To minimize their exposure to foreign exchange (FX) and control their growing operating expenses, MTN Nigeria Communications Plc and Airtel Africa Plc have scaled back their expenditures in network infrastructure.
Their financial statements for the nine months ending September 2024 included information on this. Their approach is consistent with previous projections that capital expenditure (capex) will decline in 2023 and 2024 due to foreign exchange (FX)-related losses.
Gbenga Adebayo, chairman of the Association of Licensed Telcom Operators of Nigeria (ALTON), blamed the recent drop in network quality in Nigeria on a lack of industry investments.
The worldwide telecom organization GSMA has issued a warning that reduced capital expenditures may cause the telecom industry to contract, leading to slower network growth and decreased service quality.
“The capital-intensive nature of the business has not been adequately supported by the industry’s overall financial performance in recent years,” the statement stated.
MTN Nigeria CEO Karl Toriola recently stated that money would not be invested in a field that could not guarantee profits. “We are in a big crisis,” he remarked.
Year-over-year (y-o-y), MTNN’s core capital expenditures decreased by 27.79 percent to N217.64 billion from N301.38 billion.
“Excluding leases, our core capex declined by 27.8 percent, resulting in a capex intensity of 9.8 percent on this basis. The optimisation of core capex enables us to accelerate the decrease of FX risk resulting from our LC-backed commitments and its impact on the business,” MTNN stated.
In the first nine months of 2024, Airtel Nigeria’s capital expenditures dropped 36.59 percent to $149 million from $235 million during the same time in 2023.
According to Airtel, “operating free cash flow was $163 million, up 73.7 percent in constant currency, largely due to lower capex while in reported currency and constant currency EBITDA growth.”
Airtel’s lower revenue earnings and MTNN’s stated losses occur simultaneously as this slowdown. The naira fell sharply from N471/$ before the shift to N1043.09/$ by December 28, 2023, and N1676.90/$ by November 4, 2024, as a result of the Central Bank of Nigeria (CBN) unifying the foreign exchange market in June 2023.
While MTNN’s losses rose from N14.99 billion to N514.93 billion, despite service revenue increasing by 33.7 percent to N2.37 trillion, Airtel Nigeria’s income dropped 46.9 percent to $755 million.
Airtel Nigeria has invested $545 million in capital expenditures over the past two years, whereas MTN has spent N1.08 trillion. In 2023, each reported $1.56 billion in foreign exchange losses.
In addition to foreign exchange losses, rising energy prices have pressured telecoms’ operating budgets.
According to Airtel, the average diesel price in Nigeria rose by around 90% over the previous time frame.
Operating costs at MTNN rose from N575.46 billion to N1.13 trillion, a 95.87 percent rise.
According to Adebayo of ALTON, energy costs are the biggest obstacle facing the telecom sector. The CEO of Airtel Nigeria, Carl Cruz, noted that investors are becoming cautious since rising operating expenses surpass revenue growth.
Telcos took steps to lower their dollar obligations to lessen a more difficult operating environment, and they expected this slowdown in their projection for 2024. They renegotiated contracts, reduced foreign borrowing, and began paying for FX-denominated inputs in bulk.
In September 2024, MTN and Airtel lowered their foreign debts from $966.6 million in December 2023 to $57 million.
“In this regard, we plan to reduce capex (excluding leases) for FY 2024 and aim for a capex intensity in the upper single digits,” MTN stated in its Q1 2024 report.
Airtel Africa continued, “Having considered all the above-mentioned factors impacting the Group’s businesses, the impact of downside sensitivities, and the mitigating actions available to the group including a reduction and deferral of capital expenditure…”
These investment reductions may impede Nigeria’s development of internet usage. The Nigerian Communications Commission (NCC) reports that in September, smartphone adoption overtook feature phone use for the first time, and data usage increased 30.2 percent year over year to 850,249 gigabytes.
Telcos anticipate resuming investments as FX headwinds subside while reducing capital expenditures.
