Strong economic headwinds arising from the steep decline in global oil prices, along with the devaluation of the naira by the Central Bank of Nigeria (CBN) are threatening the broadband revenue projections of the country’s telecommunications industry, BusinessDay investigations show.
The price of OPEC’s basket of twelve crudes stood at $43.14 a barrel last week, according to the organisation’s secretariat calculations, down from $104 per barrel in August.
Wireless broadband is expected to have a direct revenue impact of N598 billion ($3.5 billion) in Nigeria this year, according to a recent report by research firm, Analysys Mason. Expectations are that total service revenues for mobile operators will also reach N353 billion ($2.1 billion), with the enterprise segment contributing over 55 percent of this.
But these projections, market observers say, may be unattainable in view of rising inflation, which is a direct fallout of the free fall in crude oil prices and naira devaluation. The resultant decline in consumer purchasing power may frustrate mobile operators’ revenue drive in 2015, according to market analysts.
“Consumers are closely prioritising their needs, resulting in a battle for a share of their wallet”, said Funmi Onajide, general manager, corporate affairs, MTN, in an interview with BusinessDay. Market observers are of the view that the current situation is worrisome for telecoms operators, considering that Average Revenue Per User (ARPU) for voice services is expected to decline by around $5 per month over the next five years, down from $6-$7 in April 2013 and $10 in 2008.
In view of this, mobile operators all have eyes fixed on positioning broadband services as the next revenue generating stream. With regard to the devaluation of the naira, Onajide said it has added to the cost of doing business in Nigeria, as the telecoms industry is extremely FX (Foreign Exchange) and capital dependent.
This situation is further exacerbated by the recent ban on import of electronics and telecommunications equipment with official foreign exchange, by the apex bank. The ensuing FX crunch currently plaguing the telecoms industry is also slowing down on-going network expansion initiatives across the country, as the cost of infrastructure and equipment procurement rises, market watchers say.
A senior executive at Helios Towers, an infrastructure builder in Nigeria, who pleaded anonymity because he was not authorised to speak, is optimistic that despite worsening economic conditions, operators will continue to invest in network expansion initiatives. “Telecoms operators are aware that there is still a lot of work to be done in terms of network coverage and service penetration”, he said.
The Nigerian Communications Commission (NCC), in a recent report, said that, 44 percent of the 774 Local Government Areas (LGAs) in the country do not have any form of fibre optic backbone for internet connectivity.
In view of this, mobile operators will look to take advantage of this opportunity. Research study by GSMA suggests that telcos in Nigeria and other countries in Sub-Saharan Africa (SSA) will invest a whopping $97 billion towards Capital Expenditure (CAPEX) over the next seven years (2014 to 2020) against $45 billion over the last six years (2008 to 2013) to expand their networks for mobile data services. “Telcos shed some weight in terms of selling off their telecoms towers. So, they have the requisite funds to continue deploying infrastructure”, the Helios executive told BusinessDay, yesterday.
This year, MTN, the nation’s largest network by customer base ,with 60 million subscribers, is stepping up investment in infrastructure rollout in a bid to strengthen its data service capabilities. Since inception, MTN has invested a cumulative sum of about $15 billion in network expansion initiatives. “That is an average of $1.2 billion a year investment. “The aggressive investment will take on a new intensity in 2015 because of our new growth phase with the transition from Telco1.5 – 2.0”, she said.
Onajide further said this year will sign-post a new growth phase for MTN, as the firm takes bold steps “to open up the digital economy in Nigeria. But, considering the prevailing economic condition, telcos are concerned that the nation’s poor operating environment remains a major hindrance to profitability.
“The Nigerian power situation, due to the abysmal performance of PHCN is poor; this has made operators depend on alternative power supply to run their base stations. This is very expensive”, said Lanre Ajayi, national president, Association of Telecommunications Companies of Nigeria (ATCON).
BusinessDay gathered that operators use an average of 25,000 litres of diesel every month to power each base stations.
With over 25, 000 base station across the country by all telecoms operators, there is an average of 50, 000 litres at two generators per base station. “The cost of the diesel is not inclusive of the cost of logistics incurred in procuring and transporting the diesel, as well as the cost of servicing the generators”, Ajayi explained.
Other environmental challenges such as vandalism, theft of network infrastructure, multiple taxes and over-regulation also result in unbudgeted expenditure and operational down time, all of which are at an enormous cost, mobile operators have said.
Regarding what the government can do to address these issues in 2015, Onajide, said, “Improvements in basic infrastructure, especially in the area of power ,will significantly remove the bottlenecks that negate consistent quality of service. Addressing issues related to multiple taxation and regulation will also ease the way for important infrastructural roll out, especially the critical ‘last mile’ required to deploy broadband across the country.”
In addition, telecoms companies have urged government to speed up the declaration of telecommunications infrastructure as a critical national infrastructure and accord such special protection in the interest of the nation.