One morning, when you wake up to find that your mobile phone has no network connection, don’t panic. Just know that load shedding by mobile network operators (MNOs) might have begun.
Recently, the operators gave notice that this was a potential remedy to remain in business and continue providing services, even if on a skeletal basis. Their plans are driven by the ongoing economic crisis, particularly the challenges in power supply for their numerous base stations. The high costs of maintenance, including vandalism and diesel supplies, have skyrocketed, forcing them to consider load shedding as a survival strategy.
Maintaining cell sites is no easy task. Power supply from public sources is not only expensive but also unreliable in Nigeria. Telecom companies spend a fortune on diesel to keep their generators running. When telecom services started in 2001, operators were promised 18 hours of daily power, but the reality has been far from that. On average, they get only 8-10 hours of power daily, and even that is for the fortunate few, meaning they’ve had to fill the gap with costly alternatives.
There are over 40,000 base stations nationwide, and if operators implement load shedding, about 30 to 40 per cent of these base stations will be shut down or, at best, provide skeletal services. Of course, subscribers will bear the brunt.
Unconfirmed reports suggest that about N400 billion was spent on diesel alone in 2023, with costs likely to rise as there appears to be no respite in the economy or the supply of diesel. Vandalism has also been a significant issue, causing frequent downtime due to damage to telecom infrastructure across the country.
The chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON), Gbenga Adebayo, recently expressed concerns at a public forum. He noted that “recognising the pivotal role of the sector, the Federal Ministry of Communications, Innovation and Digital Economy (FMoCIDE) set a four-year ambitious growth plan for the telecommunications industry in its 2023-2027 Strategic Blueprint.” This plan includes a 22 per cent increase in the sector’s net contribution to GDP, a 15 per cent year-on-year increase in investment, and a 100 per cent increase in yearly net revenue to the Federal Government—all to be achieved by 2027.
However, Adebayo is worried that “it is impossible to achieve any of these lofty policy targets and the long-term financial sustainability of the sector without actionable strategic and tactical actions.” While headline statistics, such as the ICT sector’s GDP contribution and telecommunications’ 5.67 per cent share of quarterly capital importation in Q1 2024, appear encouraging, a deeper analysis reveals troubling declines. Domestic capital expenditure (CAPEX) and foreign direct investments fell by 30.37 per cent and 46.9 per cent, respectively, between 2021 and 2022, while operational expenses surged.
Records show that major licensees have reported losses in Financial Year 2023 and half-year 2024 due to the impact of these macroeconomic headwinds. For instance, in FY 2023, MTN Nigeria reported a net ₦137 billion loss amidst naira devaluation, while Airtel Africa suffered a $549 million FOREX loss due to currency devaluations in Nigeria. A further downward trend is expected in the 2023 Industry Year-End Performance reports.
Amidst these challenges, the perennial issue of multiple taxation persists, with telecom operators paying around 54 different kinds of federal, state, and local government taxes and levies. These include illegal taxes imposed by sub-nationals—taxes not explicitly stated in the Taxes and Levies Act but applied discriminately to the Nigerian Communications Sector. New taxes often emerge due to overlapping regulations, with agencies creating state or local versions of federal taxes. Even the National Assembly is considering numerous bills seeking to impose levies on telecom operators to finance new and unrelated government agencies. This may be attributed to the perception that the telecommunications industry is highly profitable and, therefore, a ready ‘cash cow’ for various government entities trying to shore up dwindling internally generated revenues.
In addition to rapidly increasing operational expenses (OPEX), operators must contend with macroeconomic headwinds, including spiralling double-digit inflation (34.19% as of June 2024, per the NBS), FOREX volatility, and associated currency depreciation (with the Naira closing at N1,505/US$1 as of June 2024). The monetary policy rate has also increased to 26.75 per cent, and energy costs have soared, with the average retail price of diesel at N1,462.98 according to NBS June 2024 reports—a 4.20 per cent and 79.32 per cent increase month-on-month and year-on-year, respectively. This single production input (i.e., energy) accounts for a significant percentage of telcos’ OPEX (≥35 per cent).
The existing regulatory determinations on voice and data service rates, around which industry retail prices converge, are outdated and do not reflect current macroeconomic realities. For example, the current price floor of N6.40/Minute for voice calls was instituted in December 2016, and the industry average of N0.10/MB for data was set further to the Commission’s suspension of the then-interim data price floor of N0.90/MB in November 2016. At that time, the monthly average exchange rate across various channels was N373.64/US$1, and the inflation rate was around 18.48 per cent. Yet, the rigid tariff regime that currently exists has not allowed the sector to respond to increased input costs and market dynamics.
ALTON recommends creating a sustainable, low-interest targeted Infrastructure Funding/Financing framework to enable improved telecommunications infrastructure deployment. A dedicated FOREX window for computing Import Duty Levies payable for the clearance of telecommunications equipment at the ports through the Nigeria Customs Service would also be helpful. Additionally, introducing import duty waivers or reductions on telecommunications equipment, as well as investing in local device assembly plants, could provide much-needed relief.
Apart from asking for higher tariffs to remain in business, the operators are seeking incentives from the government to sustain their operations. A breakdown of what’s happening indicates that these companies are finding it increasingly difficult to keep up with the costs of running their operations. They appear to be drowning in taxes, with tax rates on these companies reaching as high as 39 per cent, according to a PricewaterhouseCoopers report. This substantial tax burden takes a significant chunk of their revenue, leaving them with less money to invest in improving their services.
In addition to high taxes, limited funds for CAPEX and escalating operational costs are compounding the challenges. Despite their struggles, including multiple taxes, rising energy costs, and mounting debts—especially on interconnect fees and amounts owed by Deposit Money Banks—the Nigerian Communications Commission (NCC) remains unconvinced about tariff hikes. The regulator perceives the load shedding as a veiled threat from the telcos to force a tariff increase. The NCC is unfazed, asserting that it will not be blackmailed into approving price hikes, stating that such tactics are not conducive to resolving the industry’s challenges.
Load shedding and tariff hikes may offer short-term relief for telecom operators, but in reality, they should be pushing for long-term solutions. Operators face potential regulatory backlash, especially if the NCC and consumer groups like the National Association of Telecom Subscribers of Nigeria (NATCOMS) resist tariff increases or if service quality declines sharply.
Moreover, if consumer satisfaction drops, operators could see a rise in churn rates, where customers switch to competing providers. Although the Nigerian telecom market is somewhat oligopolistic, with a few major players like MTN, Airtel, and Glo dominating, dissatisfied customers might still seek alternatives. The situation is still unfolding, but it’s clear that Nigerian telecom companies are in a tough spot. Whether they proceed with load-shedding, hike tariffs, or find another way out, the industry is at a critical juncture. For now, all we can do is wait and see how this plays out, hoping it doesn’t end with us having to pay more for worse service.
