7 May 2014

Nigeria: MTN - Tougher Contract Regulations Will Increase Prices

Africa's biggest telecommucations company, MTN, has said if the federal government makes its licence conditions more stringent, costs for customers may rise.

The Minister of Communications Technology, Mrs. Omobola Johnson, had in February said the federal government might revalue the Johannesburg-based company's phone spectrum and would push to have improving service and infrastructure written into the contracts.

The Nigeria Communications Commission (NCC) the same telecoms had fined the three biggest mobile operators, including MTN, for the quality of their service and prohibited them from selling new SIM cards in March, the first time the punishment was imposed along with a financial penalty. MTN's licence expires in 2016.

"Tougher rules, tougher regulations, greater demands ultimately will impact price, the more you charge up front or the more you demand over a period of time, well somebody has to pay for it," the Chief Financial Officer of MTN's Nigerian unit, Andrew Bing, said in an interview in Lagos yesterday, adding that: "Ultimately the subscribers are the people who will have to pay."

Nigeria had 167 million mobile subscribers as of February 2013, according to the NCC. According to Bloomberg, with many subscribers owning more than one phone, user numbers will probably grow to more than 200 million in 2017, London-based research company Informa Telecoms and Media estimates.

Nigeria's population is currently about 170 million. Prices have come down in the past three years in Nigeria, MTN Nigeria's Chief Executive Officer Michael Ikpoki, said in the interview.

At the same time, the company has spent about $5 billion to $6 billion in expanding capacity in the past three years. "It's bigger than the power sector combined, it's bigger than the cement industry, but they get away with everything," said Bing, who will go on sabbatical leave from the company at the end of this month. "Yet everybody wants a piece of us."

Nigeria's regulators have to allow telecomes companies to make "decent margins" or it will negatively affect investment, Ikpok said. "We are already operating under fairly stringent conditions," Ikpoki said, adding. "I don't know what can be tougher than this."

MTN has fallen 1.9 per cent this year in Johannesburg and closed yesterday at 212.85 rand, giving it a market value of 398.7 billion rand ($37.9 billion).

The company struggles with power supply and cuts to its fiber-optic network, making it a challenge to meet the regulators standards.

Hundreds of cuts are made a week to MTN's cables in the country due to negligence as roads are constructed or dug up, as well as malicious damage, Bing said.

Last year, MTN spent about N34 billion ($214 million) on diesel to power its base stations across the country due to lack of regular electricity in Nigeria, Ikpoki said.

The government of President Goodluck Jonathan sold 15 state-owned power generation and distribution companies last year and is spending $3.5 billion to boost transmission capacity this year by 50 percent from 4,000 megawatts, less than a 10th of South Africa's full capacity.

"We are very concerned and very keen to see that the whole power privatization actually succeeds because it's going to be really, really critical for our business," Ikpoki said.

MTN is looking to grow revenue from data as the use of smartphones, tablets and TV's increases in Africa's most populous nation to offset a slowdown in the growth in subscription numbers.

While users in Nigeria, MTN's biggest market, rose only "marginally" to 57.2 million in the quarter ended March 31, data revenue in local currency rose 21 percent. At the end of last year 15 percent of MTN Nigeria's revenue came from data, said Ikpoki.

"Voice is getting cheaper and people are now using more data," said Bing. "Will it ever overtake? It probably will, but it's going to be a long way, because a lot of people in this country still haven't made a phone call."

Copyright © 2014 This Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.