Nigeria urged to allow call rates rise
● GSMA, a worldwide lobby group for mobile network operators, has called on the Nigerian government to remove restrictions on retail mobile tariffs to cushion the effects of high inflation and devaluation of the local naira on battling operators.
The call, contained in a report on the West African country’s digital economy, comes amid intensified lobbying by mobile network operators in the West African nation, including MTN, to increase prices, which have been stagnant for several years.
MTN Nigeria is the group’s largest subsidiary, representing more than a quarter of total subscribers and contributing about 35% to revenue in 2023. The mobile giant recently recorded losses as a result of economic shocks in Africa’s most populous country.
High inflation and a sharp depreciation of the naira, combined with reductions in the value of oil exports, have had a big effect on the Nigerian economy. At the same time, poverty has increased and public finances have come under significant strain, GSMA said in the report,
Rising costs are making it difficult for the industry to maintain sustainable levels of investment, it added. The primary drivers have been increases in the cost of power for sites due to surging fuel prices, government fees and levies, and high demand for forex as a result of contractual obligations for network infrastructure and services that are denominated in dollars.
GSMA said the current approach to the regulation of both wholesale and retail mobile tariffs by the Nigerian Communications Commission (NCC) doesn’t allow for the adjustment of tariffs to reflect the changing cost of inputs into the businesses and facilitate investment into improved network coverage and quality of service.
“By international standards, the NCC’s approach to retail tariff regulation is not considered to be standard practice,” it said.
GSMA said the Nigerian regulator should instead focus on wholesale services such as interconnection — fees that mobile operators pay to carry each other’s calls.
Should retail tariff regulations continue, a more pro-competitive approach would be for the regulator to introduce upper and lower retail tariff bands. “Under such a system, service providers would not be required to obtain prior NCC approval for new tariffs, provided that they were within the bands,” it said.
There should also be periodic tariff reviews, ensuring an assessment of the costs of service provision to allow for adjustments accordingly, GSMA added.
“The financial performance of the mobile industry in Nigeria has slowed down in recent years after a long period of sustained growth. The overall performance of the industry in recent years has not been sufficient to support the capital-intensive nature of the business. Revenue in naira has stopped growing as the number of subscribers has increased. Falls in ARPUs (average revenue per user) indicate pressure on prices and reductions in average usage,” it said.
GSMA also recommended reducing the industry’s tax burden to help cut operating costs and for the NCC to change the charges for spectrum fees to naira from dollars.
The mobile sector accounted for 13.5% of Nigeria’s GDP in 2023, including the direct value added by wider ICT industries and the sector’s influence in enhancing the productivity of other sectors. Overall, the mobile sector’s total contribution to GDP is estimated at 33-trillion naira (about R426.8bn) in 2023, with an added 2.4-trillion naira (R31.1bn) in tax.
“The sector would further benefit from a policy and regulatory environment that takes account of the impact on the financial and operational sustainability of service providers. The increasing cost of energy and the lack of complementary infrastructure are particular challenges that could be addressed — at least in part — by regulatory and policy measures,” GSMA said.
MTN said the GSMA’s report emphasised a compelling case for stakeholders to work together to further accelerate its role in propelling Nigeria’s economy.
“Greater digital adoption in Nigeria is key to unlocking the enormous economic potential in the country,” said MTN group president and CEO Ralph Mupita, adding that significant investment in broadband infrastructure was still necessary for this potential to be realised.
However, macroeconomic conditions — including the sharp depreciation of the naira, elevated inflation, and a shortage of foreign exchange — “are making it hard for mobile operators to bring in the revenue needed to fund the investment to achieve universal broadband access goals while returning their finances to profitability,” he said.
According to analysis by McKinsey, the cost of 1GB of data fell by 91% during the period 2019-2022, and has fallen further since then, while operational costs have increased and tariff increases in Nigeria haven’t been approved in recent times.
“Tariff increases are needed in Nigeria to sustain the industry, including the continued investment in digital infrastructure to grow the sector to the benefit of all in the country,” Mupita said, adding that any adjustments would be made mindful of the pressure of the economic conditions on consumers’ disposable incomes.
“The industry would also benefit from a clear pricing framework to enable it to make decisions on capital allocation over the longer term.”
Mupita said MTN Nigeria was undertaking a number of initiatives internally to reduce the cost-to-operate impacts, including expense efficiencies, capex optimisation, reduction in dollar obligations, and exploring options on tower leases.
In March, when MTN released its full-year results for 2023, analyst Peter Takaendesa of Mergence Investment Managers noted that the mobile operator had little control over currency collapses and regulatory difficulties in its key markets.
“There is not much management can do in the short term when currencies collapse the way they have done in key West African markets, and the company’s ability to pass through some of the inflation pain to the consumer is constrained by regulators.”
Takaendesa said he expected 2024 to remain a challenging year for MTN as a result of these issues.
“It will likely take longer for earnings to recover unless they can get regulatory approval to increase prices significantly in Nigeria together with a material naira appreciation.”