Telecommunications: price hikes to the rescue, but how much more space?
Based on a news report, telecom companies are proposing a 40% increase in the cost of calls, SMS and data to the Nigerian Communications Commission due to the increased cost of running a business in the country. Based on their proposal, the floor price for calls will rise from N6.4 to N8.95 while the ceiling price for SMS will rise from N4 to N5.61.
According to the Association of Licensed Telecommunication Operators of Nigeria (ALTON), the telecommunications industry has been financially impacted following the country’s economic recession in 2020 and the effect of the ongoing Ukraine/Russia crisis, resulting in a increased energy costs, increasing their operating expenses by 35%.
Many Nigerian businesses continue to face economic challenges ranging from the sharp depreciation of the currency to inflationary pressures and, more recently, the supply chain crisis resulting from the Russian-Ukrainian war, which has led to an increase substantial price of goods and services. Not forgetting the telecommunications operators, they have also witnessed the increase in operational costs associated with the provision of telecommunications services.
Moreover, many equipment/infrastructure used to provide services are of international origin, requiring foreign exchange and they had to resort to the parallel market amid the scarcity of foreign exchange. In addition, there are reports that some states are demanding higher right of way fees from telecom operators beyond the maximum of N145/linear meter set by the government.
The Nigerian Communications Commission (NCC) has statutory responsibility for setting the price floor for voice and data in the country with the aim of promoting healthy competition. Thus, the decision to increase the tariffs as proposed by ALTON or to keep the tariffs rests solely with the regulator. However, we believe that the regulator, in its decision, will take into account a number of factors, including the affordability of services for subscribers after the upward revision of the price cap, its impact on broadband penetration and, in particular, the current NIN-SIM.
integration exercise. With respect to these highlighted factors, we believe that the regulator, given current economic realities, can either advise operators to maintain the status quo or determine an interim floor price lower than that expected by ALTON.
Recently released first quarter figures showed revenue growth for many companies and consumer goods industries, but mainly due to price increases. Since 2012, the Nigerian consumer has been under severe pressure. From the partial removals of fuel subsidies to the freefall of the naira in recent years, to the footprints left by border closures on insecurity in food processing regions, electricity price hikes and more recently, the supply chain
disruption caused by the war between Russia and Ukraine. All of these factors have contributed to inflationary pressures.
In response, the average Nigerian consumer has downsized the value chain, turning to cheaper alternatives as the cost of living rises in the face of generally low income levels. For non-essential consumer goods, it is fair to believe that there is a limit to the price increases that consumers can accept before volumes start to suffer.
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