How ‘Telco’ price hikes could shape consumer behaviour

Airtime demand may not significantly change as the Nigerian Communications Commission (NCC) approved a 50 percent tariff increase this year.

According to analysts, Nigerians will still demand airtime and data irrespective of their new prices as the demand for the product is inelastic. The inelasticity of demand means that price changes will have little or no effect on the quantity demanded.

“Despite the industry’s history of competitiveness, a tariff hike is inevitable due to the economic realities facing telcos.”

Consumer behaviour and theory of demand

One of the most fascinating topics in economics is the theory of consumer behaviour, specifically the theory of demand. Consumers aim to strike a balance between price and quantity demanded. When the price of a product rises, they often seek cheaper alternatives. Yet, this reaction depends on whether the product in question is elastic or inelastic.

In telecommunications, the demand for SIM cards, recharge cards, and data is relatively inelastic. For example, a 50 percent increase in data price may not lead to a proportional reduction in demand, as data accounts for only about 6 percent of household spending. Any decline in demand, if it occurs, is likely to be less than 50 percent.

This stands in stark contrast to elastic goods like food, which make up about 57 percent of household spending. In such cases, a 40 percent price increase could result in a significantly sharper drop in demand.

“This situation typically occurs with everyday household products and services. When the price increases, people will still purchase roughly the same amount of goods or services as they did before the increase because their needs stay the same. A similar situation exists when there is a decrease in price—demand will not increase substantially because consumers only have a limited need for the product(s), said Tim Vipond, chair of the Board of CFI Education.

Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, during a panel discussion at the launch of the 2025 Macroeconomic Outlook Report organised by the Nigerian Economic Summit Group (NESG), supports the view that telecom services are price inelastic. According to him, even if telecom tariffs increase by 50 percent, it is unlikely to cause a major shift in consumer demand, as telecom expenses account for a relatively small share of household spending compared to necessities like food. He even highlighted how some consumers prioritise data purchases over basic needs, reinforcing the idea that demand for telecom services remains strong despite price adjustments.

Furthermore, Oyedele debunks concerns that the price hike will significantly impact inflation. He explains that telecom services currently constitute just about 1 percent of the Consumer Price Index (CPI), and even if rebased, they would only account for around 2.5 – 3 percent. In a worst-case scenario, a 50 percent increase in telecom prices would only contribute an additional 150 basis points to telecom inflation, which translates to a mere two basis points in overall CPI. In practical terms, this means if inflation were projected at 15 percent, it would only rise marginally to 15.02 percent, making the impact negligible.

These insights reinforce the argument that while consumers may adjust their telecom spending habits slightly, overall demand is unlikely to decline substantially, and fears of inflationary pressure from the hike are largely overstated.

Read also: Telecoms tariff hike: Be fair in your service delivery to customers – Nigerians urge telcos

Cheap calls

Data from five African countries show Nigeria pays the least for phone calls. Using MTN as a case study, BusinessDay research indicates that a Ghanaian pays an average of N16 per minute, a Ugandan pays N11.93-N34.66 per minute, South Africa pays N123.57 per minute, Cameroon pays N67.81, and a Nigerian pays an average of N11 per minute.

Furthermore, Nigeria has one of the cheapest data per 1GB in the world, at $0.38, behind Ghana and South Africa, which have data per 1GB at $0.40 and $1.77, respectively.

Having said the above, direct comparison using exchange rates may have exaggerated the average cost of living between countries, given that Nigeria’s naira lost about 129 percent of its value within a year (2023-2024).

The same currency depreciation made the business environment difficult for Telcos, which suffered losses due to the naira devaluation.

If the approved 50 percent is implemented, the average minute charge will move from an average of N11 to N16.5, while the average 1GB data plan will move to $0.57, which is about N864.

Historical pricing dynamics in Nigerian telecoms

The Nigerian telecoms industry has a storied history of pricing evolution. In its early days, phone calls were billed per minute at a rate of N50. Even if your call lasted 50 seconds, you would still be charged for a full minute. The entry of Globacom (GLO) disrupted this model by introducing per-second billing, which was revolutionary at the time. Despite this, early per-second billing rates still translated to about N25 per minute.

Telcos, recognising consumer sensitivity to price, devised innovative tariff plans to attract users. MTN’s ‘Xtracool’ plan, for instance, allowed users to make unlimited free calls between 12:30 a.m. and 4:30 a.m. for as little as N100 in their account balance. This plan became wildly popular among Nigerian youths, who adjusted their schedules to take advantage of the offer. GLO responded with equally competitive offers, such as the ‘GLO Infinito’ plan, which allowed users to call designated numbers at rates as low as N0.01 per second.

Even the procurement of SIM cards was once a luxury. A SIM card that cost about N46,000 in the early 2000s is now practically free, thanks to increased competition and liberalisation in the industry. This intense competition has not only lowered costs but also increased accessibility, making telecom services a vital part of daily life for millions of Nigerians.

Read also: Telcos’ tariff hike should not exceed 60% – Minister

Price sensitivity and impact of hike

Despite the industry’s history of competitiveness, a tariff hike is inevitable due to the economic realities facing telcos. The last upward price review occurred 12 years ago, in 2012/2013, when Nigeria had approximately 113 million subscribers. By 2014, this number had grown by 9.04 percent to 127 million. However, subscriber growth does not necessarily translate to higher average revenue per user (ARPU), especially in a low-income economy like Nigeria.

Nigerians’ purchasing power is significantly lower than that of their counterparts in South Africa. This means that while Nigeria’s subscriber base is larger, the ARPU is much smaller.

The proposed price hike may further marginalise those at the lower end of the economic spectrum, potentially limiting their access to affordable data and call services. Yet, it’s worth noting that many Nigerians are unaware of the actual per-second or per-minute charges they incur, focusing instead on overall affordability.

Competition and liberalisation are not the same across sectors

The Nigerian telecoms industry has long been cited as a case study of how liberalisation and competition can drive down prices. However, this principle may not apply universally across other sectors. Competition may force down telecommunications products—like SIM cards, recharge cards, and data. This is not the case for other goods, such as food items, petrol, etc., where liberalisation and competition may not always translate to a decrease in prices.

Economic implications

Telecom services rank among the top five items consumed by households, according to the National Bureau of Statistics (NBS). Data, in particular, plays a pivotal role in Nigeria’s creative economy, including financial services. It also supports student learning and skills acquisition. However, higher data costs could widen the existing skills gap, especially among low-income consumers.

This situation presents an opportunity for states to strengthen their economies. By addressing broader economic challenges such as job creation and income inequality, governments can help cushion the impact of such price hikes on vulnerable populations. Additionally, telecom companies must continue to innovate by offering flexible and competitive plans that cater to diverse consumer needs.

The Nigerian telecom industry has come a long way—from N46,000 SIM cards and N50-per-minute calls to today’s more affordable options. While challenges like currency depreciation and an unfavourable business environment persist, they underscore the importance of resilience and adaptability for both the industry and its consumers.