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8 months after, telcos’ data business fail to shake off recession

Operators in the telecommunication industry are yet to find a path to growth in their data business as the latest industry report shows that internet subscriptions declined by 430,989 in July.

The number of internet subscriptions lost between November 2020 and July 2021 now stands at 15.13 million.

The last time the industry recorded internet subscription growth was in October 2020, a month before the country declared it was in recession for the second time. The recession was largely driven by the COVID-19 pandemic which forced a lockdown of economic activities in many countries with income of billions of people around the world affected. Many Nigerian workers were laid off while some were furlough.

The loss of jobs and pressure on incomes leave data consumers with difficult choices to make between basic needs like food, clothes, shelter and secondary needs such as data and mobile subscriptions. When existing subscribers are forced to choose between buying food to survive and buying data to keep in touch with business, the telecom operators usually suffer. In nearly all cases, basic needs take the upper hand.

The industry had lost 313,321 data subscribers in June which means the decline in July surpasses that of the previous month by 117,668. The total number of internet subscribers in Nigeria now stands at 139.7 million in July from 140.1 million in June.

A directive by the Federal Government for all Nigerian subscribers to get their National Identification Number (NIN) had led to a temporary suspension of SIM card registration and sales in December. This affected the four largest telecom operators in the countries with mobile and data subscriptions declining to record levels.

However, the decline had already started before the directive was made public in December. After the growth in October 2020, the industry lost 1.95 million subscriptions in November and has not looked back since. Most experts blame policy flip-flops or inconsistencies which have seen operators continue work in a regulatorily-opaque business environment.

“The telecom industry is not in recession,” says Olusola Teniola, former president of Association of Telecommunications Companies of Nigeria (ATCON) and Nigeria national coordinator for Alliance for Affordable Internet (A4AI). The ICT industry became the largest sector in the Nigerian economy based on the contribution to the GDP in the latest second-quarter report released by the National Bureau of Statistics (NBS).

In actual terms, the sector is struggling to shake off massive losses incurred from the poorly planned NIN registration exercise. The NIN exercise and SIM suspension it engendered is one of many policies that have further complicated growth projections in the market and forced investors to reconsider their investment decisions.

For example, foreign direct investments (FDI) into the sector have been down by 20 percent in the past 3 to 4 years. Low investment means not much is being done to advance existing or build new infrastructure that has the capacity to carry the new innovations and solutions that are being built by businesses.

Read also: Nigeria’s telcos record biggest investment decline in 8 years

Capital expenditure (CAPEX) in the sector declined in 2020 compared to the previous year. A full-year report by the NCC found that capital inflow into the telecoms industry in 2020 was approximately $417 million compared to $942.8 million in 2019.

This translates to a decline of 55.7 percent in capital importation year on year. The decline in capital importation was largely attributed by the operators to the outbreak of the COVID-19 pandemic that distorted global businesses and impacted businesses negatively

As of December 2020, the total on land fiber deployment was 43,898.8km as against 43,898.10 km in the year 2019. The on-land fiber deployment was reported as follows;- MTN – 14,612km; GLO – 13,306km; AIRTEL – 11,151km; EMTS – 4,650km and NTEL – 180km. Operators such as MTN and 9mobile maintained the level of investment in critical infrastructure in 2020. Globacom slightly increased its CAPEX whereas Airtel reduced investment.

“Unless you have an increase in CAPEX, what you have is aspirations but the reality has not changed,” Teniola said.

Infrastructural investment outcome in 2021 may not be so different from the previous years despite MTN, the largest telecom operator in Africa, has set a three years plan for the Nigerian market during which it plans to deploy capital into infrastructure. Experts say this would only make a significant dent in the country if other operators were to deploy a similar size of capital as MTN into infrastructure.

But that appears not to be a priority with the other players. Bharti Airtel, the parent company of Airtel Nigeria, the third-largest operator, said on the last day of August that its board has approved a request to raise fresh funds through a rights issue. Although the company did not officially state the reason for the fundraising, analysts say the company has its sights set on expanding its current capacities to compete with its rival Reliance Jio Infocomm in the 5G market.

Airtel also announced in July that it has raised $200 million from Qatar Holding, an affiliate of the Qatar Investment Authority (QIA) which will be invested in the telco’s mobile money subsidiary Airtel Mobile Commerce (AMC BV). Globacom is also expanding its services beyond telecommunication with a recent launch of Glo TV, a mobile television streaming service. The new service would ride on the telco’s existing 4G infrastructure.

Some experts say the telcos’ decision to diversify their service holds merit given the difficult business environment and the unpredictability of the policy environment. Diversification would ensure they earn revenue in other ways while waiting for some clarity from regulators.

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