- Airtel highlights challenges in Nigeria, profit declines despite increase in revenue
Entangled in myriads of challenges, the telecommunications sector that has been in the forefront of economic transformation in the country is in for a tough time. While cost of operations continues to increase, demand for hike in tariff continues to meet brick wall even when the government is proposing tax increase. FESTUS OKOROMADU reviews the situation using the half year financial report of Airtel Africa Plc as a benchmark .
A review of the latest financial report of one of Africa’s communication giants, Airtel Africa Plc listed on the Nigerian Exchange Limited raises concerns for the prospect of the industry amidst the current economic crisis in the country.
Taking cognizance of the key role of the industry in the evolving fourth Industrial Revolution, it is obvious that every serious nation that wants to participate in the emerging global economic evolution must pay attention to the digital ecosystem empowered by the ICT subsector.
Hence, policy makers must of necessity pay close attention to the well-being of the sector.
Airtel Africa’s financials
According to the financial report of Airtel Plc for the half year ended September 30, 2024 posted on the NGX, the group’s revenue in constant currency grew by 19.9 percent during the period with growth accelerating to 20.8 percent in Q2 ’25.
The performance was driven by an acceleration of growth in Nigeria to 38.2 percent and in Francophone Africa to 9.0 percent.
Further breakdown of revenue growth shows that mobile services revenue grew by 18.4 percent, just as Mobile Money revenue grew by 28.8 percent in constant currency.
However, the telecom and mobile money services provider in 14 emerging markets of Sub-Saharan Africa reported currency revenues decline of 9.7 percent to $2,370m due to the impact of currency devaluation, particularly in Nigeria.
“A substantial increase in fuel prices across our markets and the lower contribution of Nigeria to the Group after the naira devaluation contributed to a decline in EBITDA margins to 45.8% from 49.6% in H1’24.
“During the half year ended September 2024, the Nigerian naira has devalued against the US Dollar by approximately 28% (USD appreciation of 22%) where the exchange rate moved to 1,669 naira per USD at the close of the current half year as against the rate of 1,303 naira per USD at the close of March 2024”
“In Q2’25, EBITDA margin at 46.4% improved sequentially from 45.3% in Q1’25 reflecting the initial successes in our cost efficiency programme launched earlier in the year. Constant currency EBITDA increased 13.5% whilst reported currency EBITDA declined by 16.5% to $1,087m for H1’25,” the company stated.
It further reported that its “Profit after tax of $79m was impacted by $151m of exceptional derivative and foreign exchange losses (net of tax), arising from the further depreciation in the Nigerian naira during the period.”
Consequently, “EPS before exceptional items declined from 7.0 cents in the prior period to 4.9 cents, primarily reflecting the translation impact of currency devaluation. Basic EPS of 0.8 cents compares to negative (1.5 cents) in the prior period, predominantly reflecting the $471m exceptional derivative and foreign exchange losses in the prior period, compared to $231m in the current period.”
Operating highlights
Airtel Africa Plc group reported that during the period under review, its total customer base grew by 6.1 percent to 156.6 million. Data customer penetration witnessed continued rise, driving a 10.4 percent increase in data customers to 66.0 million. Similarly, data usage per customer increased by 30.9 percent to 6.6 GBs, with smartphone penetration increasing 5.3 percent to reach 42.9 percent.
In the Mobile money market segment, Airtel Africa reported subscribers’ growth of 41.5 million, representing 13.4 percent increase, attributed to continued investment into distribution to support increased financial inclusion across our markets.
Transaction value increased by 30.1 percent in constant currency with annualised transaction value of $128 billion.
“Data ARPU growth of 13.5% and mobile money ARPU growth of 10.9% in constant currency continued to support overall ARPU’s which rose 11.1% YoY in constant currency.
“Customer experience remains core to our strategy with sustained network investment during the period. Data capacity across our network has increased by 20% with the rollout of over 2,800 sites and around 3,500 kms of fibre,” the company reported.
Nigerian market
According to the report posted by the company, revenue generation in the Nigerian market which is its largest grew by 35.6 percent in constant currency.
This was said to have been largely driven by continued strength in the demand for data services across the country, with growth accelerating to 37.9 percent in Q2’25 compared to 33.2 percent in Q1’25.
The voice segment of its business revenue grew by 23.0 percent in constant currency, driven by voice recording an average revenue per user (ARPU) growth of 19.6 percent. On the other hand, data revenue grew by 44.4 percent in constant currency, as a function of both data customer and data ARPU growth of 8.6 percent and 30.5 percent, respectively. Data usage per customer increased by 36.0 percent to 8.1 GB per month (from 5.9 GB in the prior period), with smartphone penetration increasing 6.2 percent to reach 48.5 percent. Smartphone data usage per customer reached 10.9 GB per month compared to 8.6 GB per month in the prior period,” the company disclosed.
However, during the period, revenues declined by 44.3 percent to $489m on account of the significant devaluation of the Nigerian naira.
Earnings before interest, taxes, depreciation and amortization (EBITDA) declined by 49.7% percent to $238m in reported currency but increased by 22.3 percent in constant currency.
The EBITDA margin declined by 526 basis points to 48.7 percent reflecting continued inflationary pressures across the business, particularly from the increase in diesel prices.
“Average diesel prices in Nigeria increased by approximately 90% compared to the prior period. In Q2’25, EBITDA margin has improved to 49.4% from 48.2% in Q1’25. Operating free cash flow was $163m, up by 73.7% in constant currency, largely due to the constant currency EBITDA growth and lower capex while in reported currency, operating free cash flow declined by 55.2% due to lower reported currency EBITDA following the significant naira devaluation over the year,” the report stated.
Significant transactions
Expatiating on how the forex market in Nigeria affected its business in the period under review, Airtel Africa stated that, “During the half year ended September 2024, the Nigerian naira has devalued against the US Dollar by approximately 28% (USD appreciation of 22%) where the exchange rate moved to 1,669 naira per USD at the close of the current half year as against the rate of 1,303 naira per USD at the close of March 2024. This resulted in a material impact on the Group’s financial results arising from the translation of monetary items at closing exchange rates in addition to the impact on the valuation of derivatives.
“In line with the Group’s policy on exceptional items and alternative performance measures, the impact of the devaluation pertaining to the quarters ended June 2024 and September 2024 for the Naira devaluation has been presented as an exceptional item with the following impact: the derivative and foreign exchange losses amounting to $231m, and the corresponding tax impact of $80m.”
Principal risks
Amidst various challenges, the company noted that global geopolitical and regional tensions have the potential to impact her business directly and indirectly due to the interconnectedness of the global supply chain.
It also highlighted adverse macroeconomic conditions such as rising inflation and increased cost of living, insisting that these conditions not only put pressure on the disposable income of her customers but also increases the cost of inputs for its business negatively impacting sales and profitability.
“Cybersecurity threats through internal or external sabotage or system vulnerabilities could potentially result in customer data breaches and/or service downtimes.
“Shortages of skilled telecommunications professionals in some markets and the inability to identify and develop successors for key leadership positions could both lead to disruptions in the execution of our corporate strategy.
“One of our biggest challenges is the heavy reliance on diesel to power telecom infrastructure. With the recent liberalization of the foreign exchange market, diesel costs have skyrocketed. Currency fluctuations directly impact the cost of petroleum products, placing a tremendous financial strain on the industry”
“We operate in a diverse and dynamic legal, tax and regulatory environment. Adverse changes in the political, macro-economic and policy environment could have a negative impact on our ability to achieve our strategy,” are some of the other risk factors Airtel Africa identified as inimical to its business fortunes.
Tougher times ahead
Meanwhile, the operating environment in Nigeria looks tougher as President Bola Tinubu on July 6, 2023 signed four executive orders, including one that suspended the 5 percent excise tax on telecommunication services. However, the thorny issue resurfaced recently with the Nigeria Tax Reform Bill 2024 currently at the National Assembly.
The new bill tends to give backing for excise duty on telecommunications services, along with other services like gaming, betting, and lotteries.
Reacting to the implication of the proposal on the industry, the Association of Telecommunications Companies in Nigeria recently warned that the move to reintroduce the 5 percent excise duty could significantly affect the industry.
Rejecting the proposal, ATCON President, Tony Emoekpere cautioned that the new tax would likely lead to higher costs for consumers while stifling growth in the sector which is vital to the country’s digital economy.
Expressing concern over the timing of the new bill amidst the current realities in the industry, he said, “We had received assurances from the former minister that this issue was settled. It’s alarming to see it re-emerge now, especially as the industry has been pushing for a tariff increase to cope with rising operational costs. Instead, we are now faced with a price hike that brings no benefit to the industry.”
Emoekpere revealed that ATCON intends to engage the Ministry of Communications to address the sudden reappearance of the excise duty proposal.
“The previous minister had successfully shelved this idea, so it’s surprising to see it come up again. We will reach out to the ministry to understand why this proposal is resurfacing and push to prevent its implementation,” he added.
Emoekpere called on the Federal Government to prioritize supporting the telecom sector, due to the critical role it plays in the nation’s economy.
He charged the government to focus on reducing the high operational costs in the sector, rather than imposing additional taxes.
“One of our biggest challenges is the heavy reliance on diesel to power telecom infrastructure. With the recent liberalization of the foreign exchange market, diesel costs have skyrocketed. Currency fluctuations directly impact the cost of petroleum products, placing a tremendous financial strain on the industry,” he explained.
Call for tariff hike
To address these challenges, Emoekpere urged the government to provide tax relief or incentives and to promote local production of key telecom inputs.
“If the government is unwilling to allow tariff increases, they should at least offer tax breaks or support for local production. Additional excise duties will only exacerbate the challenges facing an already strained industry,” he stressed.
ALTON is not alone on the demand for tariff hike in the telecom industry as some subscribers have joined the clamour urging the Nigerian Communications Commission to approve a 10 percent increase in their tariffs to be able to cope with economic trends in the country.
If approved, subscribers would have to pay more for calls, data, and text messages.
Also in support of this agitation is the National Association of Telecommunications Subscribers. The association argues that tariff increase would moderate the rising operational costs in the nation’s telecommunications sector.
The National President of the association, Adeolu Ogunbanjo, was recently quoted as saying that the tariff hike is necessary for telecom companies to sustain their operations and improve service quality.
He stated that the current economic conditions are negatively impacting telecom operators’ business, making it crucial for the regulatory agency to find a balanced solution.
“When you now look at the quality of service the telecom companies are rendering to this day, it is very poor, and they are also complaining.
“Do not forget that they said their operations were getting burdensome because of the rising costs of things, such as petrol, diesel and some other things, that will make the network function appropriately.
“They are complaining. I think in the last 11 years, they have not increased their service charge, operational costs have increased but not physically like we see in petrol,” the NATCOMS chief stated.
Also speaking on the financial crisis facing the telecom industry in the country, a financial analyst, Jide Idris, said that the telecom is facing serious challenges but nobody seems to be listening to the operators.
According to him, “Cost burden, forex, tariff constraints, USSD debt are a few of the issues confronting operators, ” adding that, “MTN and the Telcos have been asking for a tariff increase for years.
“Their costs are up, yet regulators object to them increasing tariffs to cover the increased cost of doing business in Nigeria. In effect the Nigerian regulators are asking the Telcos to subsidize Nigerians, a bit unfair to investors.”
According to Idris, the telecom market is becoming a crisis situation for operators from both sides.
He noted that while consumers are battling with high cost of living in the country, thus not comfortable with tariff hikes, the operators are not finding this easy either.
He noted that even the financial institution that uses the Unstructured Supplementary Service Data provided by telcos has refused to make payment. “As we speak, the outstanding debt was put at N120 billion sometime last year. What has been done by either the government of the NCC to recover the debt?
“How do we expect to get the best from these telecom operators when they are not encouraged to make money so as to further invest in infrastructural development?”
While emphasising the urgent need to boost the telecom industry’s ability to grow the nation’s economy, Idris stated that the World Economic Forum recently disclosed that the fourth industrial revolution represents a fundamental change in the way we live, work and relate to one another.
He expressed worries about Nigeria’s preparation to be part of the emerging revolution if it doesn’t give adequate attention to the key sector of the digital platform on which it is built.
The Federal Government, he stated, must do everything within its reach to fortify the telecom industry for it to deliver the necessary economic transformation.
MTN will shut down without tariff hike — CEO
MTN Nigeria, the country’s largest telecom operator, has also stressed the urgent need for the telecommunications sector to return to profitability to sustain its operations.
The Chief Executive Officer of MTN, Karl Toriola, made this known on Monday during a tour of MTN’s facilities by Fellows of the Media Innovation Programme in Ibeju-Lekki, Lagos.
The MTN chief, who has about 78 million subscribers under his watch, pinpointed that the sector has been accumulating significant losses and that immediate action is necessary to reverse this trend.
The operator with a corporate social investment of N2.6bn, according to its 2023 Sustainability Report, is now surviving on the profits it accumulated in about two decades.
“We must return the industry to profitability,” he stated, emphasising the necessity for reform.
He further elaborated that the company is currently operating on its reserves, which he described as unsustainable in the long run.
Earlier this year, telecom operators renewed calls for a tariff hike—the first increase in 11 years—to address rising operational costs and improve service quality.
Without such adjustments, they argued, financial viability and service standards will continue to decline.
Toriola reiterated that the sector faces critical pressures from rising operational costs, including escalating diesel prices required to power base transceiver stations.
“There should be no delusion; if the tariff doesn’t go up, we will shut down,” he warned, underscoring the urgent need for tariff adjustments to reflect economic realities.
Toriola noted that MTN, once one of Nigeria’s top corporate taxpayers, has seen its tax contributions decline as a result of these financial challenges.
Reflecting on their first-quarter results, MTN and Airtel have adopted a cautious approach to capital expenditure for 2024.
Meanwhile, the two other mobile operators in the country, 9mobile and Globacom, are not publicly listed.
In 2024, MTN Nigeria reported a staggering N519.1bn loss in the first half of the year, primarily due to foreign exchange losses stemming from the naira’s devaluation and high inflation rates.
Speaking further, Toriola also warned that it may suspend Unstructured Supplementary Service Data banking services due to the N250bn debt owed by Nigerian banks.
The mobile network operator is seeking regulatory approval to halt support for USSD services used for banking transactions unless the debt is resolved and tariffs are adjusted to reflect the economic realities.
However, Toriola expressed optimism that the Governor of the Central Bank of Nigeria, Yemi Cardoso, and the Executive Vice Chairman of the Nigerian Communications Commission, Aminu Maida, would intervene to help resolve the ongoing financial crisis.
He concluded by stressing the critical role the telecom industry plays in supporting Nigeria’s economy, urging the government and regulators to act quickly to prevent the dire consequences of inaction.