Broadband misses, telecom losses and minister’s focus on startups

For the Nigerian telecom industry, 2023 is one of the most difficult years it has seen – a year where many projections failed, revenue targets were unmet, subscriber losses rose, broadband and subsea cable landing deadlines were missed and the new minister had much of his attention directed to startups.

The industry entered 2023 with a broadband penetration rate of 48.20 percent. Ali Isa Pantami, the then minister of communications and digital economy, had projected the industry would end the year at 50 percent broadband penetration.

The projection was on the back of a 6 percent growth recorded in 2022, when penetration rose from 41.61 percent in January to 47.36 percent in December. The confidence was also based on projections of new investments in the telecom industry. Airtel secured the 5G licence that slipped through its hands in the 2021 auction as a result of the upstart Mafab Communications outbidding it. The second largest telecom operator paid $273 million and pledged to deploy infrastructure as soon as possible to launch its 5G service. While it has since launched its service, 5G penetration in the country is nowhere near the investments the minister was expecting. As of August, 5G penetration was at 0.8 percent.

Broadband penetration has since declined rather than surpassed the growth recorded in 2022. The lastest data released by the Nigerian Communications Commission (NCC), which has now delayed the release of data for three months, showed that the industry lost as much as 3 percent to settle at 45.57 percent in August from 48.20 percent in January. Pantami had projected the rate would be at 50 percent by the end of the year but with barely four months of data left to be released in 2023, experts say it is almost impossible to meet the target. The macroeconomic conditions have got worse for telecom operators since August, thanks to the persistent weakening of the naira and the soaring inflation.

Bosun Tijani was appointed as minister of communications, innovation and digital economy in August, at a time when broadband penetration was yet to record a single growth, and subscribers on 9Mobile had been so depleted that in November there were reports the telco was considering selling or leasing off its only spectrum to MTN Nigeria, potentially leaving the market with only three operators should the sale go through.

Tijani soon announced his Strategic Blueprint, which retained targets like 70 percent broadband penetration by 2025 and set a new target of 90 percent penetration by 2027. The new target will depend on the achievement of 70 percent fibre optic cable deployment by 2027. According to the minister, the aim is to provide widespread access to ensure that citizens are connected, hence the focus on executing a broadband strategy to lay 95,000 kilometres of fibre optic cable across the country. In an interview, Tijani projected that the fibre project would require between $1.5 to $2 billion investment.

The challenge however is that investment in the industry has been on a decline and hit a record in 2022. According to the NCC, the total foreign direct investment into the Nigerian telecoms industry in 2022 stood at $399.91 million, representing a 46.8 percent decline from $753.04 million in 2021.

The investment decline affected the general contribution of the ICT sector in 2023. Data from the National Bureau of Statistics showed that the sector expanded in real terms by 6.69 percent (year-on-year) in the third quarter of 2023, the lowest in five years. The slowdown is attributed to lower capital expenditure or capital expense intensity by major telecommunication players, according to an analysis at CardinalStone Research. In addition, rising inflation (currently at over 18-year high) is not helping matters.

Experts say there is no incentive for investment. The NCC had between 2014 and 2018 issued licences to seven companies as part of efforts to scale the country’s telecom infrastructure. The InfraCos were supposed to provide Layer 1 (dark fibre) services on a commercial basis with a focus on the deployment of metropolitan fibre and transmission services, available at access points – Fibre-to-the-Node or Neighbourhood – to consumers.

As of December 22, none of the InfraCos had been able to deliver the promise embedded with the licence, most of which was to cover the access gaps, particularly in underserved and unserved areas of the country, and provide a wholesale layer to transmission services on a non-discriminatory open access price regulated basis.

Operators also contend with rising taxes and levies from agencies in the federal, state, and local governments. Last month, Gbenga Adebayo, president of the Association of Licenced Telecommunication Operators of Nigeria, said the number of taxes and levies telecom operators in Nigeria are forced to pay by these agencies had grown to 52 from 41.

These have had a significant impact on the revenues of telecom operators. Airtel reported a $13 million loss after tax for the half year ended September 2023, compared to the $330 million profit after tax reported in the same period of 2022. The company said the loss was driven by a foreign exchange loss of $471 million recorded in finance costs before tax and because of the devaluation of the Nigerian naira in June. The telco also posted a $12 million profit before tax in H1 2023, a decline of 97.7 percent from the $516 million reported in H1 2022, as total finance cost rose to $873 million from $358 million.

MTN Nigeria’s nine-month net profit also showed a decline as a result of the steady decline of the naira. The telco’s foreign exchange loss rose to N232.8 billion within the period from N27.9 billion a year earlier.

The minister’s focus has not been entirely on how to address the problems in the telecom industry. In the first six months in office, Tijani has paid more attention to growing IT jobs through training of young Nigerians as part of efforts to hit the three million IT digital jobs target he set in the Strategic Blueprint. He has enlisted tech startups and other partners to achieve this goal while the core challenges in telecoms are left untreated.

For example, telecom operators are struggling to operate in Lagos State where the state government has been building a unified fibre duct project which is expected to house all fibre deployment by operators. The project has been on since 2020, with the deadline for completion set in 2022, but has not been met. In December, the governor of the state disclosed that the project was halfway completed, an indication that the project would not be completed in 2023 and there are no guarantees that it would be completed in 2024. The Right of Way charges in the state is one of the highest at N870, and there are reports that operators have not been allowed to deploy fibre infrastructure since the 6,000km metro fibre duct project commenced.

So far, only about four states charge Right of Way fees at N145 and below. The rest of the states have various arbitrary charges for fibre infrastructure deployment, making it nearly impossible to sustain the interest of investors in the market.

Telecom operators were also being owed over N200 billion by banks as of November, an increase from N120 billion in June. The former minister made some efforts to bring the Central Bank of Nigeria and the banks to negotiate with telcos but nothing concrete came out of those efforts. The current minister has yet to make any notable effort to resolve the crisis with the banks.

Apart from existing telecom operators, new players like Meta planning to deploy its submarine cable to two Nigerian cities in 2023 were unable to land the cables before the November deadline it set.

As the operators struggle the biggest losers are the subscribers who are not served with the best quality internet. Internet speed has been declining. The telcos have also reviewed internet data prices upward in response to putting more pressure on consumer wallets.