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Cash crunch to hit telecoms industry soon

By on March 19, 2014

Owing to dwindling revenue streams and poor investment outlay, the Nigerian telecoms industry may soon experience cash crunch, investigations by our correspondent have revealed.

The industry is currently struggling with high operating costs, lower average returns and investor restlessness due to the difficult operating environment.

FSDH Nigeria’s Economic Outlook 2013-2017 stated that the growth of the sector was expected to decline from 34.58 per cent in 2011 to 16.53 per cent in 2017.

Immediate impact of declining growth, according to the outlook, will include difficulties in sourcing capital, as huge capital outlay is required to position industry for the next phase of evolution; and lower investments, particularly in new areas such as broadband deployment.

It stated further that these were imminent threats to projected contribution of the telecoms industry to the nation’s Gross Domestic Product.

It added, “There is huge potential for Nigerian telecoms market, though it still seems to operate below potential. While strong, mobile penetration is still lower than in a number of other African markets.

“Broadband penetration remains low at less than 10 per cent, with the government setting a target of 20 per cent by 2017. Fundamental challenge remains the impact of declining growth on investment in broadband infrastructure needed to provide platform for vibrant Internet economy.”

The industry assessment showed that operators were currently facing the challenge of not only stagnating revenues but also increasing operating expenses.

Though the operators have undertaken a number of initiatives like infrastructure sharing, outsourcing and increasing asset productivity, yet operational challenges remain.

The network expenses of operators, according to MTN Nigeria, are increasing due to the overall high inflationary environment along with their network expansion activities.

It maintained, “Current industry contribution to the GDP stands at eight per cent. Declining revenues will impact the GDP if not properly managed.

“Inflation has grown faster than the industry revenue growth, and this could lead to the collapse of the industry. The industry is currently witnessing distress as several Code Division Multiple Access operators have gone out of business.

“Currency fluctuations negatively affect revenue growth in almost all sectors of the telecoms industry in Nigeria during the forecast period. By 2017, it is expected that the naira’s robustness will dampen, with the currency’s value falling to N174 to the dollar, from an annual average during 2012 of N157.”

On the challenge of power supply, the company noted that the implications of the absence of reliable power infrastructure were far-reaching, notwithstanding the sector’s overall positive macro-performance.

Power, it said, remained the most direct implication for network costs, as the operators spend around N8bn to N10bn a year in diesel costs to power up their base stations.

Such costs, according to the outlook, account for about 60 per cent of the operators’ network costs.

 

 

[Punch]