50% tariff hike: Nigerian telcos could pivot to B2B services to stay afloat

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January 24, 2025
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3 min read

On January 20, 2025, the Nigerian Communications Commission (NCC) approved a 50% tariff hike for telcos short of the 100% they demanded.

Although reactions to the hike have been mixed, experts believe it will not suffice, and telcos would have to explore additional revenue outlets such as data centres.

Ernest Akinlola, a former executive in telecom companies such as T-Mobile (Germany), Virgin Mobile (UK), and Etisalat Nigeria, said the 50% increase is "a welcomed and balanced outcome from the NCC." Although he noted that this does not fully resolve all the telco's challenges, hence, they will have to seek other ways of improving their financial situation.

He believes that telcos will begin cost optimisation programs to improve their efficiency, noting that they will "move to more high-value B2B [services]" and one of these businesses is data centres.

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Interestingly, in March 2024, Airtel Africa revealed plans to launch its first-ever Nigerian data centre in Lagos called NXtra Data Centres.

Akinlola, who is currently the Managing Director of Bboxx, said data centres are the next big thing and could be a key revenue optimisation strategy for telcos. Optimising for revenue is important for telcos based on their financials in the past two years.   

Telcos have suffered losses

Nigerian telcos have been grappling with severe financial pressures, largely driven by the country's skyrocketing inflation and the rising costs of operations. For instance, MTN Group reported a staggering $414.7 million loss in 2024, highlighting the impact of increased energy costs, currency devaluation, and higher taxes on its bottom line.

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Similarly, MTN Nigeria recorded significant losses in 2023 due to operational expenses like diesel for cell towers and the rising cost of importing equipment, exacerbated by forex scarcity.

These losses underscore the telcos' growing struggle to balance operational demands with revenue, even as customer expectations for affordable services remain high. The 50% tariff hike approved by the NCC offers some relief, but it falls short of bridging the widening financial gap.

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In an interview with Arise News,Carl Toriola, MTN Nigeria's CEO, noted that the major problem the telco has faced in the last two years is not so much in the devaluation of the naira, but the rapid changes in the naira value in a short time.

How data centres can be profitable for telcos

Investment in data centres by telcos has increased by 500% per Business Day. This surge in investment has been propelled by the rise in Internet usage in Nigeria, and more data centres mean more telcos can handle spikes in demand.

“With sufficient headroom, we can cater to growth and sudden demand rise, ensuring a seamless experience for our subscribers,” Mohammed Rufai, MTN’s Chief Technical Officer, said.

However, Akinlola believes that AI data centres will be even more profitable for telcos. As the use of AI grows, investment in the space is at an all-time high. Microsoft alone is on track to invest $80 billion in AI this year.

Unfortunately, the funds required to invest in AI data centres are out of reach for most telcos, not just in Nigeria or Africa, but globally.

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Chris Silberberg, Research Manager, EMEA Telecommunications Insights at International Data Corporation (IDC) told TM Forum that "Buying GPUs is expensive, so it isn’t feasible for many telcos."

Nevertheless, telcos can still get into the AI data centre business through partnerships.

"The telco could supply the preferred local compute and connectivity infrastructure with some additional security services, but then systems integrators, application and data centre or cloud partners would supply additional central compute, application, and implementation services," Silberberg explained.

In a similar partnership model, analyst firm Omdia said that telcos can co-invest with hyperscalers where they offer their services side by side.  

Optimising for profit

Akinlola, as Managing Director of Bboxx, a solar energy company also pointed out other ways telcos could optimise for profit which included using solar for their energy needs.

He said telcos will search for ways to enhance their operations and efficiency, and this could lead to a "solarisation of telecom towers," which could grow exponentially this year.

Last year, a report by the GSM Association (GSMA), an organisation that provides data on mobile networks revealed that telcos could cut down their spend on energy by 50%. In Nigeria where a 12,500 megawatts national grid operates at just 3,500 – 5,000MW capacity due to infrastructure issues, telcos are forced to rely on diesel generators, which has increased in price significantly over the years.

While these options could momentarily cushion the losses by Nigerian telcos, it is possible that some will not survive the country's worsening economic condition.

He's a geek, a sucker for Blockchain and an all-round tech lover. Find me on Twitter @BoluAbiodun1.
He's a geek, a sucker for Blockchain and an all-round tech lover. Find me on Twitter @BoluAbiodun1.
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He's a geek, a sucker for Blockchain and an all-round tech lover. Find me on Twitter @BoluAbiodun1.
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