Guardian Nigeria
From losses induced by foreign exchange exposures to increased operating costs, a chunk of vandalism, closure of sites and a significant drop in investments, this is not the best time for Nigeria’s telecoms sector, ADEYEMI ADEPETUN writes.
Nigeria’s $76 billion telecoms sector is currently under the weather and desires urgent medical attention from within and outside.
The resilience known with it is fast disappearing. Nigeria’s telecoms sector is becoming highly vulnerable. Already, due to arbitrary charges and other challenges, the sector is left with the big four, where over 568 others, largely indigenous are either comatose or completely out of business.
Even the big four are no longer immune; they have become highly susceptible to collapse. Just recently, due to the depreciation of the naira, some operators had a combined loss of N511.27 billion to forex exposure.
Specifically, in the first quarter financial statements of Airtel Africa, the Q1 loss after tax was N118.57 billion ($91 million), compared to its Q1, 2023 profit after tax of N104.65 billion ($227 million),
Similarly, MTN Nigeria’s N108.43 billion profit after taxes for the same time last year was not the same as its N392.69 billion loss after taxes a year later. Foreign exchange headwinds were the reason given by both telcos for these losses.
Checks showed that it had never been this bad as the cloud appeared not getting cleared anytime soon.
Industry milestones
WHILE the crisis remains frightening, statistics from the Nigerian Communications Commission (NCC) showed that as of Q4, 2023, telecoms sector’s contribution to the country’s GDP was 14 per cent. While the operators have connected 320 million telephone lines, there are, however, 219.3 million active users as of Q1, 2024 with teledensity of 101.2 per cent.
Network optimisation showed that 2G use remains very huge, an indication of slow expansion of other generations of the network. Specifically, 2G penetration is 56.9 per cent; 3G, 9.04 per cent; 4G, 32.7 per cent and 5G, 1.24 per cent.
Internet usage showed 164.3 million users via the narrowband, while broadband has 94.3 million users and 43.5 per cent reach with data consumption reaching 753,388.97 terabytes. Nigeria has over 34,000 telecoms towers and 127,000 base stations.
Despite the impact of NIN-SIM linkage issues, which ensured that some 12 million lines were barred, NCC data showed that MTN remains the largest operator with 81.7 million users and 37.35 per cent reach; Airtel, 63.3 million and 28.93 per cent; Globacom, 62.1 million and 28.4 per cent and 9mobile, 11.6 million and 5.32 per cent market penetration.
Investments drying up
BUT the National Bureau of Statistics’ (NBS) capital importation data showed a drop in the sector’s investment. For instance, the telecoms sector only attracted investments worth $134.75 million in 2023 compared to $456.83 million in 2022, a decline of 70.50 per cent yoy.
On a quarter-on-quarter basis, foreign capital inflow into the telecoms sector decreased by 64.33 per cent to $22.84 million in Q4 2023 compared to the $64.05 million received in Q3 2023.
According to NBS, the telecoms sector accounted for 2.10 per cent of the total capital inflow into the economy in Q4 2023 compared to the 9.78 per cent it recorded in Q3 2023.
According to Proshare analysis, total capital importation into Nigeria in 2023 was $3.91 billion, lower than the $5.33 billion recorded in 2022, indicating a decrease of 26.77 per cent. On a q/q basis, capital importation increased significantly by 66.27 per cent to $1.09 billion in Q4 2023 from $654.65 million in Q3 2023.
The implication is that the telecommunications sector is feeling the strain of the country’s economic challenges, which is evident in the shrinking industry metrics. In 2023, the sector’s GDP growth rate dipped to 8.90 per cent from the previous year’s 10.70 per cent.
Industry players are contending with significant challenges, particularly regarding operational costs. These challenges are exacerbated by factors such as foreign exchange devaluation and scarcity.
Operators not investing
TO further confirm the crisis of slow investments, the Chief Financial Officer of MTN Nigeria, Modupe Kadri, recently said that the company now has less money to invest in infrastructure as the ongoing forex crisis in the country has eroded the value of its capital spending, which is fixed in naira.
Kadri told Nairametrics that the devaluation of the Naira is impacting all telecoms operators as most of their expenditures are in dollars while they earn in Naira.
“Now, it is a matter of cutting your coat according to your clothes. We are in an unusual time. From a governance perspective, our CAPEX is fixed in naira, so the devaluation of the naira does mean that you are going to get fewer dollars to spend.
“But we’ve been here before, this is not the first time we’ve been in difficult times; 2017 was one COVID was another, and then this 2023/24. We just have to adjust and prioritise, focus on what is important,” he said.
More challenges ahead
CHAIRMAN of the Association of Licensed Telecommunications Companies of Nigeria (ALTON), Gbenga Adebayo, said the industry is facing some challenges and needs the intervention of the government to salvage itself.
Adebayo, who bemoaned deteriorating infrastructure due to a steep drop in investment, said: “The decline is blamed on economic challenges, leading to outdated systems, poor service and price hikes.”
He argued that telecoms companies are struggling financially and may be forced to shut down if the situation doesn’t improve. He said the current prices don’t cover operational costs and the operators have requested a dialogue with the government to find a solution that balances affordability for consumers with their financial viability.
Adebayo emphasised the need for government intervention. He points to the energy sector as an example of where neglecting infrastructure investment led to problems. He urged policymakers to create a more attractive investment environment to spur growth in the telecoms sector.
“Without urgent action, millions of Nigerians could lose access to vital communication services. The government and industry stakeholders need to work together to find a sustainable solution that ensures Nigerians have access to reliable and affordable telecommunication services,” Adebayo stated.
Sister advocacy platform, the Association of Telecommunications Companies of Nigeria (ATCON), said the sector’s infrastructure development requires substantial investments in network expansion, maintenance, and technology upgrades.
NCC charged
ATCON President, Tony Izuagbe Emoekpere, averred that 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.
“For a fully liberalised and deregulated sector, the current price control mechanism, which is not aligned with economic realities, threatens the industry’s sustainability and can erode investors’ confidence,” he affirmed.
But telecoms expert, Kehinde Aluko, is optimistic that the sector would weather the storm.
While calling on the Dr Aminu Maida-led NCC to stir up the sector with needed activities, Aluko noted that the increasing adoption of advanced technologies, an Internet market with untapped potential, an underserved rural population, and favourable demographics, may help the sector to wriggle out of the current challenges.
