MTN has stepped up its calls for higher mobile tariffs in Nigeria, joining other cellphone operators in the West African country in lobbying for measures that it hopes will increase revenue and push up its ability to invest in its network.
Like many other companies operating in Africa’s largest economy, MTN has been a casualty of the devastation caused by the Nigerian naira’s more than 90% plunge since mid-2023.
MTN Nigeria came under severe pressure in the year to end-December 2023, closing out the period with negative retained earnings and total equity of 208-billion naira (R2.72bn at the time of reporting) and 40.8-billion naira, respectively.
Last week MTN Nigeria convened an emergency meeting of its shareholders to discuss its plans to grow revenue, improve margins and return to profit in an effort to address declines caused by a challenging operating environment.
At the top of the five-point plan is a lobbying effort for regulated tariff increases. The company said it was engaging with the authorities, through an industry body, to get this done.
MTN Nigeria said: “Appropriate tariff increases will be necessary to support continued investment and the long-term sustainability of the industry. This will support commercial interventions to accelerate top-line growth.”
Tariffs have not risen for 11 years in Nigeria. In 2019 call tariffs stood at about 3.3 US cents, dropping to about 1c at present. Over the same period, mobile telecom revenue in Nigeria has gone from $6.391bn in 2019 to an estimated $3.049bn in 2024.
The Nigerian Communications Commission oversees prices for the telecom industry, with operators not allowed to make changes without the regulator’s permission.
But in the prevalent hyper inflationary environment in Nigeria, what sort of increases would MTN and other operators be looking for? At the existing inflation rate, it would not be long before any margin gains or relief is eroded.
MTN sees moves by the Nigerian central bank to curb rising living costs as a step in the right direction, with the hope that inflation will slow over time. This is according to group CEO Ralph Mupita.
“Inflation is indeed high in Nigeria, and currently around 33%. The Central Bank of Nigeria is following orthodox monetary tightening policies and implementing directives that are targeted to bring down inflation and improve foreign currency reserves,” Mupita said.
“We believe that this is the right approach over the near-term to bring down inflation. So our base case is that inflation will not remain high or elevated over the medium-term.
“Having said that, tariff increases are needed in Nigeria to ensure industry sustainability, continued investment in digital infrastructure and meeting the goals of universal broadband. Obviously the level of tariff adjustment must have some correlation to network operating costs over time, but what the industry needs is a pricing framework that enables long-term capital allocation decisions to be made,” he said.
Mobile operators may get their way given the size and importance of telecom in Nigeria. The sector is estimated to have contributed just under 11% of the country’s real GDP for 2023.
MTN is the largest mobile provider in Nigeria, closing the quarter to end-March with 77.7-million customers. The unit accounts for 34% of MTN Group’s business.
Telecom players are calling for a deregulation of the sector.
While the company lobbies for tariff hikes externally, it is working on a number of items internally to deal with the crisis.
In terms of capital expenditure (capex) in which the business mainly spends on upgrading and expanding its network, MTN plans “to reduce capex, excluding leases, for [full-year] 2024 and aim for a capex intensity in the upper single digits”.
Part of the plan is to repurpose and make the most of existing network capacity, without reducing quality or causing disruptions. MTN has previously used such strategies to mitigate the lack of radio frequency spectrum in SA.
Given the depreciation of the local currency, MTN is working to reduce its exposure to the dollar that is driven in part by debt issued in foreign currency. The company has already reduced the balance of its outstanding letter of credit obligations to $243.4m by end-March from $416.6m in December.
MTN is also in talks to restructure its tower leases. The group’s mobile towers are leased from companies such as IHS. A portion is priced in dollars, despite being invoiced and paid in naira. Still, MTN has to record unrealised foreign exchange losses in its income statement.
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