Telecoms to lead Nigeria’s diversification plan….a report

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A new report by FBNQuest has identified the Nigerian telecommunications sector as capable of leading government’s effort to diversify the economy. According to the report, com-pared with other sectors that were hit hard by the economic outcomes of COVID-19, the sector is one of the few that recorded growth in Q1. Citing factors that show the sector’s viability in the economy, FBNQuest in the report noted that on the back of significant investments by the mobile network operators, the sector’s contribution to GDP had risen steadily from 7.7 per cent in 2012 to 10.9 per cent in Q1 2020.

“It is now larger than that of the oil sector (9.5 per cent Q1’20 oil GDP). With respect to broadband, studies conducted by the International Telecommunications Union (ITU) indicate that a 10 per cent increase in broadband penetration is likely to translate to increases of 2.0 per cent and 1.8 per cent in GDP for low-income and middle-income countries,” it stated. Head, Equity Research, FBNQuest, Tunde Abidoye, noted in the report that the targets of 90 per cent broadband coverage at speeds of 10Mbps-25Mbps stated in the national broadband plan 2020 was ambitious and audacious. “Notwithstanding, we believe they are achievable.

The plan’s success will depend on the right mix of policy implementation, private sector-led infrastructure investment, and government incentives. Specifically, impediments to rightof- way access and cost must be removed,” he said.

Abidoye added that the essential role of the telecom sector in easing the lockdown through the provision of digital tools for home working and social distancing resulted in a surge in demand for telecom services during the quarter. He said: “In Q1, MTN Nigeria and Airtel Nigeria both delivered strong revenue growth of 17 per cent year-on-year and 27 per cent YoY respectively, mainly driven by stellar growth in data revenue – which were up by more than 50 per cent for both firms.

We believe that the solid performance was carried on into Q2 on the back of strong data demand during the lockdown. With solid revenue growth of 17 per cent year-on-year (data 40 per cent), Airtel’s Q1’21 (end-June 2020) results which were recently published provide positive read-across for the broad sector.”

He, however, noted that due to forex liquidity pressures, a rise in FX-linked costs to exert downward pressure on the earnings of telecom operators is expected. Recently, MTN disclosed that the forex rate of N385/US$ would now be applied to dollar-linked tower costs vs. CBN’s official rateof N360 previously.

The rate was only recently reviewed to N360/ US$ in April from N307 previously. “However, we believe that the revenue growth from the surge in data traffic will more than offset the rise in costs. Regardless, our estimates are conservative. For MTN Nigeria, we forecast 2020 revenue and PBT growth of 13 per cent yearon- year and 6 per cent year-on-year respectively,” he said. He also cited the Nigerian Communications Commission (NCC)’s stance on quality of service (QoS) as a factor driving the industry.

“On a monthly basis, it measures the operators on four key QoS performance indicators namely; (1) the call setup success rate (CSSR), (2) dropped call rate (DCR), (3) the standalone dedicated control channel congestion (SDCCH), (4) the traffic control channel congestion rate (TCCH). The most recent disclosure (October 2019) from the NCC shows that MTN and Airtel were within the required threshold for all the KPIs. “An independent survey on the service quality of GSM operators conducted by REACH Technologies, an indigenous fintech firm corroborates the results of NCC’s monthly QoS assessment.

“The random survey draws a conclusion from a sample size of 133 respondents residing in Nigeria’s urban region. Out of a maximum score of five points, MTNN scored the highest number of points – 2.3 points – on a weighted average basis. Airtel was the next best in terms of QoS with a score of 1. About 60 per cent of the 133 respondents that were randomly polled subscribe to the MTN network. This result is important because it underscores MTN’s larger wallet share of urban subscribers,” Abidoye stated in the report.


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