TROUBLE IN TELECOMS HOUSE

· SONNY ARAGBA-AKPORE writes that the sector is operating in fits and starts

· Without sounding a death-knell, telecommunications service companies are troubled.

· Although, the big players display glamour and pictures of “all is well” what you see is

· nothing but a facade as the companies are grasping for breath as a result of the internal haemorhage plaguing their service provision.

· And unless government rejigs its policy on foreign exchange as a quick intervention, to cushion importation of equipment to boost services, many of the so called A grade players may go into bad shape.

· Operating Expenditure (OPEX) has more than doubled since 2021 and with dwindling foreign inflows through Foreign Direct Investments (FDIs), some telcos are now holding on to straw to survive.

· The operators see their biggest challenges in their inability to provide quality of service and a result of recurrent vandalism of their infrastructure.

· Every operator has become its own electricity power provider as supplies from national grid are now a pipe dream. Added to this, the spiral costs of diesel and its alleged incessant theft of same by unnamed persons creates bigger problems.

· Confirming the internal haemorhage in the sector, an official who wants to be anonymous said part of the problem stems from significant high interconnect debts between players. Telcos are being owed a lot of money thereby leading to terminal struggles for survival.

· The telcos also list political incursions as a major drawback hindering survival.

· On the issue of Forex sources: “willing seller, willing buyer on forex, problem is bills that are being settled now due to long wait for forext transactions when Forex was at 700N =US1 and now being paid at the prevailing rate of 1,400+

· High OPEX remains a major issue coupled with ⁠Low FDIs leading to concerns in industry sustainability.

· They claim that the regulator is in a dilemma especially on tariff hike issues.

· So Telcos are now on bent knees scrapping to provide services below cost.

· And the Government looks elsewhere in spite of manifest inflation on every single item especially now that infrastructure are experiencing decay and to replace same is slow and painful as telcos lament their inability to deliver robust services .

· To underscore a picture of this haemorrhage, MTN Nigeria and Airtel Africa (the only two telcos publicly traded) lost N479 billion to currency revaluation and recorded reduced profit margins in the first nine months of 2023.

· In its financial report for Q1, 2024, for instance, MTN reported a second successive loss after declaring a loss after tax of N392.7 billion for the first quarter of 2024.

· This is coming despite growing its service revenue by 32.0 per cent to N747.3 billion year-on-year, the telco recorded its second loss since it was listed on the Nigerian Exchange.

· It noted that its net loss for the quarter further increased its accumulated losses and negative shareholders’ funds to N599.2 billion and N434.7 billion, respectively. It highlighted that its profit after tax adjusted for the net forex loss declined by 57.8 per cent to N47.1 billion.

· “Further adjusting for the impact of the naira devaluation in OPEX, PAT would have been down by 5.3 per cent to N105.6 billion,” MTN said. The telco’s net foreign exchange loss stood at N656.37 billion.

· MTN Nigeria’s chief executive officer, Karl Toriola, noted that severe macroeconomic headwinds overshadowed a solid operating performance. He said: “The operating environment in the first quarter remained very challenging, with rising inflation and continued naira depreciation off an already low base.” He stated that the naira’s devaluation and record-high inflation have impacted the operating environment for businesses in Nigeria.

· The operators are agitating for tariff hikes as part of measures to sustain their operating expenditure. But that is half way through if all they get the regulator’s,Nigerian Communications Commission’s nod.

· The operators are trying to justify the tariff increase because “Consumer prices in other sectors have seen a steep rise over the last six years as they adjust to reflect macroeconomic realities. However, telco prices have remained flat and even declined. Contrary to the price trends in other sectors, telcos have had to adjust for the macroeconomic headwinds caused by an increasing erosion of margins. Other highly regulated sectors such as power and insurance have implemented price increases over the last year. Insurance prices have risen 200 per cent with power raising prices by over 40 per cent.”

· They also decry the strong macroeconomic headwinds which have occasioned tough operating conditions, leading to a decline in CAPEX (Domestic) and Foreign Direct (Capital Inflow) investments into the industry by 30.37 per cent and 46.9 per cent respectively between 2021 and 2022.

· These headwinds include inability to source foreign exchange and attract foreign direct investment because investors have become uncomfortable because of the grave economic uncertainty in the country.

· Without meaning to link the crisis to a flip- flop economy, the operators think unless something urgent is done, providing quality of service will not be sustainable because of the multiple effects of operating costs.

· Owing to the macroeconomic crisis , resulting in increased cost of operation and overheads, most telecom companies in Nigeria have been posting losses, making it difficult for them to pay their Annual Operating Levy (AOL) to the Commission as and when due.

· The operators are worried about the restrictive regulatory approach which is unconducive for the highly needed innovation in this evolutionary era of newer communication technologies.

· “We invite the EVC to note that the convergence of telecommunications with digital and multimedia services has greatly reduced the revenue streams from traditional telecommunications services (voice, SMS, etc.) and to survive this digital era, telecommunications operators have no choice but to quickly evolve into digital and platform service providers which enable newer and advanced means and uses of communications technology and this is only possible in a regulatory environment that enables the development of innovative products and services, with a flexible regulator that is well-informed on the latest technology developments/requisite regulatory frameworks, and an appreciation for the reverberating impact of derailing this progression.” they lamented.

· In 2023,MTN declared its first loss after tax of N137 billion. and Its retained earnings and shareholders’ fund fell to negative N208.0 billion and N40.8 billion, respectively.

· For Airtel, profit before taxes result for the half-year 2023 was much worse, it dropped by a staggering 97.7 per cent – from $516 million to $12 million – compared to the results from 2022.

· The report showed that Airtel had consistently grown its revenue in Nigeria since Q2 2018. The only time there was a drop in revenue between quarters was in 2020 when revenue dropped from $377 million in Q1 2020 to $341 million in Q2 2020. This $36 million drop in revenue is nothing compared to the decline seen in 2023.

· Its revenue for Q1 2023 was $543 million, a $2 million drop compared to the previous quarter – $545 million in Q4 2022. By Q2 2022, the drop in revenue increased by $15 million, from $543 million to $528 million.

· Although figures of losses sustained by the other unquoted telcos are unavailable,there are strong indications that all is not well.

Aragba-Akpore is a member of THISDAY Editorial Board