The success of MTN Nigeria and Airtel Africa often paints pictures of smooth-sailing and thriving telecommunication industry. While the companies’ success cannot be denied, experts say the industry as a whole is not as healthy as the revenues of the two telecommunication companies paint.
Multiple taxation and an unwieldy foreign exchange regime are widening the gulf between large-sized operators and smaller players. The industry pays between 47 to 36 taxes to federal, state, and local governments, and while MTN and Airtel remain the largest taxpayers, others in the value chain are left gasping for breath from the sheer weight of the taxes.
Taiwo Oyedele, partner and head of tax at PwC Nigeria, told BusinessDay that the tax system in Nigeria is generally fragmented; hence the telecom industry is not the only one suffering. Nevertheless, it appears that the biggest industries like the telecom industry are the most visible because they have physical infrastructure practically everywhere. This makes them easy targets for government agencies at various levels.
Kenny Joda, head of sales and marketing at FiberOne, a fiber internet provider, said multiple taxation has hit the small operators harder.
“They are hit harder because many are struggling to survive and these taxes affect their operations and make them not be able to meet up with some other obligations because most times they are forced to pay or close shop,” Joda said.
Experts say authorities are often deceived by the successes of the big operators that they forget that everyone in the market does not have the same capabilities. MTN Nigeria, for example, has reported healthy profits in the previous year, recovered from the subscription decline that hit the telecom industry from November 2020 and grew its total voice subscribers by 2.15 percent in the last three months, as well as secured a new 5G licence and PSB licence.
Airtel Nigeria is not so far off the same trajectory. Although it is behind MTN in terms of the market share at 27.81 percent, Airtel boasts a superior market capitalisation on the Nigerian Exchange Limited than the market leader. As of March 2012, Airtel posted a valuation of N4.74 trillion to remain the most capitalised stock on the exchange, ahead of Dangote Cement with a valuation of N4.66 trillion and MTN at N4.09 trillion.
Airtel also leads the telecom industry in terms of subscriber growth in the past three months with 2.68 percent. While it lost out to Mafab Communications for the 5G licence, the telco has since acquired a Super Agent licence and a payment service bank (PSB) licence from the Central Bank of Nigeria (CBN), allowing it to launch its Smartcash payment service.
But for players like 9mobile, the fourth-largest operator, the growth appears to be taking too long to reach them. The telco only saw 0.14 percent growth in the first three months of this year. While it was among the first telcos to get a PSB licence and the first to actually deploy the service, its progress has been sluggish. While MTN and Airtel now count hundreds of thousands of agent networks, 9mobile’s payment unit 9PSB has 8,000 banking agents.
Shola Ogunyemi, head of marketing communications, 9PSB, has an explanation for the low banking agents figure. According to him, 9PSB is not in competition with anyone, hence its strategy of carefully verifying everyone the company onboards as an agent. This will enable consumers of 9PSB to properly identify who they are transacting with as well as gain access to quality service from the agents.
9mobile, however, has grossly underperformed in terms of internet data subscriptions. While the big players record fair growth, 9mobile has lost a record 11.74 million subscribers between March 2022 and April 2016, representing about six unbreakable runs of losses. The telco now has 6.33 percent of the market.
An expert in the industry who spoke on condition of anonymity said it would require between $500 million to $600 million invested in five years to get 9mobile back on its feet.
“Without scale from investing in infrastructure, there isn’t a competition and it limits consumers’ choice. Infrastructure isn’t cheap,” the expert said.
Ntel, which also has a national carrier licence, 3G and 4G licences just like MTN and Airtel, plays primarily in the fixed wireless market where it provides 4G LTE advanced network, thanks to its takeover of NITEL, the foremost telecommunication company in Nigeria. Ntel has however failed to make any notable dent in the market. The company has 2,311 subscribers as of March 2022, whereas its closest rival Smile Communications boasts of 249,200 subscribers.
Experts say the common denominator between big and small players in the telecom industry is access to funds. This is why the scarcity in the foreign exchange market is biting operators in the industry. Setting up the infrastructure is capital-intensive, and getting the right talent is also an issue of funds.
Globacom saw subscription growth of 1.94 percent in the first three months. The first Nigerian-owned telco has been unable to regain the second position it lost to Airtel. It has also not been able to fully deploy the PSB licence it received from the CBN the same day 9mobile got theirs.
“Telecoms is a game of economies of scale and network effects. For example, MTN uses spectrum probably 1.25/1.3x as effectively as Airtel but probably 5x that of the smaller competitors. Of course, poor management, poor governance, and lack of investment have hampered them as well,” said an investor in the industry who would like to remain anonymous to speak freely.
Ajibola Olude, chief operating officer of the Association of Telecommunications Companies of Nigeria (ATCON), suggested the big operators may have a better understanding of the industry, hence their success.
“The first profit they (MTN Nigeria) made, they ploughed it back into the business rather than share to shareholders because the more money you have, the more you are able to do. Airtel did the same thing for the second year. They returned the money back into the business,” Olude said.
In May, the Association of Licenced Telecommunication Operators of Nigeria (ALTON) drew the ire of industry regulators when it demanded that operators be allowed to review tariffs upwards to help cushion the impact of inflation on critical products like diesel, or a downward review of taxes.
The authorities had proposed to charge a 5 percent tax on airtime recharge from June 1. However, Gbolahan Awonuga, chief operating officer of ALTON told BusinessDay that nothing had been heard from the government concerning the commencement of the tax.
“There must be communication from the government for the directive to be carried out,” Awonuga said.
Oyedele said tackling multiple taxation goes beyond issuing directives or the federal government merely engaging other arms. A more sustainable approach, according to him, is a legislative approach. The lawmakers would need to amend areas in the tax laws that give states and local governments the power to “misbehave”.
He said the constitution can say that every level of government can impose tax but it has to be in the single digits. This would compel these arms of government to become creative in expanding the tax net rather than just targeting big industries like telecom.
“We can also use technology to say if you introduce taxes it has to be published and it is not on a specific website people should ignore. In terms of advocacy, it can come from the telecom sector; there need to be data-driven discussions. That hasn’t been done. We should be able to say this is the amount of tax paid in various states,” he said.
