The Nigerian telecommunications sector is set to experience a tariff hike, albeit not the 100% increase initially demanded by telecom operators.

The decision, announced by Dr. Bosun Tijani, Minister of Communications, Innovation, and Digital Economy, provides a measure of relief to telecom companies battered by Nigeria’s harsh economic environment.

The tariff adjustment, reportedly set to rise by 40%, aims to stabilize an industry struggling under severe economic pressures. The proposed hike could see call rates increasing from N11 to N15.40 per minute,
SMS charges rising from N4 to N5.60, and
1GB of data costing at least N1,400.

For telecom operators, the hike provides a lifeline. The sector has been heavily impacted by the devaluation of the naira and skyrocketing operational costs. For instance, MTN Nigeria, the industry leader, reported significant foreign exchange losses due to the naira’s devaluation.

In the first quarter of 2024, the company reported a loss before tax of approximately N392.69 billion.

By the end of September 2024, MTN Nigeria had reduced its outstanding trade line obligations from US$416.6 million at the end of December 2023 to approximately US$57 million. This reduction led to realized foreign exchange losses of about N365 billion, aiming to mitigate the impact of future naira depreciation and associated finance costs.

As a company that relies heavily on imported equipment and software, MTN and its peers have faced escalating costs for everything from network maintenance to infrastructure upgrades.

The devaluation, coupled with inflation and new taxes, has drained profitability, forcing telecom companies to lobby for tariff adjustments. While a 40% increase does not meet their initial demands, it represents a critical step toward offsetting their losses.

Consumers Push Back

However, for consumers already burdened by the spiraling cost of living, the news is far from welcome.

Nigerians are already grappling with economic challenges worsened by the current administration’s policies, including the removal of fuel subsidies and the unification of exchange rates. These measures, while aimed at stabilizing the economy, have triggered a cost-of-living crisis, with inflation eating deep into household incomes.

The prospect of higher communication costs has only added to public discontent. Affordable access to telecommunication services has been essential for Nigerians, enabling businesses, education, and everyday interactions. For many, a rise in call, SMS, and data charges feels like yet another blow in an already difficult economic climate.

The tariff hike comes against a backdrop of economic headwinds that have scuttled the growth of the telecommunications sector. Major challenges include: Naira devaluation, inflation and foreign exchange scarcity. These challenges have forced telecom operators to re-evaluate their pricing models to remain sustainable.

“You just gotta feel for the telcos. I mean, the cost pressures are real and the balance sheet is currently in a mess,” said financial analyst, Abdulrauf Bello. “I mean, over N600bn in negative equity. How do they even want to clean their balance sheet?”

However, Dr. Tijani emphasized the government’s commitment to striking a balance between protecting consumers and ensuring the telecom sector’s viability. “What will be approved will not be by 100 percent,” he assured stakeholders during the meeting.

The Nigerian Communications Commission (NCC) is still finalizing the details but is expected to announce the new tariffs soon. Tijani noted that the government aims to shield the public from excessive hikes while enabling telecom companies to invest in critical infrastructure.

Mixed Reactions from Stakeholders

However, consumer advocacy groups have criticized the timing of the increase, citing its potential to deepen economic hardship. They argue that instead of passing costs onto consumers, the government should explore policies to reduce operational burdens on telecom companies, such as improving access to foreign exchange or lowering sector-specific taxes.

Others see a dilemma in the situation as the argument of tariff hike rages on, especially as the capital expenditure of telecom sector has dropped, indicating low investments.

“A big dilemma [to be honest], and I don’t know how we can solve this. However, I know that telcos operate with significant operating leverage (i.e., a disproportionate impact on profit relative to an increase in prices). The stakeholders can come together and arrive at a pricing action that will give the telcos a breather, while also not ‘killing’ consumers,” Bello added.

But some economic analysts highlighted the need for the tariff adjustment to prevent further deterioration of the telecom sector. Bismarck Rewane, MD/CEO of Financial Derivatives Company, said among other things, it will help to reduce inflation.

“Yes, it helps to reduce inflation because it increases productivity,” Rewane said as a guest on Channels Television’s Business Morning on Thursday.

“Yesterday, the price of MTN shares went up by 10% to 220. The investors have already factored that in and are expecting a lot of good goodies.”

Rewane added: “But more important to think about is the fact that because of an increase in tariff and an increase in investment to make the industry sustainable, they’re going to see an increase in productivity, not directly but indirectly.

“Any increase in productivity and output is likely to allow inflation to moderate, which is the goal. So, we heard from the policymaker Bosun Tijani who was very clear that we want a sustainable sector. But we also heard from the regulator saying that we will hold these guys to quality of service.”