Staying connected: Can Nigeria afford a telecom price shock?

Few sectors in Nigeria have seen as much transformation as telecommunications. From the days of N50-per-minute calls and N46,000 SIM cards to one of the world’s cheapest data rates, the Nigerian telecom industry has made connectivity affordable and accessible to millions. Yet, as the government considers tariff hikes of up to 60 percent, the affordability of these vital services faces a critical test. What do these changes mean for Nigeria’s consumers and economy?

Data from BusinessDay reveals that Nigerians currently enjoy the lowest call rates among five African countries: an average of N11 per minute compared to N123.57 in South Africa. Similarly, Nigeria boasts some of the world’s cheapest data rates at $0.38 per 1GB. These figures, however, obscure deeper economic challenges. The naira’s depreciation by 129 percent between 2023 and 2024 has eroded consumers’ purchasing power, making even modest price increases feel burdensome.

“Data is not just a utility; it’s a lifeline for education, financial services, and the creative economy.”

The broader economic picture highlights a crucial point: affordability is relative. While Nigerians pay less for telecom services, the strain of inflation, unemployment, and declining real incomes magnifies even small price hikes. This context demands a nuanced approach to assessing the impact of proposed tariff increases.

Telecom operators face a different reality. The devaluation of the naira has inflated the cost of importing equipment and settling foreign currency obligations, squeezing margins in a fiercely competitive market. A tariff review, the first in over a decade, may be inevitable to sustain operations. But it raises a crucial question: how will Nigerian consumers, already stretched thin by inflation, adapt to these higher costs?

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In economic terms, telecom services are relatively inelastic. Unlike food, which accounts for 57 percent of household spending and sees sharp demand drops with price hikes, telecom services constitute only 6 percent. This means that even with a 40 percent tariff increase, demand for data and calls may not decline proportionately. For many Nigerians, connectivity is a necessity, not a luxury.

However, necessity does not negate sensitivity. A shift from N11 to N15.4 per minute, or a 1GB data cost rising from N1,000 to N1,667, will disproportionately impact low-income households, potentially deepening the digital divide. Data is not just a utility; it’s a lifeline for education, financial services, and the creative economy. Higher costs could stifle skills acquisition and economic mobility, particularly for Nigeria’s youth.

The Nigerian telecom industry has historically adapted to consumer needs. Innovations like per-second billing, pioneered by Globacom, and MTN’s “Xtracool” plan, which offered low-cost late-night calls, demonstrated how competition could lower prices and expand access. Today, however, competition alone may not suffice to mitigate the impact of a tariff hike.

Nigeria’s telecom market contrasts sharply with sectors like food and energy, where liberalisation has failed to lower costs due to structural inefficiencies. Telecom operators must innovate further, offering flexible pricing models and targeted plans for low-income users to maintain accessibility. Governments, meanwhile, have a role in cushioning the impact. Initiatives to create jobs and reduce income inequality can help households absorb rising costs.

Nigeria’s telecom journey is a testament to resilience and adaptability, but the challenges of today require bold solutions. Policymakers must balance the financial viability of telecom operators with the socio-economic realities of consumers. A phased tariff increase, coupled with subsidies or tax incentives for operators, could strike this balance.

Ultimately, the proposed tariff hike is not just an economic adjustment; it’s a critical juncture that demands a nuanced and balanced approach. This necessitates a concerted effort to align public policy, private sector innovation, and consumer welfare. The government must play a proactive role in mitigating the impact of the hike on vulnerable populations, perhaps through targeted subsidies or social safety nets.

Simultaneously, it’s imperative to foster a competitive environment that encourages telecom operators to innovate and offer more affordable and inclusive services. This could involve exploring options like tiered pricing, data-saving technologies, and partnerships with educational institutions to provide affordable internet access to students. By carefully navigating this complex terrain, Nigeria can ensure that the telecom sector continues to serve as an engine of economic growth and social inclusion.