Karl Toriola, the CEO of MTN Nigeria, has sounded a critical warning regarding the financial sustainability of the telecommunications industry, emphasizing the need for immediate tariff increases. This follows ongoing calls from telecom operators to address the rising economic pressures, particularly in light of Nigeria’s fluctuating currency and high inflation rates.
Speaking during a tour of MTN’s facilities in Ibeju-Lekki, Lagos, to a group of Media Innovation Programme Fellows, Toriola painted a grim picture of the industry’s financial health. He stressed that without a significant revision of tariffs, the sector’s ability to continue operations is at risk.
The Dire Financial Situation of Telecom Operators
Toriola was candid about the company’s precarious financial position. He explained that MTN and other telecom operators have been dipping into their savings just to keep operations running. “There should be no delusion; if the tariff doesn’t go up, we will shut down,” he remarked. He added that the telecommunications industry, which has been integral to Nigeria’s economic development, is now “living on borrowed time.”
The CEO noted that MTN Nigeria has become a loss-making entity due to the continuous devaluation of the naira, which has eroded profit margins across the industry. “The fundamentals need to change. Tariffs have to be changed,” he stressed, highlighting that the current revenue model is no longer sustainable in the face of rising operational costs.
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Impact on Tax Contributions and National Economy
Toriola also touched on the wider economic implications of the telecom industry’s financial struggles. He revealed that MTN Nigeria was once among the largest corporate income tax contributors to the Federal Inland Revenue Service (FIRS). However, due to recent losses, this contribution has dwindled to zero, compounding the fiscal challenges facing the Nigerian government.
The inability of MTN and other telecom operators to generate profits has significant ripple effects, not just on the sector but also on the broader Nigerian economy, which relies on telecom operators for jobs, infrastructure development, and connectivity.
Debt Owed by Nigerian Banks: A Persistent Challenge
Another key issue affecting the telecom industry is the substantial debt owed by Nigerian banks for their use of the Unstructured Supplementary Service Data (USSD) system. Despite an agreement reached in late 2023 for the banks to begin paying back their debt, progress has been sluggish.
In June 2024, reports confirmed that some payments had been made, but the pace has been slow, leaving a large portion of the debt unresolved. Toriola expressed frustration with this situation, stressing that telecom companies cannot continue to bear the financial strain of providing USSD services without compensation.
He warned that without swift action from the relevant authorities, telecom operators may be forced to seek regulatory approval to prevent commercial banks from processing transactions via the USSD platform. This could severely impact the financial services sector, as USSD is a critical channel for millions of Nigerians, particularly in rural areas where internet access is limited.
Telecom Operators Considering Load-Shedding Strategy
In August 2024, there were reports that Nigerian telecom operators were considering drastic measures to manage their strained services, including the introduction of a load-shedding strategy similar to that used in the country’s power sector. This strategy would involve selectively shutting down parts of the network to reduce operational costs while maintaining essential services.
Engr. Gbenga Adebayo, the Chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON), explained that the ongoing economic challenges, including inflation and the devaluation of the naira, have left telecom companies unable to service all their facilities simultaneously. Without sufficient revenue to cover maintenance and expansion, the industry is looking at options to reduce costs, though such measures could disrupt service delivery to millions of users.
The Toll of Naira Devaluation: MTN Nigeria’s Losses in 2024
In its financial reports for the first half of 2024, MTN Nigeria reported a staggering ₦519.1 billion loss. The devaluation of the naira, combined with high inflation rates, contributed to the company’s foreign exchange losses. The currency volatility has significantly impacted the company’s balance sheet, as much of its capital and equipment costs are dollar-denominated.
Toriola emphasized that unless there is immediate intervention in the form of tariff adjustments and debt recovery from banks, telecom operators will continue to struggle. The losses have put an enormous strain on the sector, which is responsible for providing vital communication infrastructure across Nigeria.
Conclusion: The Need for Immediate Intervention
The telecommunications industry, particularly MTN Nigeria, is at a critical juncture. With the combined pressures of naira devaluation, unsustainable operational costs, and unpaid debts from banks, the sector faces the risk of collapse unless tariffs are adjusted. As one of the major drivers of Nigeria’s digital economy, the telecom industry’s survival is essential not only for the companies involved but also for the national economy as a whole.
The call from Toriola is clear: without changes to the current financial structure, including a tariff increase and the recovery of debts, the telecommunications industry may soon reach a breaking point. The potential shutdown of operations could have far-reaching consequences for businesses, individuals, and the government, underscoring the urgent need for intervention from regulatory authorities and policymakers.
