Telcos risk losing revenue on planned airtime price hike

Telecommunication companies in Nigeria are seen losing revenue if their plans to raise airtime price on the back of rising operating costs materialise.

The telecommunication industry has made gains since the beginning of the year, with more than 7 million subscribers added between January and May, bringing the total number of subscribers to 204 million.

However, the latest push by operators in the industry to get prices reviewed upwards – even though unlikely to happen – to reflect current production realities may put those gains in jeopardy.

“Any increase will affect average revenue per user as the value of people’s income continues to decline and there are other obligations competing for the same stagnant income. The MNOs (mobile network operators) will have to become very creative in getting their share of subscribers’ pocket,” Rotimi Akapo, partner at Advocaat Law Practice, said.

The most recent data from the National Bureau of Statistics (NBS) show that the average price per litre paid by consumers for automotive gas oil (diesel) rose the highest within the last three months – March, April, and May. The average retail price of diesel increased from N539.3 in March to N671.1 in May.

States such as Ekiti, Osun and Oyo saw the highest growth in price at N716.15, N716, and N707.33 respectively. The states with the lowest average retail price are Yobe (N560), Bauchi (N570), and Delta (N624.44).

The zone analysis shows that the average price of diesel was highest in the South-West (N703.60), whereas the North-East had the lowest price of N639.

At many filling stations in Lagos, the price of diesel ranges between N700 and N815 per litre.

Many telecom operators say the surging price is unsustainable and inimical to the growth of the industry. The Association of Licenced Telecoms Operators of Nigeria (ALTON) recently wrote a letter to the Nigerian Communications Commission (NCC) seeking approval to increase their tariff due to the rising price of diesel and the general increase in the cost of doing business in Nigeria. ALTON said its members bought diesel in March at N750 per litre from N225 per litre of diesel in January. The operators want the price floor to be raised from N6.4 to N8.95.

The NCC, in its 2021 industry report, showed that the total national outgoing calls were at 173.56 billion minutes. At N6.4 price floor, it means that the industry earned N1.11 trillion in 2021. An upward review, however, would take the revenue to N1.55 trillion.

But experts say it is impossible for the telcos to enforce any price review without the approval of the NCC. That approval doesn’t seem likely in view of the commission’s response to the ALTON’s letter. The commission had said in May that it is guided by international best practices and established regulatory procedures in the matter of price reviews.

“For the avoidance of any doubt, and contrary to MNOs’ agitation to increase tariffs for voice and short messaging services (SMS) by a certain percentage, the commission wishes to categorically inform telecoms subscribers and allay the fears of Nigerians that no tariff increase will be effected by the operators without due regulatory approval by the commission,” the regulator had said.

Ajibola Olude, chief operating officer of the Association of Telecommunication Companies in Nigeria, said while he does not expect the NCC to approve the new price, operators that go on to implement new prices without approval may lose their licences.

Olude said the only way out would be for the NCC to initiate a study to verify their claims. Hence, operators will do well “to encourage the NCC to carry out the study on time,” he added.

The NCC’s annual report also showed that telcos’ operating costs grew in 2021 to N1.66 trillion from N1.4 trillion in 2020, an 18.74 percent increase.

Read also: How telcos curb diesel theft as prices rise

Experts see the operating cost rising further in 2022 with the current state of the economy.

“I don’t expect that an exponential increase in tariff will be approved, if at all an increase is approved,” said Akapo. “It will be based on economic indices that impact the operation of the MNOs. The NCC usually balances the interests of all stakeholders in matters like this including that of subscribers.”

In the event that the NCC insists that the price will remain unchanged, Akapo sees telecom operators most affected by the rising cost of operations dropping the quality of their service.

There is also a possibility that they will become innovative in pricing their products and services, he said.

“They will cut back on promos and other costs of sales. CSR might suffer. There will be a lot more belt-tightening to compensate for the increasing operational costs and it is the ‘nonessential’ areas that will suffer first,” Akapo said.