GSMA, a worldwide lobby group for mobile network operators, has called on the Nigerian government to remove mobile tariff control regulations on retail to allow operators to set fees for voice calls and internet. This is to cushion the effects of high inflation and devaluation of the local naira on the struggling operators.
The report comes amid intensified lobbying by mobile network operators in the West African nation, including MTN, to increase prices, which have not gone up in recent years. MTN Nigeria is the group’s largest subsidiary, representing more than a quarter of total group subscribers and contributing about 35% to revenue as at the end of 2023. The mobile giant recently recorded losses as a result of economic shocks in Africa’s most populous country.
High inflation and rapid depreciation of the naira, combined with reductions in the value of oil exports, have had a big effect on the economy. At the same time, poverty rates have increased and public finances have come under significant strain, GSMA stated in a report that focuses on the Nigerian digital economy.
It said increasing costs are making it difficult for the industry to maintain sustainable levels of investment. The primary driver of this has been increases in the cost of power for sites due to the rapid rises in the price of fuel, increased government fees and levies, and high demand for forex, in an import-dependent environment, due to 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) does not 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 than the current one 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 assessment of costs of service provision, to allow for adjustments to reflect the changing cost of inputs into the businesses and facilitate investment, it said.
“The financial performance of the mobile industry in Nigeria has slowed down in recent years after a long period of sustained growth. The overall financial 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.
The overall financial performance of the industry in recent years has not been sufficient to support the capital-intensive nature of the business
— GSMA
It also recommended the reduction of the industry’s tax burden to help cut operating costs and for the NCC to change charging for spectrum fees from US dollars to the naira.
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 (R427.6bn) in 2023, with an added 2.4-trillion naira (R31.1bn) in tax revenue contributions.
“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,” it said.
MTN said the GSMA’s digital economy report on Nigeria emphasised a compelling case for stakeholders to work together to further accelerate its role in propelling Nigeria’s economy forward.
“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 McKinsey’s analysis, the cost of 1GB of data fell by 91% during the period 2019-2022, and has fallen further since then. This when the cost to operate has increased and tariff increases in Nigeria have not 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,” he 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.”
He said he expected 2024 to remain a challenging year for the company due to these unresolved issues in Nigeria.
“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.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.