The core reason is that Nigeria’s telecom sector, while heavily reliant on imported infrastructure, is not an exporter of goods but rather, an importer of equipment from countries like China, the U.S., and parts of Europe.

Tony Emoekpere, president of the Association of Telecommunication Companies of Nigeria (ATCON), said, “It won’t affect the industry much because the operators import everything they use directly. They don’t export.” 

There is actually more at play than just the tariff’s direct impact. Emoekpere pointed out that the sector’s vulnerability lies in the national economic dynamics, specifically those affecting foreign exchange and inflation.

The recent 50% increase in telecom service tariffs, a decision made to counteract the high costs of operations, directly connects to the overall economic climate. 

Inflation, alongside a weakened naira, has placed huge pressure on telecom operators, pushing them to make difficult pricing adjustments. 

This price hike aims to stabilise operations while promoting investments in infrastructure—something that could be compromised if the U.S. tariff negatively impacts the country’s larger economic space. 

Gbenga Adebayo, president of the Association of Licensed Telecommunication Operators of Nigeria (ALTON), stresses a particular issue: “There is no hardware that we export, but there might be issues with charging international calls by local operators. If the VAT on calls in the US increases, local operators will need to adjust to the rates.”

Even with the tariff not directly targeting the telecom sector, Nigeria’s non-oil exports, which include agricultural products and industrial raw materials, are now facing a more challenging global market. 

This, in turn, could shrink foreign exchange earnings, further depreciating the naira and fuelling inflation. The result could be a tougher environment for telecom operators who depend on the importation of equipment priced in foreign currencies.

The U.S. tariff’s impact on Nigeria’s exports could cost the country as much as $814.8 million annually, according to estimates. While Nigeria’s foreign exchange reserves have recently climbed to $23.11 billion, the highest in three years, these reserves remain vulnerable to external shocks. 

With telecom operators fighting with rising import costs, this buffer might not be enough to shield them from the compounded effects of inflation, energy costs, and currency depreciation.

Adding to the issue, many Nigerians are venting discontent over the 50% tariff hike. Labour unions, including the Nigeria Labour Congress (NLC), have threatened industrial action, accusing telecom operators of taking advantage of the economic crisis. 

The public’s annoyance comes not just from the high costs but also from ongoing issues with poor network quality despite operators’ claims of improved service.

The government’s response to these external pressures is important. Though the U.S. tariff appears to have little direct impact on the telecom sector, the cascading effects on foreign exchange and inflation may present a different story. 

There’s a sense of cautious positiveness within the industry, with some hoping the government will negotiate with the U.S. to ease the stress on Nigerian exporters and, by extension, telecom operators. This could involve forging new trade agreements or diversifying markets for Nigerian goods.

However, even as the industry walks through these external trade dynamics, the challenges within Nigeria’s telecom sector are a lot. Poor service delivery, limited infrastructure development, and an increasingly price-sensitive market all contribute to the difficulties operators face in balancing profitability with customer satisfaction. 

Gbenga Adebayo says, “If the VAT on calls in the US increases, local operators will need to adjust to the rates”—reiterating the challenges in global trade dynamics that could ultimately affect Nigerians on the ground.

In this environment, telecom operators will need to tread carefully, managing their costs while striving to meet customer expectations. With consumers already on edge due to the tariff hike, any further economic turbulence could push the sector closer to a tipping point.

Carl Cruz, the CEO of Airtel Nigeria, has brought to light the pressing issue that threatens the stability and efficiency of the telecoms infrastructure. This is the alarming rate of fibre optic cable cuts, with approximately 1,000 incidents reported monthly.

“Not many of you know, but the number of cuts that we have on our fibre optic cables, and I’m speaking for Airtel, on a monthly basis is over 1000,” Carl Cruz said at the Telecoms Industry 2.0: The Next Investment Frontier in Nigeria, organised by Financial Derivatives Company (FDC) in Lagos today.

Noting the gravity of the situation, Cruz pointed out that these fibre optic cable cuts go beyond disrupting services to also escalating operational costs, ultimately impacting the quality of service delivery across the country, limiting seamless and reliable connectivity to customers. 

“This challenge is not just a technical issue but a financial burden on the industry,” Cruz stated.

The fibre optic cables cut issue is compounded by Nigeria’s challenging economic environment, where inflation and currency devaluation have made it difficult for telecom companies to maintain stable operations. Cruz highlighted that these infrastructure challenges are pushing the industry towards an urgent point, where sustained investments are necessary to avoid further decline.

The Nigerian telecoms industry has steadily seen commendable success, driving connectivity and digital growth across the nation. However, as Cruz pointed out, the industry is now at a crossroads where the need for investment in infrastructure, particularly in securing and expanding fibre networks, is paramount.

“Without a secure and resilient infrastructure, the gains of the past two decades could be affected, and the possibility for future growth limited,” he cautioned.

The telecoms industry is at a point where it’s looking to explore new investment opportunities, particularly in 5G deployment and expanding broadband access to underserved areas. However, the tough issue of fibre optic cable cuts is a huge barrier to these advancements. 

“If we don’t invest in growing capacity in this industry, it’s not just the companies that will suffer—the entire country will be affected in the near future. Therefore, investment must continue, and ideally, at the pace we saw in previous years.” Cruz said.

With the increasing demand for data and the growing reliance on digital services, the pressure on telecom infrastructure has never been greater. Cruz called for a joint effort from both the private sector and government to address these challenges, noting that collaboration is key to ensuring the industry’s long-term viability.

The next phase of growth for the telecoms sector will hinge on how effectively these issues are addressed, projecting how Telecoms Industry 2.0 in Nigeria will come along.

He made this call during his address at the Groupe Spécial Mobile Association (GSMA) digital economy report launch which took place in Abuja.

According to Adebayo, the telecoms sector faces numerous challenges that hinder its growth and development.

He emphasized the need for sustainable investment, effective regulation, and a conducive business environment to drive progress.

The GSMA digital report, launched May 9th, 2024, highlights the telecom’s 8% contribution to Nigeria’s GDP and 13.5% when considering the broader ICT ecosystem.

The report also highlights the significant challenges plaguing the industry including investment challenges, right of way, multiple taxation, and regulation.

Adebayo highlighted the existence of over 45 associated charges and levies on operators, despite the supposed removal of right of way costs.

He said that it creates an unfavorable business environment, discouraging investment and hindering the industry’s ability to deliver quality services.

The ALTON Chairman also stressed that regulatory interference in the telecom sector and the lack of independence for the regulator exacerbate the problem.

“The price review should be a simple regulatory process. The public debate this has gained makes it appear the industry is insensitive to people’s concern.

“While the government tries to provide incentives for the public on account of ongoing macroeconomic headwinds, the telecoms sector should not be used as a palliative to solve the people’s problem. We must price right to sustain the industry; we must price right to have the right investment,” Adebayo said.

He concluded that the industry must be allowed to operate sustainably, with the right investment and regulation, to deliver quality services and drive economic progress; encouraging stakeholders, including policymakers, regulators, and operators, to work together to address the challenges facing the industry in order to drive economic growth, and fulfill its potential as a critical sector in Nigeria’s economy.

It is pursuing structural reforms, creating an environment conducive to private and public sector growth and job creation, while concurrently recognising the need to diversify away from the reliance on the oil and extractives sector.

This shift towards diversification underscores the digital sector’s significant role in steering Nigeria towards a more resilient and dynamic economic future.

The largest contribution of the digital sector to Nigeria’s overall GDP is through the impact digitalisation has on the productivity of other sectors.

For example, in the short-term, measures such as cash transfers to citizens can be done more quickly and efficiently using mobile money payment platforms.

Digital technologies also boost productivity in the agricultural sector through increased use of agricultural inputs, better storage facilities and more coordinated support across agencies with the use of digital technologies to communicate and support small-scale farmers.

It is estimated that, in 2023, the telecoms sector was contributing 13.5% to the GDP of Nigeria.

Considering the direct and indirect contribution of the mobile ecosystem, as well as the productivity impact throughout the economy, the telecom sector ’s contribution to Nigeria’s overall economic activity is much greater, estimated at 33 trillion NGN in 2023, with 2.4 trillion NGN in tax revenue contributions.

The GSMA today published its latest report ‘The role of mobile technology in driving the digital economy in Nigeria’ which addresses the challenges hindering the growth and development of the telecommunications industry and the crucial role of the mobile sector in Nigeria’s economic development. Connectivity to mobile services, including Mobile Money is the foundation on which digitalisation is built.

The Mobile Network Operators (MNOs) are committed to investing to support the realisation of the digitalisation ambitions that will unlock economic growth and development in the country.

Navigating a complex operating environment

To unlock these economic opportunities, connectivity and mobile financial services are crucial foundations.

The GSMA ’s report emphasises that while 29% of Nigerians are regularly using mobile internet, there remains untapped potential, as 71% are not accessing these services on a regular basis.

An improved policy environment has the potential to help the industry boost coverage and adoption, resulting in 15 million additional internet users by 2028. However, the sector faces challenges to infrastructure deployment.

These include:

• Complex and costly process of securing Rights of Way (RoW) significantly increases the time and costs associated with rolling out infrastructure.
• The complex tax environment in Nigeria, providing for high and increasing costs of tax compliance because of the complex and overlapping tax structure within the country.
• Increasing costs are making it difficult for the industry to maintain sustainable levels of investment. The primary driver of this has been increases in the cost of power for sites due to the rapid increases in the price of fuel, increased government fees and levies, and increased demand for forex, in an import-dependent environment, due to contractual obligations for network infrastructure and services that are denominated in USD.

Transforming Nigeria into a digital economy

An enabling policy and regulatory framework will be critical to realising the full potential of Nigeria’s digital transformation, as recognised in Nigeria’s Strategic Plan 2023 – 2027 as well as the Federal Ministry’s National Broadband Alliance for Nigeria (NBAN).

Without universal access to digital connectivity, a broader digital transformation of the Nigerian economy is not possible.

It is clear that the mobile industry is a key partner for the government in achieving its objectives and can contribute to some of the key elements of the government’s plan.

The value of this contribution can significantly increase with the necessary support from government required to overcome the obstacles outlined above.

To this end, the GSMA report recommends initiatives to support policymakers in creating an economic and regulatory environment that supports growth, investment, and competition.

These include implementing a legal framework for Critical National Infrastructure to address challenges in building network infrastructure; simplifying and improving the process for issuing RoW and standardising it across the country; reducing the industry’s tax burden to help cut operating costs; and creating a regulatory environment that supports sustainable investment.

Angela Wamola, Head of Sub-Saharan Africa at the GSMA, said:

“High-speed connectivity is the bedrock of any digital nation, and the Nigerian government recognises the mobile industry’s role in laying key foundations on which digital transformation is built. Future policies should be geared towards reducing the cost and complexity of infrastructure rollout to encourage investment and boost the adoption of mobile broadband. The impact of such actions would go far beyond mobile, driving productivity gains across the economy and creating millions of new jobs in Nigeria.”