How customers will be affected by an 18.5% increase in telecoms’ operational costs

As the diesel price crisis worsens, Nigerian telecom operators’ operational costs may rise further, as the industry reportedly consumes an average of 40 million litres of diesel each month to power and run their telecom sites.

According to the Nigerian Communication Commission (NCC), the operational expenditures of Nigerian telecommunication companies increased by ₦265.25 billion from ₦1.4 trillion in 2020 to ₦1.66 trillion in 2021.

In 2022, the cost of diesel climbed from ₦225 in January to over ₦750 in March, bringing the yearly cost of powering telecom services to more than ₦360 billion, or ₦30 billion per month.

According to market analysis, the price is looking to surge up in the coming week as a litre of diesel will cost over ₦1,000.

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Cause of diesel price hike

Earlier, the Natural Oil and Gas Suppliers Association of Nigeria (NOGASA) said that diesel would be sold between ₦1,000 to ₦1,500 in a few days if nothing is done by the Federal Government to arrest the spiralling cost of the product in Nigeria. 

Benneth Okorie, the National President of NOGASA, said that about 75 per cent of filling stations across the country are currently out of business due to their inability to purchase diesel required to power their tankers and transport Premium Motor Spirit, popularly called petrol, to their various outlets.

He stated that the only solution to the current challenge is for the Federal Government to raise the pump price of petrol a little in order to reduce the huge foreign exchange used in PMS imports.

In a report by Stears, the Russian-Ukraine war is one of the causes of the hike.

Other supply chain constraints that pre-date the war also contributed to this. They include, refineries downsizing due to the Covid-19 pandemic and a global commitment to climate change. 

Stears

The report, however, says that these factors are not particular to Nigeria as “other factors like a reduction in diesel supply by global refiners to Nigeria and limited access to FX by diesel marketers work together to make the situation particularly dire for the average Nigerian.”

The ripple effect

The Association of Licensed Telecoms Operators of Nigeria (ALTON) said the cost of diesel to run network towers, base stations, and offices increased from ₦225 per litre to ₦750 per litre as of March 2022.

And, in April this year, Gbenga Adebayo, President of ALTON said:

Diesel is now very expensive, from ₦250 to over ₦700. All network planning, operational expenses, and planned projection for the year are based on the diesel prices. This has increased. Today, you know the implication of that. This is one problem; cost has gone up.

Gbenga Adebayo, President of ALTON

Adebayo warned that the price increase and hefty operational costs, would have a negative impact on telecom operators and that ALTON would meet with the government to seek some kind of intervention to mitigate the effect of these events on the industry.

Punch Newspaper earlier reported that the cost of powering telecommunication services could hit ₦60 billion per month and ₦720 billion in one year if the cost of diesel reaches ₦1,500/litre as hinted by marketers of the product.

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We will recall how ALTON had proposed a 40% tariff increase, arguing that the business has been harmed financially due to the country’s economic downturn in 2020 and the ongoing Ukraine/Russia issue, consequently increasing energy costs, and increasing their operating expenses by 35 percent. They also mentioned that the cost of doing business had risen by 40 percent in the past years.

But, the NCC dismissed the proposal.

Adebayo however says, “But we are mindful of the high cost of living, and the implication of this on the economy and citizens. And so, we are not going to talk about direct price increases.

“But we will be approaching the government for some kind of intervention to cushion the effect of these changes on us as an industry.”

Bottomline

With the price of diesel increasing to ₦1,000/₦1,500, ALTON may push further for the possible 40 percent increase in tariffs or even go higher to 50 percent.

This means that call prices may hover between ₦6 to ₦9, while the SMS price cap may hover between ₦5 and ₦7; or more.

And, with an inflation rate of 17.71 percent in May, and a decreasing purchasing power, customers are in for an addition to their current troubles.