generated revenue (IGR). In light of these challenges, operators are considering raising tariffs to sustain their businesses and provide quality services amidst economic hardships.
With Nigeria’s economy facing considerable strain, characterized by tripled prices for commodities across various sectors, MNOs are anticipating potential tariff hikes for mobile telecommunications subscribers shortly. The sector has attracted over $76 billion worth of investments, with major operators like MTN, GloMobile, Airtel, and 9Mobile collectively connecting 318 million lines, out of which 220 million lines are active.
Operators have issued notices to both the regulatory body, the Nigerian Communications Commission (NCC), and subscribers, signalling imminent tariff increments. They argue that while consumer prices in other sectors have risen sharply over the past six years to reflect macroeconomic realities, telco prices have remained stagnant or even declined. This discrepancy has placed significant pressure on operators, eroding margins amidst challenging macroeconomic conditions.
Comparatively, other highly regulated sectors such as power and insurance have implemented price increases, with insurance prices rising by 200 per cent and power prices by over 240 per cent in recent times. Telcos highlight the adverse macroeconomic conditions, including a decline in domestic and foreign direct investments into the industry by 30.37 per cent and 46.9 per cent, respectively, between 2021 and 2022. Challenges such as sourcing foreign exchange and attracting investments have contributed to tough operating conditions, jeopardising the sustainability of quality service provision.
Operators initially considered tariff adjustments in 2022, when the economy, though not robust, was still relatively stable. However, the landscape has since changed dramatically. The escalating price of diesel, driven by Dangote Refineries’ entry into the market and uncertainties surrounding foreign exchange availability, has compounded existing challenges. Amidst this economic turmoil, operators find it increasingly difficult to maintain the status quo.
The Association of Licensed Telecommunications Operators of Nigeria (ALTON) identifies multiple taxation and infrastructure deficiencies as key obstacles to robust service delivery. Industry players emphasise the urgent need for the Federal Government to prioritise investment in telecoms infrastructure to support the digital economy’s growth in the country. As the telecommunications sector navigates these challenges, stakeholders call for proactive measures to address systemic issues and ensure sustainable growth and development.
They are of the view that the government should attract foreign investors to Nigeria and encourage local investors to invest in infrastructural development, particularly in rural areas.
In February 2024, Communications, Innovation, and Digital Economy Minister, Dr. Bosun Tijani met with ALTON chairman, Engr. Gbenga Adebayo and his team. They argued that the tariffs the regulator (NCC) set were inadequate considering the rising operational costs.
Adebayo highlighted that, unlike the telecoms sector, other heavily regulated industries like power and insurance had increased prices to reflect macroeconomic changes and the growing cost burden on operators.
He emphasized that the current service prices set by the Nigerian Communications Commission (NCC) are unsustainable, stating, “Insurance prices have surged by 200 per cent and power prices have increased by over 240 per cent as well. Despite local and global economic realities, “Telecommunications is the only sector without a pricing regulatory framework review”.
This situation has not only damaged investor confidence and depleted investible funds needed to enhance infrastructure for better service delivery but also jeopardised the sustainability of operators’ operations.
The challenge of Right of Way (RoW) persists, and operators are still grappling with how to address it.
The regulator seems unsure about how to proceed, especially given the crisis of confidence that operators purportedly have in it.
Recent data from the National Bureau of Statistics (NBS) shows a rise in inflation to 33.20 per cent in March 2024, up from 31.7 per cent in February 2024. This poses significant difficulties for businesses trying to manage staff welfare and make essential investments amid economic strains.
The chairman of the Technology Committee of the Nigerian Bar Association (NBA) section on business law, Effiong Ikemesit recently expressed concerns about the sustainability of Nigeria’s telecoms sector amidst ongoing economic challenges.
Inflationary pressures have led to price hikes across various sectors, including agriculture, beverages and services. Companies like Nigerian Breweries Plc and Netflix have adjusted prices multiple times this year to cope with escalating costs.
Ikemesit highlighted several challenges facing the telecoms industry, such as frequent fibre optic cable damages due to road construction and vandalism, multiple taxations, and difficulties in obtaining rights-of-way. These issues, coupled with exploitative rent-seeking practices, persist despite attempts to address them.
The telecommunications industry in Nigeria is currently facing significant challenges, primarily stemming from regulatory constraints and economic pressures. Ikemesit highlights the pivotal role of a conducive economic environment in fostering sustainable growth and innovation within any industry. However, he points out that regulatory limitations, particularly those inhibiting tariff adjustments, pose significant obstacles to the sector’s ability to adapt to market dynamics.
Industry players are grappling with the harsh reality of earning revenue in naira while bearing the brunt of about 80 per cent of their costs denominated in dollars. This currency misalignment is exacerbated by the continuous depreciation of the Nigerian currency, making it increasingly difficult for businesses to maintain profitability. The situation is further compounded by rising equipment import costs, necessitating urgent tariff adjustments to safeguard the industry’s viability.
Despite longstanding calls for tariff increases, regulatory hurdles have impeded progress. The reluctance to adjust tariffs, despite compelling economic factors, underscores the heavy regulatory framework governing the telecommunications sector. This sentiment is echoed by a prominent industry figure who emphasises the industry’s heavy regulation and the imperative for tariff adjustments to reflect escalating operational costs.
The delayed response to tariff adjustments since 2022, despite rising diesel costs and other operational expenses, underscores the need for regulatory intervention to ensure the industry’s survival. The commissioning of cost-based studies by KPMG, as mandated by the Nigerian Communications Act (NCA) 2003, signifies a step towards addressing the industry’s challenges in a systematic and evidence-based manner.
Sections 4, 90, and 92 of the NCA confer upon the Nigerian Communications Commission (NCC) the responsibility of safeguarding subscriber interests and regulating tariffs to prevent unfair practices. The commission emphasises its commitment to transparent and empirical cost-based studies to determine fair pricing structures that promote healthy competition and industry sustainability.
President of the Association of Telecommunications Companies of Nigeria (ATCON), Mr. Tony Izuagbe Emoekpere acknowledges the industry’s desire for tariff adjustments but underscores the importance of compliance with regulatory mandates. Operators eagerly anticipate the outcomes of the KPMG-conducted cost-based study, which is expected to inform regulatory decisions on pricing structures aligned with economic realities.
The impending decision on tariff adjustments hinges on the findings of the cost-based study and regulatory deliberations aimed at balancing industry viability with consumer interests. The current pricing structure, deemed unsustainable due to escalating capital and operational expenditures, underscores the urgency for regulatory action to ensure the industry’s resilience amidst evolving economic challenges.
The telecommunications industry in Nigeria faces pressing challenges necessitating regulatory intervention to address tariff adjustments in line with economic realities. The commission’s emphasis on evidence-based decision-making through cost-based studies signifies a commitment to fostering a competitive and sustainable industry landscape. Regulatory decisions in the coming months will play a crucial role in shaping the industry’s trajectory and ensuring its resilience in the face of dynamic market forces.
