FX, arbitrary rules leave telecoms to big four, cripple 568 firms

• Over 568 local service providers go moribund in five years
• Local content in telecom sector is 16%
• Small players lament as MNOs get 86% of industry’s revenue
• FX crisis, DMBs’ insensitivity to axe more players
• 90% broadband population coverage target threatened
• Experts canvass policy review to stem the tide

The fast depletion of the indigenous telecommunications firms is unsettling Nigeria’s telecommunications market with fear that falling foreign capital inflow into the sector, high cost of energy and foreign exchange (FX) market crisis will continue to push small and local operators out of the market.

Already, about 568 local firms have been inactive or moribund in the last five years, experts have disclosed. More could succumb to the harsh operating environment in the next few years unless the authorities take urgent and deliberate actions to salvage the ailing marginal players, The Guardian was informed.

The operators cut across different segments of the country’s telecoms market and their valuation is estimated at $77 billion. These players include internet service providers (ISPs), value-added service (VAS) providers, vendors, tower companies, fixed telephony operators (fixed/ fixed wireless), international data access (IDA) service providers among others. The operators are also referred to as tier-two and three service providers.

More worrisome is the fact that unlike other sectors of the economy, which have a good measure of local content, the telecoms sector can only boast of 16 per cent.

Specifically, a study commissioned by the Nigerian Communications Commission (NCC) showed that 84 per cent of hardware used in the sector is foreign.

The study also puts the current level of local content on software in the telecoms industry at a ratio of 77 per cent to 23 per cent to the advantage of foreign software manufacturers.

Besides the economic downturn in the last eight years, which has affected virtually all the sectors, The Guardian gathered that the crisis confronting the local players also stemmed from the fact that the big players, especially the GSM operators (tier-one) have made significant incursions into service areas that indigenous players played before now.

It was also gathered that in some areas, where there is a working relationship between the big players and local service providers, revenue sharing formula is suppressive and imposed on small operators.

Also, government-regulated voice and data tariff, which has not changed in over 15 years despite the increase in the cost of money, is another challenge crippling small players. The cost of borrowing and a sharp increase in the cost of operation has not been matched with pricing, a problem tier-two operators have not been able to solve.

Observations on this challenge revealed also that the $0.10 (10 cent) fixed price for international termination rate (ITR) has left players at a loss.

The challenge posed by Right of Way (RoW) levies and taxes charged by state governments has also not abated. Some states, including Lagos, Abuja, Osun, Oyo, among others are charging far above the N145/linear meter agreed to by the Nigerian Governors Forum. This has prevented smaller operators from getting service from the MNOs for onward transmission to other parts of the country, especially the hinterlands.

Findings also showed that the moribund local operators have been battered by their inability to access foreign exchange (FX) through the commercial banks for capital expenditure as well as the instability of the parallel market.

The NCC document, titled, ‘Subscriber/ Network Data Yearly Report for 2022’ showed how the sector and, indeed, each segment of the industry had performed.

In the 57-page document, which disclosed all the activities, including investments as regards the telecoms sector in 2022, NCC said that based on the submissions received from responsive service providers in the industry, domestic investment (CAPEX) was N785.7 billion as of December 2022 while operating cost was N2 trillion against revenue was N3.88 trillion.

Further analysis of the report showed that GSM players including MTN, Globacom, Airtel and 9mobile spent N718.3 billion on CAPEX, with an operating cost of N1.99 trillion and earned N3.329 trillion in revenue. The GSM operators’ earnings represented an 18.7 per cent increase when compared with N3.2 trillion recorded in 2021. The data also showed the big four accounted for 86 per cent of the industry’s revenue last year.

Fixed Wired operators invested N61.3 million, operated with N841.7 million and earned N385 million. The ISPs spent N5.24 billion on CAPEX with an operating cost of N71.2 billion while earnings were N92 billion. The VAS providers saw N417 million CAPEX, operated with N14.9 billion and earned N40.7 billion.

The Guardian gathered that as of last year, the total staff profile for the sector was 15,057. Expectedly, the GSM players employed 7,451 while fixed-wired operators had 260. ISP had 4481; VAS, 560; C&I, 1,762, while others, including tower companies, had 993 workers.

Industry analysts have noted that the financial war chest of the tier-one players would continue to work for them, coupled with the fact that they have a Universal Access Service Licence (UASL), which enables them to provide more services, unlike for instance, the ISPs, which are licensed to provide only Internet service.

According to them, the VAS sharing formula of 75 per cent to the big operators and 25 per cent to small players is another issue.

They posited that these are some areas that the Federal Government and NCC should look into to bridge the gaps before the situation gets out of control.

At a recent telecoms’ forum, which brought the regulator and operators together, Head, Enterprise, FibreOne, Kehinde Joda, confirmed the crises in the sector, stressing that about 568 local operators have become inactive.

Joda said the sector is associated with many bottlenecks, which have been aggravated by the poor economic situation in the country and the inability to hasten expertise strategies among others.

Speaking with The Guardian, he disclosed that unlike the big operators, which can get FX from the official source, the small firms cannot source FX “meaning that players had to resort to the black market, which of course, is costly.”

He said apart from vandalisation of telecoms infrastructure, the cost of diesel has gone up.

“For instance, early last year, we went from buying diesel at N350 per litre to buying at N960 per litre in April 2023. All ISPs are powered 24 hours to avoid customer dissatisfaction. We don’t rely on power from the grid. 40 per cent of OPEX cost for operators goes to power. Imagine this impact on indigenous operators and SMEs, which run businesses on a thin line and should there be any mistake, the business goes under,” he stated.

According to him, without any cushioning effect, experts have warned that 90 per cent of local telecoms operators may go burst within the next four years.

“Already, 568 licensees are already inactive. This put a question mark on the fate of the mobile virtual network operator (MVNO) licenses the NCC is giving out now. ISPs, VAS and others are dying and you are still giving out licenses and no protection for the indigenous operators,” he said.

He said a foreign operator can enter Nigeria with $1 million and do something big, whereas an indigenous operator with N100 million cannot do anything.

“Going by the exchange rate situation, $1 million is about N1 billion, compared to an indigenous operator’s N100 million. That is 10 times. You can see the gap and how the foreign player will do better,” he added.

The FibreOne chief pleaded that the Federal Government commits to local content, which will put the indigenous firms at a better vantage. He also called for a review of the revenue-sharing formula between small and big operators.

Speaking specifically to the importance of the ISPs in the country’s quest for ubiquitous broadband and 90 per cent population penetration, the Chief Executive Officer of VDT Communications Limited, Biodun Omoniyi, urged the government to come to the aid of the business.

Omoniyi, who referred to ISPs and small and medium enterprises (SMEs) in the telecoms, disclosed that players are dying and the market is shrinking very fast daily.

“Indigenous ISPs are disappearing, more than 200 have been licensed so far by the NCC, but only a few of them are still operating. They are largely SMEs and need support to survive,” he said.

Omoniyi added that the implementation of the National Broadband Plan 2020-2025 requires the input of every stakeholder to succeed, hence the ISPs, which play significant roles in taking the services to the last mile, must be supported.

“We need to carry everybody along and one way is to keep the ISPs alive. We need the majority of them around to keep employing people and to take the service closer to the people. There is a need for targeted intervention for them to survive,” he added.

While calling NCC to play the role of an umpire and frown at any anti-competitive practice from the bigger players, the VDT boss regulation probably favours the bigger ones. He stressed that regulation should be targeted at promoting the ISPs, the smaller ones.

The Managing Director of Information, Connectivity Solutions Ltd, Yemi Oshodi, said small operators face the challenge of cost, among others.

Oshodi, who said the sector needed more infrastructure and sensitisation of the public on the significance of telecoms industry to the economy.

According to the Chief Executive Officer of Liquid Intelligent Technologies, Wole Abu, cost is a dependent variable for the sector.

Abu said macroeconomic challenges in the country are affecting, especially small players in the telecoms sector, stressing that access, affordability and infrastructure are key to economic growth.

At the forum, organised by the Association of Telecoms Companies of Nigeria (ATCON), the Executive Vice Chairman of the NCC, Prof. Umar Danbatta admitted the challenges in the sector, noting that the MSMEs in the industry, have been bearing the brunt of the high cost of doing business and the regulated low-price regime in the telecoms sector.

“When we met with the Minister of Communications, Innovation, and Digital Economy recently, he acknowledged that indeed, there is concern about the rising cost of doing business. This is an issue the minister is prepared to address in the not-too-distant future,” he said.

While noting that the talks of reviewing prices to reflect the rising cost of doing business are still ongoing with the Minister, Danbatta said: “When you pronounce a price that is very regulated for your product, it should come with a margin of profit for you to recoup your investments and be able to repatriate your profit, if your company is not an indigenous company.

“We observed that recently, services are being sold below the cost of production and as such for the first time, telcos recorded losses, especially the middle ones. The smaller ones are being squeezed and their growth is being stifled by the big ones.”

A telecoms expert, Kehinde Aluko, lamented that local content policy in the telecoms sector has been watered down “unlike in the oil and gas sector, where things are working and priority are given to indigenous players. Something must be done on this if the players must increase their contribution to the sector.”

Aluko appealed to NCC to review the voice and data tariffs and align them with the present reality. He urged the FG to see telecoms infrastructure as a critical asset and provide lower customs tariffs/incentives to promote investment in this sector and that it (FG) should increase its focus on broadband penetration, especially in unserved and underserved communities’ areas.