Nigeria- Telecom operators call for government intervention

Telecom operators in Nigeria are crying out for government intervention, this as they warn of large scale layoffs in the industry reports Business Day Nigeria.
The global recession, power supply and increasingly harsh operating conditions have been fingered as reasons for dropping revenues in the sector.

Other problems that have been highlighted include the recent steep depreciation in the value of the naira against the dollar, the high cost of running power generators to run their base stations, multiple taxation, falling average revenues per user (ARPU) and vandalisation of their facilities.

Operators say the decision of the industry regulator, the Nigerian Communications Commission (NCC), to enforce strict registration of SIM cards and number portability at the same time, will likely make matters even worse for the telcos.

While the plight of the first tier (GSM) operators is somewhat cushioned by their high subscriber numbers, the second tier CDMA (Code Division Multiple Access) operators are in a more difficult situation because of their relatively lower subscriber numbers, stiff competition and some other encumbrances.

GSM operators had a five year mobile exclusivity window, which those in CDMA category say enabled the former to run away with the market.
The words of one senior industry insider reflect the view across the industry. He said: “ARPUs are down across the industry. Competition for a share of the consumers’ wallet between telecom, bread, transport and others is getting keener and we are seeing less coming to telecom.
“Operators have to work smarter, work leaner. There will be reduced spending in terms of promotions and consumer friendly initiatives, and slower roll outs. There is the erroneous view in the industry that the sector is strong and cannot be shaken. If this situation continues, there will be retrenchment because operators are supposed to be prudent businessmen.
“Government needs to be supportive. We must stop thinking that telecom is strong and nothing can happen to it. There is need for concerted efforts by government and the regulator so that the industry is able to survive the crunch.
“If one company goes down, others may follow.”
Second tier operators in the country have recently reported losses although some had the solace of increasing subscribers and widening geographical coverage. They report that the results were brought on by the depreciation of the naira, keen competition and a harsh operating environment.
South Africa-based telecommunications giant Telkom, had announced that the group’s headline earnings a share (Heps) from continuing operations dropped by 57.7 percent to 407.4c a share for the year ended March 2009.
This compared with Heps of 963.7c a share in the 2008 financial year. Operating profit decreased by 29.6 percent to R6.4-billion, and the group’s earnings before interest, taxation, depreciation and amortisation (EBITDA) margin decreased to 32.5 percent for the 2009 financial year, compared with 39.3 percent in 2008.
This was mainly because of an EBITDA loss of R226-million at Nigeria-based Multi-Links, and higher fixed-line operating expenditure, which decreased the fixed-line EBITDA margin to 25.8 percent at end March 2009, compared with 36.3 percent a year earlier.
Multi-Links reported a net loss of R1.76-billion in the 2009 financial year, compared with a net profit of R33-million in 2008. Investments in Multi-Links and Africa Online were impaired by R462-million, and R39-million, Telkom said.
It explained that these impairments were necessitated by the operating losses incurred by these operations and the deteriorating prevailing economic climate. Multi-Links achieved a 124.9 percent increase in revenue, with subscribers growing 209.3 percent for the year ended March 2009. However, operating expenses increased 157 percent, while capital expenditure increased 112.7 percent and bad debts increased 208.2 percent.
Turning around Multi-Links’ performance is vital to Telkom given the extent of the Group’s investment and the enormous opportunity the Nigerian market provides.
The chief executive officer of Starcomms Nigeria plc, Maher Qubain, had given the picture behind the company’s performance in 2008 which saw its earnings drop by more than 65 percent with a net loss of over N8 billion.
According to Qubain, the shortfall was due to increased operating costs and reduced margin. He told the shareholders that Starcomms’ “EBITDA declined to N935 million from N2.733 billion in 2007 as a result of reduced margins primarily attributable to the heavy levels of upfront discounts on new subscriber phone sales and increased operating costs.
“The company recorded an unrealized foreign exchange loss of N3.641 billion on its dollar-denominated loans as a result of the sharp devaluation of the naira in December 2008 which contributed to a net loss for the year of N8.008 billion as against a net profit of N1.153 billion in 2007.”
However, the company explained in a statement that it is focused on delivering a significantly better financial performance for the current year. “The board has reviewed the business plan for 2009 and has reduced capital expenditure, significantly reduced the level of subsidy on phones and focused on reducing operating expenditure.”
As a result, Starcomms is already seeing a significant improvement in operating performance in the results for first quarter of 2009. The results show an increase in revenue of 15 percent to N8.522 billion as against N7.403 billion in 2007, while EBITDA increased by 106 per cent to N2.349 billion from N1.139 billion.