MTN’s return to profit masks hard times in Nigeria’s telecom sector

According to a statement filed on the Johannesburg Stock Exchange (JSE), today, Thursday, 3 August, MTN will announce that it has returned to profit for the first six months of the year ending June 2017,

The company said in a statement filed with the JSE on 27 July:

“MTN expects to report interim 2017 basic headline earnings per share of between 210 cents and 230 cents and basic earnings per share of between 280 cents and 300 cents. This compares with a headline loss per share of 271 cents and attributable loss per share of 301 cents reported in the prior comparable period.”

However, analysts have cautioned that the return to profit of MTN masks the reality that many of the players in the Nigerian telecom sector are struggling to survive. The Nigerian telecommunications industry, which had grown rapidly and attracted billions of dollars of investments into the economy after oil and gas, is currently facing hard times, as operators struggle for survival. Culprits for the stunning turnaround in fortune of the once high-flying sector, include major market dominance in terms of subscriber base by one player, infrastructure ownership and revenue sharing, and a drastic reduction of average revenue per user (ARPU), findings revealed.

While voice revenues have been declining for some years in the sector, the problem today is that data services which were expected to take up the slack, are being found to cannibalise voice and give little or no room for telco’s to make money.

For emerging markets like Nigeria, you find that a bunch of users who would typically call, or go to a call centre to call friends, can sit at home or wherever, chatting away for a whole month with so many friends for as low as 100 megabites a month, with the advent of applications like WhatsApp.

That is why the NCC is trying to help push up data prices, else more telco’s will pack up. Until June 2016, the telecoms sector was growing rapidly and comprised 9.8 percent of Nigeria’s GDP, but this growth has now stalled, with the sector at a strategic crossroads. Sources in the telecoms industry say that there is definitely no room for new entrants in this market and that there might be a need for existing players to be consolidated for the sake of survival and healthy completion. In Nigeria’s telecommunications market, the ARPU generally has been on the decline. Reports show that in January and July 2016, ARPU fell by 21.7 and 15.7 percent respectively, for the same periods in 2015.

In response to economic realities and subscriber expenditure, informed sources say, telecoms subscribers are generally spending much less in 2017. Unfortunately, operating capital required to support the huge user base has not declined in proportion. In fact, capital expenditure has somewhat risen, as a result of the same economic realities. As such, there is an ongoing battle for survival of operators in the industry.

The same asset that once generated a dual income stream, now majorly services only one. Most telco’s except the dominant player, are reporting operating profits but losses at the bottom line. Globacom, Airtel and Etisalat, now 9mobile, have found it very difficult to catch up with MTN, which is the largest operator by subscriber numbers, and also has a larger percentage of the market revenue share.