• Sunday, May 26, 2024
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Why tariff review is pivotal to Nigeria’s telecoms sector’s growth amid economic downturn

Balancing growth with affordability in Nigeria’s telecom industry

By Kalu Aja

The telecom operators in Nigeria, represented by the Association of Licensed Telecommunication Operators of Nigeria (ALTON) and Association of Telecommunication Companies of Nigeria (ATCON), have pushed for cost-reflective tariffs. In their words, in a fully liberalized and deregulated sector like telecommunications (telcos) in Nigeria, the current price-fixing policy is not backed by economic realities, thus eroding investors’ confidence.

They have a point.

The costs of operating any business in Nigeria, especially telecommunications, have increased. For instance, general inflation has led to higher prices for equipment and services, the cost of diesel has risen significantly, the expenses for running generators have increased, and even higher VAT rates on tower leases have added to the financial burden of telcos. These factors have collectively increased the operating costs of telcos, making it difficult for them to maintain their services at affordable rates. Still, regulation has hampered their ability to respond to these higher costs.

Recent data paints a stark picture. Nigerian telcos’ spending on diesel alone has skyrocketed, increasing by a staggering 50% compared to the same period in 2023. As of March 2024, Nigeria’s annual inflation rate stood at 33.20%. These are not just numbers on a page but actual costs impacting the industry.

ALTON is making a simple case: Telcos’ charges must reflect the cost of providing them. If tariffs do not reflect economic reality, operators may be forced to cut back on services, which would be detrimental to the Nigerian economy and its citizens.

Let’s talk about the cost increases for a minute; I am referencing the ALTON request to the Nigerian Communications Commission (NCC) for regulatory approval to raise tariffs by 40% in 2022. If that request were approved in 2022, the floor cap on voice calls would rise from N6.4 to N8.95. Keep in mind that in 2022, the exchange rate of one USD was $1/N448 (now $1/N1,300), and inflation was 18.85% (now 33%). Asking the telcos to keep prices fixed while every government agency has increased their fees and duties is simply asking the private telcos to subsidize the Nigerian economy.

ALTON has also raised issues with the multiplicity and diversity of taxes they are asked to pay by multiple Federal, State and Local Government agencies; for instance, telcos are asked to pay for activities that have no business with, including “effluent discharge fees,” water levies, and “fumigation of the BTS.” The point here is that the federation has increased its fees but resists the increase in fees by a private operator yet demands excellent quality in the delivery of services by the private operator.

The telecommunications subsector of Information and Communications Technology (ICT) has contributed significantly to the Nigerian economy. As of the fourth quarter of 2023, this subsector contributed 14% to the growth of Nigeria’s real Gross Domestic Product (GDP); in 2015, the telecoms sector contribution was 8%. In effect, Nigeria has experienced economic expansion because of the telcos. A tariff hike will enable telcos to continue providing services and contribute to the Nigerian economy’s growth. This is a shared interest that we all should consider.

I once asked an oil and gas expert why Nigeria had no private refineries; he responded that the federal government fixes retail prices below the free market price, so no investor destroys capital by investing in a refinery and then selling below market price. This is precisely what’s happening in Nigeria’s telecom space. I don’t see the current players divesting from Nigeria because of fixed tariffs. Still, I need help to see how their Boards will approve significant capital investment into Nigeria if their tariffs can’t even reflect the cost in Nigeria as of 2022!

Holding down tariffs by regulation is essentially keeping away Foreign Direct Investment into Nigeria.

Nigeria is a large market for the telcos, but markets must pay for themselves; the telcos are not asking for a price hike to make a profit; far from it, the devaluation of the naira has resulted in huge declared losses for the telcos. The tariff increases enable the telecom players in Nigeria to retain the status of going concern.

The telcos are not asking for a handout but for economic reality. They are advocating for cost-reflective tariffs that align with current economic conditions. Cost-reflective tariffs are not about profits but maintaining a sustainable business model that benefits all stakeholders, especially consumers.

Like I said, they have a point.