Dailyreport
Massive naira devaluation and inflation threaten telecom firms
The Nigerian telecommunications industry is in danger because it is struggling with a storm of low investments and rising prices. Government policies that aren’t always consistent, like an all-time high inflation rate and forex crises, have made things hard for the industry. Customers are paying more for bad data and call services.Massive naira devaluation and inflation threaten telecom firms
Operators are in a tough spot and are eagerly waiting for the government to step in and help them stay in business. Even though they have begged for help with regulations and policies many times, they have been met with a wall of silence, putting them in a dangerous situation.
Because of this, the industry that used to be the best place to invest money in Nigeria is slowly turning into a shadow of its former self. This is due to global instability and risks that are unique to Nigeria, as well as record losses and poor financial performance among operators.
Due to rising prices and falling currencies, the business environment has become difficult, resulting in this big drop. Players in the industry are facing coma-inducing problems, especially when it comes to operational costs. These problems are made worse by things like falling foreign exchange rates and a lack of resources. Others are rising inflation, which reached 33.88% in October 2024, rising diesel prices, and rising input costs because the naira is losing value.
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The telecoms sector has been an important part of Nigeria’s economy since it began to grow in the early 2000s. The services sector is very important to the economy as a whole. It was especially important in helping the country get out of a recession in the fourth quarter of 2020.
A report from the Global System for Mobile Communications Association says that Nigeria’s highly competitive telecommunications sector has led to rapid growth in mobile broadband coverage.
It said, “MTN is the largest mobile service provider with a 50.50 percent subscriber market share, beating out several other large mobile service providers and some major fiber-only network operators.” Airtel, Globacom, and 9mobile come in next with 34.76%, 12.39%, and 2.35 %, respectively.
There are more ways that the digital sector helps the economy as a whole than just the direct value that companies in the sector add. The sector’s effect on the productivity of other sectors is what makes it most important to the overall GDP.
But the sector is about to fail because the rising costs of serving a population with 218 million mobile subscriptions and 92 million broadband internet subscriptions are making it impossible for it to stay in business. Fewer dollars are being spent on infrastructure, which means that network maintenance and growth are slowing down sharply. Network services are getting more and more overloaded as a result, causing widespread connectivity problems that affect millions of people and businesses.
The government is still watching from afar and not doing anything to help solve the sector’s growing problems. The sector’s weakness makes it even more important for strategic help and intervention to stabilise and restore this important part of Nigeria’s infrastructure.
There’s no doubt that the telecommunications industry is having its worst time since it became more open to competition in 2001. Investments worth more than $68bn are in danger.
The end of the fuel subsidy and the harmonisation of foreign exchange rates made inflation worse in 2023 and have kept it going this year. Before the two policies were put in place, inflation rose from 21.82% in January 2023 to 22.41% in May 2023. It went from 22.79 percent in June 2023 to 29.90 percent in December 2023 after the policies were put in place.
With a rise of 16.72%, headline inflation went up even more from January (29.90%) to June 2024 (34.0%), with a short drop to 33.0% in July, which was the first drop since December 2022. The prices of goods started going up again in August and have been going up ever since.
There will likely be another rise in inflation in the coming months after the price of premium motor spirit went up to over N1,060 per litre. Nigerians say that poorly implemented policies have made it harder for many people to buy things, which has had an effect on businesses.
The International Monetary Fund (IMF) recently said that Nigeria is having a hard time because of its high inflation. It also made it clear that broad economic reforms started by the current federal government are still having trouble having a positive effect 18 months later.
Also, the value of the naira has dropped dramatically on both official and black markets. The government is still trying to stabilise and strengthen the naira against the US dollar, but it isn’t working, and the value of the currency is dropping at an alarming rate.
In just one year, from November 2023 to November 2024, the currency lost 108% of its value on the official foreign exchange market because there weren’t enough dollars. This happened despite the Central Bank of Nigeria’s policy measures.
This is true even though the CBN’s external reserves have grown by 20.3%, or $6.78bn, in 13 months, giving it the power to defend the naira. They now stand at $40.8bn as of November 26, 2024. The CBN says this amount was less than the $33.46bn that was recorded on September 4, 2023.
On the parallel market, also known as the “black market,” the naira lost 88.17% of its value when the dollar was bought at N1,750 on November 29, 2024, compared to N930/$1 on September 8, 2023. This was shown by data from street vendors and some online platforms that track exchange rates at the unregulated market.
The current state of Nigeria’s economy is not looking good. At the same time, discussions about reviewing telecoms tariffs are becoming more important. This is bringing attention to the need for a delicate balance between economic realities, quality of experience (which has a direct effect on customer satisfaction), and the long-term viability of the telecommunications industry.
Diesel use is a major factor that affects the reliability and progress of Nigeria’s telecommunications sector. With many sites spread out across the country, a lot of them run on generators 24 hours a day, seven days a week, which means they need a steady supply of fuel. The rising cost of diesel, which is used to power more than 40,000 base stations, has an effect on both operational costs and the maintenance of infrastructure as a whole. Different industries are seeing prices go through the roof, and the telecom industry is still struggling to keep up with the costs of providing good services. This has made the operators’ subscriptions and revenue growth look less important.
According to the nine-month report of major telcos listed on the Nigerian exchange, MTN made a profit of N4.1bn but a big loss after taxes of N514.9bn. This was mostly due to big losses in foreign exchange. The biggest telecom company also said that its adjusted profit after taxes was N118.5bn, which is 59.2 percent less than the previous year.
If the company hadn’t lost money on foreign exchange, this new number shows that it would have made money during this time.
In addition to the $79 million profit after taxes that Airtel Nigeria made, the company also lost $151 million in unusual derivative and foreign exchange losses (net of tax). These losses were caused by the Nigerian naira falling even more during the period.
Karl Toriola, CEO of MTN, spoke at the launch of the Nigeria Digital Economy Report published by the GSMA in May 2024 about how bad the investment climate is for Mobile Network Operators. He said that tough macroeconomic problems have made investors much less willing to put their money in this capital-intensive sector.
The GSM Association is an international group that looks out for the interests of mobile network operators around the world. Their new report looks at the Nigerian economy and the government’s plan to become more digital.
Toriola said that the telecom industry’s return on capital is currently negative because, unlike banking and other sectors, it doesn’t make heavy investments all the time to maintain and improve its infrastructure.
“First, let me say that we’ve had a lot of success in this business,” he said. In some ways, we are now victims of our own success, because when you read about N2tn revenue, you automatically think that we are making a lot of money.
“But the truth is that the telecom industry’s return on capital is negative right now. Even when it was doing well, if you put N100 million into banking, telecoms, and other sectors, telecoms had the lowest return, and that was before the naira fell in value.”
“Before the naira fell in value, our dividend payout was about 5%, while most banks were seeing 12%.” We are now experiencing devaluation, which means that our returns are negative due to the high costs of running services and constantly growing networks.
“What makes our industry different from others is that we constantly reinvest between 10 and 20% of our top-line (high-cost) quality into the networks to keep up with steady CAPEX and power infrastructure. We need the money to replace fiber-optic cables that have been cut multiple times or are no longer useful.” Also, money needs to be spent to bring base stations up to date with modern technology, switch to new technologies like 5G, and make more room for fibre.
The CEO of MTN also said, “So the telecoms sector is now a painful place for investments for foreigners, the stock market, and Nigerians as well. It used to be the poster child for investment across Africa.”
Major telecom companies like Airtel, MTN, GLO, and 9mobile have kept their prices the same for more than ten years, even though problems like inflation and the value of the currency have been getting worse. Other industries have changed their prices to reflect changes in the economy.
Since 2022, when ALTON wrote to the Nigerian Communications Commission to ask for permission to raise rates by 40% because of rising diesel prices and economic problems, telcos have been calling for a price review more than ever.
The operators said that their general service pricing framework hasn’t been changed for the better in eleven years because of rules set by the government.
The telecom companies are pushing for cost-reflective tariffs because they say that bad economic conditions are making it impossible for them to stay in business.
As things stand, the telecoms industry’s long-term survival depends on finding a fine balance between two very different needs: the needs of consumers for affordability and quality of experience, and the needs of operators for making money and staying in business.
In a statement signed by the Association of Licensed Telecom Operators of Nigeria and the Association of Telecommunication Companies of Nigeria, the telcos said, “The current price control mechanism is not in line with economic realities. It threatens the industry’s sustainability and can erode investors’ confidence.”
The minimum price for calls would have gone up from N6.4 to N8.95 and the maximum price for SMS would have gone up from N4 to N5.61.
In August, Toriola, the CEO of the company that didn’t pay dividends to its shareholders for the first time in 2023, spoke at another virtual telecom investment forum in Lagos. He stressed that rising economic pressures would force prices of services to go up.
He said that the falling value of the naira, higher general inflation, rising energy costs, and the implementation of the 2023 Finance Act VAT on tower leases all led to higher operating costs in 2023.
He also said that Nigeria’s telecommunications sector was “in intensive care” right now, which is a harsh description of the serious problems the industry is having and the urgent need to step in to stop it from getting worse.
The CEO of MTN said that the sector had done better than expected over the past 20 years, but that it is now in danger because of rising costs and prices that can’t be kept up.
There are a lot of problems in the telecom sector, and if something isn’t done soon, it will shut down. The truth is that investors won’t come to the sector if the basic problems aren’t fixed. He said this at an investment forum put together by Financial Derivatives Company: “The telecom sector is in the ICU stage.”
The CEO of MTN Nigeria also said, “There’s no way that an industry can keep prices the same for 11 years in a world where prices are rising and currencies are losing value.” From the high cost of capital to the rising costs of keeping things like base stations and diesel generators in good shape.
“The industry’s ability to work and attract investment is at risk without price changes.”
It is important for the sector to have a steady flow of investment to drive technological progress and encourage growth. Capital, on the other hand, tends to stay away from places where it won’t make money.
The GSMA report says that the telecoms sector faces major problems in many areas of its business. These problems have slowed the financial performance of the mobile industry, with energy costs being the main one. It said that the rising cost of power, especially diesel for sites, has affected operating costs, and that the cost of setting up and running fiber-optic networks is also rising quickly.
Diesel is an important fuel for telecom infrastructure like base stations. A study of the industry says that operators power telecom sites with an average of 50 million litres of diesel per month.
In November, telcos spent an average of N70.3bn on diesel, which is 110.48 percent more than the N33.48bn they spent on diesel in the same month of 2023, when the price was N836.91/litre.
Mobile service providers need to make enough money to cover their costs and keep up with this level of capital expenditures for the next few years. Their plan is to cut back on either capital or operating costs, or both, if this doesn’t happen.
The cost of building and running fiber-optic networks has gone up because getting Rights of Way from state officials is hard and expensive, and there are a lot of fibre cuts, mostly from construction work and vandalism.
Because of this, phone companies need to find ways to deal with their power problems.
However, as Daddy Mukadi, the Chief Regulatory Officer of Airtel Africa, pointed out, putting these solutions into action will require a lot of money, which is unlikely to be available right now because investment conditions are so bad.
Daddy also spoke at the GSMA event and said, “There are solutions, but they need money.” For example, you need to spend a lot of money on solar panels and strong batteries to get long-term benefits.
“It also costs a lot to switch from diesel to a hybrid system that uses solar power.” Before the drop in value, investors got their money back in nine years. Now, they get it back in about thirteen years. “Investors don’t want to have to wait that long to get their money back.”
Another report from McKinsey says that telcos could cut their energy costs by 15 to 30 percent a year if they connect to the grid, use solar panels, and charge their batteries with lithium.
The exact amount of money they save will depend on how they currently manage their energy and how much solar they add, the report said.
Mount has been given permission to build a mini-grid, but it’s still unclear how this will be perfected because of the high cost.
Investments go down
It wasn’t until the government put in place certain policies in 2023 that the full effects of a tough investment climate in the telecommunications sector became clear. However, data gathered by our reporter showed that investors’ interest in the sector has been steadily falling since 2021, indicating worries that had been building for years.
This drop, which policymakers mostly ignored until the last few years, is part of a larger trend of less trust in the sector. It may also take longer to reverse the downward trend that stakeholders have caused because they haven’t done anything.
A look at the telcos shares price index, which shows how willing investors are to put money into a company, showed that its stock has been going down for three years in a row.
The share price of MTN Nigeria dropped from N284.90 on July 25, 2023, to N170 on November 15, 2024. This information comes from AfricanFinancials.com, a website that keeps you up to date on the stock exchange of listed companies in Africa.
After going public on the Nigerian Stock Exchange in 2019, the company had been steadily growing until this point. It went public on May 17, 2019, with a share price of N108.90, but by the end of the year, it had dropped to N105.00.
That number went up by 61.8%, though, to N169.90 at the end of 2020. Its share price went up even more in 2021, rising another 1% to N182 by December 31 of that year. The stock price of the company peaked at N255.50 in 2022 and then fell to N215 by December 31, 2022.
Airtel Africa had a rough year in 2022. Its price share dropped the most, from N2,000 on October 4, 2022, to N1,270 by November 16, 2022. But at the end of the year, each share was worth N1,488.
During 2023, investments continued to lose value and fell to N1,175 on May 23, 2023. However, by the end of the year, they were worth N1,887 as of December 29, 2023.
The share price of the company has been trading around N2,000 all year, with some drops below that level. As of November 15, 2024, it was sold for N2,156. The difference from one year to the next is 20%.
On the other hand, Zenith Bank’s share price has gone up more than any other sector during tough economic times. It went from N10.70 on March 23, 2020, to N43.30 on November 15, 2024, an increase of 304.67%.
One of Aliko Dangote’s businesses, Dangote Cement, saw its market share price rise from N142 on January 2, 2020, to N478 on November 15, 2024. This is a 236% increase. The highest market share price for the company this year was N763 on February 13, 2024.
Between January 2023 and November 2024, Guarantee Trust Holding Company raised the price of its market share by 140%.
Experts say that these businesses have been able to stay in business and float because there are no rules that stop them from charging tariffs that are fair and reflect the cost of their goods. By changing their prices based on how the market is doing, they can make sure that their costs are in line with the dynamics of supply and demand. This way, they can stay profitable even when the market is changing.
Nigerians are sad.
Especially since the start of 2024, the quality of network services has become a big problem. Audio calls are constantly being interrupted and dropped, which makes it hard to communicate. Internet services are also not reliable; they often go down and don’t work well, especially during the most important work hours of the day.
The idea that holding a cell phone up to the sky will improve service seems to be more than just a myth now that it has been tested and found to work for some users. This event shows how bad things really are with network infrastructure right now. Our reporter, who went all over the country, saw that these signal-chasing habits are typical of the uneven and inadequate level of internet access across the country.
Connectivity is getting worse in cities because of overloaded networks and overworked infrastructure, but in rural areas, people often don’t have access to reliable internet at all. This widens the digital divide and makes it harder for businesses to grow and for people to join together.
It won’t be long before some communities don’t have networks and others do. This growing difference will certainly affect everyone, including journalists. It’s now slow and annoying for people who work in the media to send messages, post videos, and even do basic research online. What used to take minutes now takes hours because uploads take so long. This makes it much harder to report news in real time and stay in touch with viewers.
Nigerians have asked the government not to approve a single percentage tariff until the operators come up with new ways to improve their services.
Respondents who use their phones for business told The PUNCH in separate interviews that there was no reason for the price increase.
A businesswoman named Esther Ocha spoke out strongly against the plan during a survey. “Why would they want to raise the data in call tariff for what?” she asked. What is their reason for wanting to raise this? Is it because of inflation or something else? Network should show me shege; that one is better. The government shouldn’t raise tariffs.
Another person who didn’t want to be named said, “Telcos are taking advantage of us; when you buy data, it doesn’t even last as long as it’s supposed to.” You don’t even make the most of this data like you should. Anything they want to do now that will make them raise their prices is extortion. They were already extorting us before, but this is the worst of it.
Micheal, a third respondent, told the government that they should raise the value of the naira. He said, “We can’t have every sector raise the prices of the goods and services they offer.” The government should raise the value of our naira because the cost of living is going up and money isn’t getting any more valuable.
But the National Association of Telecoms Subscribers said it would be okay for rates to go up by a small amount.
In an interview, Adeolu Ogunbanjo, president of NATCOM, said, “As a customer, your first thought is that prices shouldn’t go up, but they’ve been using the tariff for 11 years. Tell me something that hasn’t gone up in the last twelve months.” The radio gear they put on Mars so we can get good service is also paid for in dollars; we don’t make them here.
“We have to pay for services so that they can stay in business, so they shouldn’t charge us, but if we want good services, we have to be ready to pay a little more so that we don’t kill the telecoms industry.” The only thing that makes our businesses, daily lives, and social media activities fun is telecoms. I think I would agree to a small rise of no more than 5% so that we can now demand good service.
He was also sure that approval would come before the end of the year: “I’m sure they’ll give approval before the end of the year.” Don’t forget that the network will be under a lot of stress in a week or two because of the holidays. I’m sure that NCC will grant it between now and December, which is the end of the year, because we meet regularly now.
Reuben Mouka, who is in charge of public affairs for the NCC, didn’t answer questions about these issues.
