Rising costs threaten Nigeria’s telecom industry despite $70bn investment

Joy Agwunobi

Nigeria’s telecom industry is currently threatened by mounting sustainability challenges that jeopardise its future. According to industry players, while the industry has witnessed significant development over the past two decades, the burden of escalating costs and pricing issues has become increasingly difficult for operators to navigate, casting a shadow on the future of the industry.

This challenge was among the highlights of discussion at the just concluded telecom forum hosted by Financial Derivatives Company (FDC), themed “Telecoms Industry 2.0: The Next Investment Frontier in Nigeria”, as key stakeholders gathered to discuss the telecom sector’s vital role in shaping the future of the Nigerian capital market.

Industry leaders stressed the pressing necessity for increased investment in digital infrastructure, underscoring the immense pressure faced by telecom operators in Nigeria. They further noted that despite the $70 billion investment made in the sector since its liberalisation in 2001, the operators are struggling with a worrisome tax burden, deteriorating power supply, and successive years of losses triggered by foreign exchange volatility. 

Karl Toriola, CEO of MTN Nigeria, emphasised the critical situation, noting that the government’s reluctance to approve a tariff hike is putting telecom companies in a difficult position as inflation continues to rise.

Toriola described the situation as an “intensive care unit,” stressing that a price increase is not just desirable but essential for the industry’s survival.

 “There’s no way, in this kind of inflationary environment and forex devaluation, that an industry can maintain prices the same for 11 years,” Toriola stated, urging the government to reconsider its stance on pricing.

Bolaji Balogun, CEO of Chapel Hill Denham, shared a similar sentiment, pointing out that while there have been investments in the telecom sector by various stakeholders including data centre operators, mobile network operators, cable network operators, internet service providers, tower companies, and infrastructure companies; the industry is still bedevilled  by challenges that hinder its growth. 

He argued that the sector needs even more investment in digital infrastructure to sustain its trajectory, given Nigeria’s position as the sixth-largest mobile market globally, with the potential to rise to the third-largest within the next decade, given its population size and growth.

However, Balogun noted that  achieving this potential will require increased investment in digital infrastructure. He suggested that the government could play a crucial role in facilitating this growth by implementing policies that protect local manufacturing, co-investing in import substitution startups, encouraging financial transparency, and creating differentiated tax rates for listed companies.

On his part, Temi Popoola, the group managing director and CEO of Nigeria Exchange Group (NGX Group), highlighted the crucial role of the telecommunications sector in enhancing the capital market’s efficiency, transparency, and financial inclusion.

 He stated, “The telecom industry is more than just connectivity; it’s integral to ensuring market transparency and enabling informed decisions.”

Popoola pointed out that two of the five most valuable companies on the NGX are telecom giants, illustrating the strong link between the telecommunications sector and the financial market. 

According to him,  the impact of telecom companies goes far beyond their primary services.

 “Their contributions reach beyond just providing connectivity; they are key in delivering real-time market data, which is vital for improving market transparency,” he added.

Popoola stressed the need for an environment that promotes innovation, which he believes will lead to increased investment in both infrastructure and talent within the industry. He also called for ongoing cooperation between the telecommunications industry and other sectors to sustain growth.