Competition and data prices in Nigeria
This week there was some controversy in Nigeria when the Nigerian Communications Commission (NCC) instructed the telco’s to withdraw a 10% price increase. According to the NCC, the price increase was not fully authorised. The proposed price increase of 10% comes after a proposal from the Association of Licensed Telecom Operators (ALTON) that a 40% price increase was justified. Clearly, the telco’s are preparing the public and the regulators for a price increase. Let’s investigate what the current status of prices and profitability is in Nigeria, especially compared to other countries in the region and across the continent. The data prices comes from RIS’s pricing database that tracks every mobile product in Africa every quarter. (Red cells show the highest prices and green cells show the lowest prices).
Amongst lower usage baskets in Nigeria (up to 1GB per month), there is a large discrepancy between Airtel and MTN and MTN is double the price of Airtel. On the higher usage baskets (5GB and above), prices are really the same. From an operator perspective in Nigeria, what we should be seeing is tumbling EBITDA margins, especially if price increases of 40% are even a possibility. MTN Nigeria’s margin is 53.6% and that’s hardly the margin of a struggling business. We don’t have Airtel’s EBITDA margin for Q2 2022, but their 2021 EBITDA margin was an incredible 55%.
The table also has a comparison between MTN Nigeria and MTN Ghana. Prices in Ghana are far below Nigeria. 1GB of data is double the price for subscribers to MTN Nigeria compared to subscribers for MTN Ghana. And the result? MTN Ghana has an EBITDA margin of 58.4! So lower prices can mean an even more profitable business. The lower prices in Ghana have also meant that the average usage is higher than in Nigeria. Now, EBITDA is a relatively crude measure but these figures show that there should be a significant burden of proof on telco’s to prove that price increases are necessary.
There is another conclusion to be drawn here: competition is not healthy in Nigeria. In a competitive industry, prices shouldn’t be regulated. The NCC needs to look at ways of increasing competition. The single largest obstacle is spectrum and selling spectrum at massive prices (a reserve price of US$ 273 million per lot of 100MHz in the 3.5GHz band) is only entrenching the current lack of competition and ensuring that new entrants can’t succeed. My sympathy is with the Nigerian subscriber who is going to be squeezed whatever happens.
| Monthly USD Q2 2022 | 100MB | 500MB | 1GB | 2GB | 5GB | 10GB | 20GB | EBITDA Margin | MB per active user |
|---|---|---|---|---|---|---|---|---|---|
| Ghana MTN | 0.26 | 0.65 | 1.17 | 1.94 | 4.67 | 9.34 | 18.67 | 58.4% | 7,201 |
| Nigeria MTN | 2.4 | 2.4 | 2.4 | 2.88 | 6.01 | 8.41 | 12.02 | 53.6% | 6,225 |
| Zambia MTN | 2.5 | 2.5 | 2.5 | 2.5 | 4.25 | 7.33 | 11.66 | 26.4% | 4,288 |
| Uganda MTN | 1.51 | 1.51 | 2.34 | 4.13 | 8.25 | 13.75 | 19.25 | 50.2% | 1,878 |
| Nigeria Airtel | 1.2 | 1.2 | 1.2 | 2.4 | 6.01 | 7.21 | 12.02 | ||
| Sources | Research ICT Solutions | IR Q2 2022 | |||||||
Other news from around Africa
- Malawi has authorized Starlink: MACRA has issued a license to Starlink and is hoping that Starlink will drive down prices. This is an odd objective because Starlink is all about access and makes no secret that its prices are high.
- Nigeria set to auction off 3.5MHz: the spectrum auction is scheduled for the 19th of December and is for 100MHz of spectrum in the 3.5GHz band.
- Zimbabwe approves 61% tariff increase per month: POTRAZ authorized telco’s to increase prices by 61% for August, September and November.