May 10, 2022/Cordros Report
According to media reports, telecommunication companies under the aegis of the Association of Licensed Telecoms Operators of Nigeria (ALTON) are proposing a 40.0% increase in the cost of calls, SMS, and data services in the country. However, over the weekend, the NCC rejected the request by the telecom operators, noting that such a decision must be fair to the subscribers and engender healthy competition among service providers. Though it remains unclear whether the proposed hike in tariffs will be eventually implemented, we examine the broad range of issues surrounding the development and the implications for mobile network operators.
The details of ALTON’s proposal revealed that the price floor of voice calls would increase from NGN6.40 to NGN8.95 while the price cap of SMS will increase from NGN4.00 to NGN5.61. On data services, ALTON stated that the Nigerian Communications Commission (NCC) should implement the recommendations from the August 2020 KPMG report on the determination of cost-based pricing for wholesale and retail broadband services. To our minds, the proposal by ALTON must have been induced by the rapid increase in the cost of providing telecommunications services in the country.
It is pertinent to note that the prerogative to hike telecom tariffs resides with the NCC. Based on our interpretation of the body language of NCC, we do not think an upward review of telecom tariffs is on the cards. However, we think mobile network operators have tactically passed on some portion of the cost burden to subscribers through a marginal increase in the depletion rate of data bundles.
Without downplaying the impact of rising smartphone and broadband penetration, we believe a faster replenishment rate for data bundles has also contributed to the rapid expansion in data revenue in the past three years. In our view, this lends credence to healthy margins in the face of rising cost pressures. With data revenue not showing any signs of weakness, we do not see any threat to industry margins in the near term.
