Data value reduction and rise in cost of telecom operations

Rising operating costs due to Nigeria’s struggling economy might have forced the country’s telecom operators to reduce the value of data they sell to their subscribers. Though the telcos have yet to increase their tariffs despite 43 % rise in cost of doing business in the industry, the big four operators might have slashed the […]

Rising operating costs due to Nigeria’s struggling economy might have forced the country’s telecom operators to reduce the value of data they sell to their subscribers.

Though the telcos have yet to increase their tariffs despite 43 % rise in cost of doing business in the industry, the big four operators might have slashed the value of their data going by the pace with which data subscription deplete fast.

Daily Trust gathers that a N2000 data bundle by an average internet user now get depleted within three to five days. This could last to between three weeks and four weeks before the economy went into the struggling mode.

Complaints by data users of data depletion have now become common on various platforms on social media and even offline.

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Bilal Miftahudeen, a lawyer, told Daily Trust that before the rising costs of goods and services became a daily affair, he  used to subscribe to an operator’s N2000 data bundle and that would take him close to one month even with heavy download of documents. “But as soon as the present administration came in and the dollar kept moving up against the naira, I noticed that my N2000 subscription now last me for four to five days”,  Miftahudeen said.

The Lagos based legal practitioner said many of his colleagues had similar complaints and called on the federal government to do something to address the issue.

Similarly, Adebola Jacob, a trader, said he had decided to suspend data subscription for now as it is eating deep into his earnings. “I only subscribe when I have urgent and very important thing to do online, things that would fetch more than the money I put into the subscription”, Jacob told Daily Trust.

Many other data users also had the same story about fast data depletion. Though they said the economy might have forced the telcos to reduce data value, they appealed to the government to address the issue.

Daily Trust reports that data depletion occurs when a subscriber exhausts his or her data bundle before the expiration date or when more than volume is utilised for accessing online content greater than what the subscriber believes it should be or what it ought to be.

Telcos keep mute

But the telecom service providers did not say anything as to why their subscribers’ data get depleted quickly unlike before. The chairman of Association of Licensed Telecommunications Operators of Nigeria (ALTON) Gbenga Adebayo who is the official spokesman for all the operators did not respond to questions sent to him.

Several Factors Responsible For Data Depletion – NCC says

But the Nigerian Communications Commission (NCC) has said that issue of data depletion being experienced by telecommunications subscribers is attributable to several factors, which can be categorized as technical and nontechnical.

The Commission, in a statement recently said, technically, most browsers play videos by default even when the user only opened a site to read text.

It also cited automatic updates of apps and automatic uploads of videos and pictures to the cloud on smartphones as other factors that drain data quietly.

Other technical factors, according to NCC, include the increase in internet speed due to migration to 4G, which automatically plays video in high-quality formats, thus consuming more data.

Non-technical factors: NCC said data is being depleted by other factors, which are non-technical and these include:

The low purchasing power of subscribers leads to the purchase of small bundle sizes with short periods of use leading to an increased frequency of data depletion complaints.

Growth of social media, online advertisements and default audio-visual activations in web browsers and apps

Lack of consumer awareness and education and use of sub-standard and fake subscriber devices.

The immediate past Executive Vice Chairman of the NCC, Prof. Umar Danbatta, had said data depletion was one of the most prevalent complaints received from telecom consumers in the country. Danbatta noted that most of the complaints came as a result of the consumers’ migration to 4G/LTE technology.

Losses galore as operators see red due to rising operating cost, naira devaluation

However, naira devaluation and high operating costs have had their bad effects on telecom operators’ earnings.

Daily Trust reports that telecom operators and some telecom equipment vendors have recorded a loss running into over N500billion due to naira devaluation and high operating costs.

IHS Towers has recorded 9.4% decline in revenue, blaming naira fall for the loss.

IHS Towers, which is the world’s fifth-largest independent TowerCo, said the naira’s devaluation in June this year cost it $31 million. The company has revised the expected revenue for the year downwards. After four consecutive quarters of revenue growth, IHS Towers recorded a 9.4% decline compared to Q1 2023. IHS says the decline in revenue, which put it $46 million below the last quarter’s revenue was due to the naira’s devaluation.

“Our expectation for revenue would have otherwise increased by $31 million had the average FX rates previously assumed in our guidance remained unchanged,” Sam Darwish, IHS Chairman and CEO, said in a statement.

“We are encouraged by the recent policy changes implemented in Nigeria that are intended to put the country on a better economic path. In the near-term, however, these changes will cause some anticipated friction, including the significant devaluation of the Nigerian Naira that occurred in mid-June,” the statement read in part.

67% of IHS Towers’ revenue in the second quarter of 2023 came from Nigeria, the largest market of the telco infrastructure company, which also operates in 10 other countries, including Brazil, South Africa, Zambia, Egypt and Kuwait, its Middle Eastern foothold.

After four consecutive quarters of revenue growth, IHS Towers recorded a 9.4% decline compared to Q1 2023. IHS says the decline in revenue, which put it $46 million below the last quarter’s revenue was due to the naira’s devaluation. “Our expectation for revenue would have otherwise increased by $31 million had the average FX rates previously assumed in our guidance remained unchanged,” Sam Darwish, IHS Chairman and CEO, said in a statement.

“We are encouraged by the recent policy changes implemented in Nigeria that are intended to put the country on a better economic path. In the near-term, however, these changes will cause some anticipated friction, including the significant devaluation of the Nigerian Naira that occurred in mid-June,” the statement read in part.

67% of IHS Towers’ revenue in the second quarter of 2023 came from Nigeria, the largest market of the telco infrastructure company, which also operates in 10 other countries, including Brazil, South Africa, Zambia, Egypt and Kuwait, its Middle Eastern foothold.

FX scarcity has been a major challenge in Nigeria in recent times, leading to a significant depreciation of the local currency in the parallel market.

According to the World Bank, the Nigerian naira is one of the worst-performing currencies in the region, losing 40 per cent of its value since the start of 2023.

Daily Trust reports that the telecoms industry relies heavily on forex for its operations as most of its equipment is imported.

The Chairman, Association of Licensed Telecommunications Operators of Nigeria, Gbenga Adebayo, tasked the government to introduce a special forex market for the telecom industry.

Adebayo made the call when he led his association on courtesy visit to the Minister of Communications, Innovation and Digital Economy, Dr Bosun Tijani, recently.

He said, “Liaise with relevant stakeholders such as the CBN for the institution of intervention measures to support the telecommunications sector. Such interventions could include the introduction of a special forex window for the industry, set-up of long-term, low interest infrastructure funding schemes, etc.”

In their second quarter results for 2023, MTN Nigeria and Airtel Africa revealed that they lost a combined N485.69bn to naira devaluation.

The telcos noted that the sharp devaluation of the naira following the Central Bank of Nigeria’s move to close the gap between the official and parallel exchange rates had affected their businesses negatively.

According to MTN, there was a 60 per cent movement in the exchange rate in the second quarter of 2023 and it led to a N131.50bn forex loss for the firm.

Similarly, Airtel said steep naira devaluation in the country had affected its earnings.  Olusegun Ogunsanya, managing director of Airtel Africa Plc said the company’s earnings was hurt by an exceptional foreign exchange loss of $371 million due to Nigerian currency devaluation in June 2023.

Airtel Africa’s revenue for the quarter ended September 30, 2023 fell 5% on-year and 9.5% sequentially to $1,246 million, the company said. Average revenue per user (ARPU) was flat sequentially at $2.5.

But the company said it had returned to a profit after a loss in the fiscal first quarter came.

“As reported in July 2023, our results for the first quarter were significantly impacted by the changes to the FX market in Nigeria, introduced by the Central Bank. Whilst the changes are required for the long-term benefit of the Nigerian economy, the immediate impact of the naira devaluation continues to weigh on our reported financial performance in the period,” said Olusegun Ogunsanya, Group chief executive officer, Airtel Africa.