By Sonny Aragba-Akpore
By the time you wake up one faithful morning to the observation that your mobile phone has no network connection, don’t panic please. Just know that load shedding by Mobile Network Operators (MNOs) has begun.
The operators served notice recently that this was going to happen as one remedy to remain in business and continue to provide services no matter how skeletal.
Their plans are predicated on the crisis in the economy and especially power supplies for their large number of base stations due to high cost of maintenance including but not limited to vandalism and diesel supplies whose cost they reasoned had hit the roof.
To keep cell sites running is not a tea party they reasoned.
Power supply from public source is not only expensive and often unavailable but also unreliable in Nigeria, and these companies spend a fortune on diesel to keep generators running.
Originally promised 18 hours of daily power when telecoms started in 2001, but reality has dawned on everyone and this supply promise is a far cry from that. On the average, they get only 8-10 hours of power daily, for those who are fortunate, meaning they’ve had to fill the gap with costly alternatives.
There are over 40,000 base stations nationwide and if the operators implement the load shedding, about 30 to 40 percent base stations will be shut down or at best provide skeletal services and of course, subscribers will bear the brunt.
Unconfirmed figures indicate that about N400 billion was spent on diesel alone in 2023 and the figures are likely to rise as there appears to be no respite in the economy and supply of the product.
Vandalism has been a major headache too as the sector experiences incessant downtime as a result of damage to operators infrastructure across the country.
Association of Licenced Telecom Operators of Nigeria (ALTON) Chairman, Gbenga Adebayo, said at a public forum recently that “recognizing 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, which include amongst others:
– 22% increase in telecommunications sector’s net contribution to GDP;
– 15% y-o-y increase in investment to the telecommunications sector; and
– 100% increase in the yearly net revenue of the telecommunications sector to the Federal Government – all to
be achieved by 2027.”
Adebayo is worried that “it is however impossible to achieve any of these lofty policy targets and the long-term financial sustainability of the sector without actionable strategic and tactical actions.”
He is amazed that “while headline statistics like the ICT sector’s GDP contribution and telecommunications’ 5.67% share of quarterly capital importation in Q1 2024 appear encouraging, a deeper analysis of the industry’s stats, on the other hand, reveal a troubling decline in domestic CAPEX and foreign direct investments by 30.37% and 46.9%, respectively, between 2021 and 2022, while operational expenses surged.”
There are records showing that major licensees have reported losses in Financial Year 2023 and half year 2024 due to the impact of these macroeconomic headwinds.
“For example, for FY 2023, MTN Nigeria reported a net ₦137 billion loss amidst naira devaluation while Airtel Africa suffered a $549m FOREX loss over currency devaluations in Nigeria. We expect the 2023 Industry Year-End Performance reports to reveal a further downward trend.
“In the midst of this, there remains the perennial issue of Multiple taxation with telecoms operators paying circa 54 kinds of federal/State/local government taxes/levies inclusive of illegal Taxes and Levies imposed by sub-nationals, which are taxes not explicitly stated in the Taxes and Levies Act yet applied discriminately and specifically to the Nigerian Communications Sector.
“In some cases, new taxes emerge on account of multiple and overlapping regulation, with agencies creating a State or local version of a federal tax and even the National Assembly considering numerous Bills seeking to impose levies on telecoms operators to finance new and completely unrelated government agencies. This may be attributed to the perception that the telecommunications industry is highly profitable and as such considered as a ready ‘cash cow’ to meet the needs of Ministries, Departments and Agencies (MDAs) at the Federal, State and Local Government levels in their drive to shore up dwindling internally generated revenues.
“In addition to the rapidly increasing OPEX, operators must also contend with the macro-economic headwinds including:
– Spiraling double digit inflation (34.19% as at June 2024 per NBS);
– FOREX volatility and associated currency depreciation (with the Naira closing at N1,505/US$1 as at June 2024 at the Nigerian Autonomous Foreign Exchange Market);
– Increasing Monetary Policy Rate currently set at 26.75%;
– Increased energy costs with the average retail price of diesel set at N1,462.98 according to NBS June 2024,
(Diesel Price Watch Report) representing a 4.20% and 79.32% increases m-o-m and y-o-y respectively. This singular production input (i.e. energy) accounts for a significant percentage of telcos’ OPEX (35%) done in numerous industries including power, insurance, transportation (rail & aviation).
“The existing regulatory determinations on voice and data service rates, around which industry retail prices converge, are quite dated and are not reflective of the current macroeconomic realities. For example: The current price floor of N6.40/Minute for voice calls was instituted since December 1,2016. The current industry average of N0.10/MB for data was instituted further to the Commission’s suspension of the then interim data price floor of N0.90/MB in November 2016.
“For context, at the time the still applicable price floor and industry average for voice calls and data were instituted, the monthly average exchange rate across the DAS, IFEM and BDC channels was N373.64/US$1 and the inflation rate was at about 18.48%. Yet, the rigid tariff regime that currently exists has not allowed for the sector’s response to the increased input costs and market dynamics.
“Specifically, ALTON recommends the creation of a sustainable, low-interest targeted Infrastructure Funding/Financing framework to enable improved telecommunications infrastructure deployment.
“A dedicated FOREX window for the computation of Import Duty Levies payable for the clearance of telecommunications equipment at the ports through the Nigeria Customs Service will also be helpful.
“Introduction of import duty waiver/reduction in import duties payable on telecommunications equipment in addition to investment in local device assembly plant,” Adebayo added.
Apart from asking for higher tariffs to remain in business, the operators are asking for incentives from government to sustain their operations. A breakdown of what’s going on indicates that these companies are finding it harder and harder by the day to keep up with the costs of running their operations. And they appear to be drowning in taxes.
The tax rate on these companies can be as high as 39%, according to a PriceWaterHouse Cooper report. That’s a huge chunk of their revenue going straight to the government, leaving them with less money to invest in improving their services.
Apart from the taxes, there are limited funds to plough into capital expenditure (CAPEX) and operations costs are generally getting out of hand.
Despite the operators struggles to cope with escalating financial pressures, including multiple taxes, rising energy costs, and mounting debts especially on interconnect fees and the ones owes by Deposit Money Banks among others, the Nigerian Communications Commission (NCC) is unconvinced about tariff hikes perceiving the load shedding as a veiled threat from the telcos to force a tariff hike.
The regulator is unfazed saying that it would not be blackmailed into approving price increases, asserting that such tactics are not conducive to resolving the industry’s challenges.
Load shedding and tariff hikes are only short-term reliefs for telecom operators, but in reality they should be pushing for long term measures that could also lead to long-term challenges with Operators facing 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.
Also, 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 go through 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, and hope it doesn’t end with us having to pay more for worse service.