April 30, 2024/CSL Research
According to newspaper reports, Telecommunication companies in Nigeria are renewing their push for an increase in prices of calls, data, and other services after multiple failed attempts in the last 11 years. In a communique signed by the Association of Licensed Telecom Operators of Nigeria (ALTON) and the Association of Telecommunication Companies of Nigeria (ATCON), telcos argued that the current prices are insufficient to maintain their business operations.
The telecom providers are advocating for cost-reflective tariffs, noting that adverse economic headwinds are threatening their financial viability. The operators noted that regulatory constraints have prevented them from adjusting their pricing framework for over a decade.
The telecommunications industry in Nigeria has been grappling with significant challenges, particularly concerning operational costs exacerbated by factors such as foreign exchange devaluation and scarcity. These challenges have had adverse effects on the profitability of major operators like MTN Nigeria and Airtel. The devaluation of the Naira resulted in substantial financial setbacks for both Airtel and MTN Nigeria. MTN Nigeria specifically
posted a significant loss after tax of N137bn for the 2023 financial year.
Similarly, Airtel Africa witnessed a considerable decline in Post-tax profit, experiencing a 99.6% decrease to US$2 million by the end of the nine months ended December 2023, compared to US$523 million during the same period in 2022. These financial outcomes reflect the broader economic challenges affecting telecommunications companies operating in Nigeria.
The telecommunications operators’ hesitance to adjust prices despite rising inflation and other economic challenges can be traced back to regulatory restrictions imposed by the Nigerian Communications Commission (NCC).
The NCC holds a crucial role in price regulation within the telecom sector, requiring operators to obtain approval before making any adjustments. This oversight by the NCC ensures that any alterations in prices adhere to established standards and accurately reflect the operational costs borne by operators.
The NCC has announced an ongoing cost-based study to determine whether approving price increases for telecom operators is appropriate. This study seeks to analyze the fundamental costs involved in providing telecom services and assess if adjustments are necessary to maintain industry sustainability.
We argue that advocating for an upward tariff review is crucial for telcos, considering the adverse economic challenges they have faced in recent years, leading to increased operational costs. Maintaining current non-cost reflective tariffs will erode profit margins and threaten the long term growth and sustainability of the operators.
