SONNY ARAGBA-AKPORE writes that the sector is operating in fits and starts.

The telecommunications service companies in Nigeria are troubled. While the big players display a facade of “all is well,” the reality is that these companies are grappling with internal hemorrhaging that plagues their service provision. Without a swift government intervention to adjust foreign exchange policies and cushion the importation of essential equipment, many A-grade players may face severe challenges.

Rising Operating Costs and Dwindling Investments

Operating Expenditure (OPEX) has more than doubled since 2021. With dwindling foreign inflows through Foreign Direct Investments (FDIs), some telecom companies are struggling to survive. The biggest challenge for operators is their inability to provide quality service due to recurrent vandalism of their infrastructure.

Power and Fuel Challenges

Every telecom operator has become its own electricity provider as supplies from the national grid are now unreliable. The rising costs of diesel and frequent theft exacerbate the situation, creating bigger problems for the industry.

Interconnect Debts and Financial Struggles

An anonymous industry official confirmed significant high interconnect debts between players, leading to severe financial struggles. Telcos are being owed substantial amounts, causing terminal struggles for survival. Political incursions also hinder the sector’s stability.

Forex Issues

The “willing seller, willing buyer” forex policy poses significant problems. Bills settled now, which were delayed due to forex transactions at previous rates (700N = US$1), are now paid at the prevailing rate of 1,400N+.

Impact on Major Players

High OPEX and low FDIs raise concerns about industry sustainability. The regulator, Nigerian Communications Commission (NCC), faces dilemmas, especially regarding tariff hikes. Telecom companies are providing services below cost as they struggle with these financial pressures.

Case Study: MTN Nigeria and Airtel Africa

MTN Nigeria and Airtel Africa, the only two publicly traded telecom companies, lost N479 billion to currency revaluation and recorded reduced profit margins in the first nine months of 2023. MTN reported a second successive loss, with a net loss for Q1 2024 further increasing its accumulated losses and negative shareholders’ funds.

MTN’s Chief Executive Officer, Karl Toriola, noted that severe macroeconomic headwinds overshadowed a solid operating performance. Rising inflation and continued naira depreciation have impacted the operating environment for businesses in Nigeria.

Tariff Hikes and Regulatory Challenges

Operators are pushing for tariff hikes to sustain their operating expenditure. They argue that consumer prices in other sectors have seen steep rises over the last six years, while telecom prices have remained flat or declined. The operators also decry strong macroeconomic headwinds, which have led to a decline in CAPEX (Domestic) and Foreign Direct Investments by 30.37 percent and 46.9 percent, respectively, between 2021 and 2022.

Innovation and Regulatory Environment

Operators are concerned about the restrictive regulatory approach, which hinders the innovation needed for newer communication technologies. The convergence of telecommunications with digital and multimedia services has reduced revenue streams from traditional services. Operators emphasize the need for a regulatory environment that enables the development of innovative products and services.

Financial Performance

In 2023, MTN declared its first loss after tax of N137 billion. Airtel’s profit before taxes for the half-year 2023 dropped by a staggering 97.7 percent, from $516 million to $12 million, compared to 2022. Although figures of losses sustained by other unquoted telcos are unavailable, there are strong indications that the industry is in distress.

Aragba-Akpore is a member of THISDAY Editorial Board.