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MTN Nigeria Plc and Airtel Africa Plc are beset by stagnating margins, brought on by a combined N1.21 trillion in operating expense (OPEX) in the second quarter, which are an obstacle to accelerating earnings growth.
That also suggests the prices charged by the largest telecommunications firms are not outpacing their increased costs of operations, which adds impetus to the complaints by key stakeholders that current prices of calls, data, and other telecommunication services are no longer sustainable.
Of course, MTN Nigeria and Airtel Africa’s spiraling OPEX caused by energy costs, inability to access foreign exchange, and more, are pressuring profit margins, and has been exacerbated by foreign exchange losses.
Calculations by MoneyCentral show the average operating profit margin of MTN Nigeria and Airtel Africa reduced to 34.96 percent in June 2023 from 35.44 percent.
Operating margins is income before depreciation and amortization/sales for them.
The telecom firms’ combined profit after tax dipped by 95.55 percent to N14.07 billion as at June 2023, weighed down by foreign exchange losses some companies were hit by the central bank’s incessant currency devaluation.
Companies take margin deterioration seriously because a protraction is a harbinger of layoffs and a recession, a double whammy for the country’s fragile economy.
Multinational consulting firm KPMG has stated that the Nigerian unemployment rate will rise in 2023, due to the continuing inflow of job seekers into the job market.
Analysts at JPMorgan Chase in a recent report are seeing the country’s inflation that is currently at 24.08 percent rising to 24.08 percent by year end due to depreciating currency and removal of subsidies on Premium Motor Spirit (PMS).
Stakeholders in the telecom industry have said that the current price regime is unrealistic given the market realities or tough operating environment as they are clamoring for a hike in price.
“We also must have one hard conversation, I know it is difficult, but it is one we must have. The current pricing regime of the industry is not sustainable. We are basically selling below cost,” said Gbenga Adebayo, Chairman of Association of Licensed Telecommunication Operators of Nigeria.
It is important to note that telco firms are spending cash on the acquisition of property, plant, and equipment as they continue to invest for future growth.
Airtel Africa has a capital allocation of $140 million, while MTN Nigeria capital expenditure hit N266.80 billion in June 2023.