Foreign exchange (forex) liquidity pressures are expected to lead to a rise in forex-linked costs to and exert downward pressure on the earnings of telecom operators, a report by FBNQuest has said.
It said MTNN disclosed that the NAFEX rate of N385/US$ will be applied to dollar-linked tower costs (vs. CBN’s official rate of 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 MTNN, we forecast 2020 revenue and PBT growth of 13per cent y/y and six per cent y/y respectively,” it said.
It however believes that the telecoms sector is set to take a leading role in the government’s effort to diversify the economy. On the back of significant investments by the mobile networks, the sector’s contribution to the gross domestic product (GDP) has risen steadily from c.7.7per cent in 2012 to c.10.9per cent in the first quarter (Q1) of this year.
It is now larger than that of the oil sector (9.5per cent Q1 2020 oil GDP). “On broadband, studies conducted by the International Telecommunications Union (ITU) indicate that a 10per cent increase in broadband penetration is likely to translate to increases of 2.0per cent and 1.8per cent in GDP for low-income and middle-income countries.
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“The targets (of 90per cent broadband coverage at speeds of 10Mbps-25Mbps) stated in the national broadband plan 2020 is 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 right-of-way access and cost must be removed.
“In contrast to other sectors that were hit hard by the economic outcomes of the COVID-19 pandemic, the sector was one of the few that recorded growth in Q1. Its essential role 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.
“In Q1, MTN Nigeria (MTNN) and Airtel Nigeria (not covered) both delivered strong revenue growth of 17per cent y/y and 27per cent y/y respectively, mainly driven by stellar growth in data revenue – which were up by more than 50per cent for both firms.”
We believe that the solid performance carried on into Q2 on the back of strong data demand during the lockdown. With solid revenue growth of 17per cent y/y (data 40per cent y/y), Airtel’s Q1 2021 (end-June 2020) results which were recently published provide positive read-across for the broad sector,” the report said.
The Nigerian Communications Commission (NCC) takes quality of service (QoS) very seriously. As such, on a monthly basis, it measures the operators on four key QoS performance indicators namely; the call setup success rate (CSSR), dropped call rate (DCR), the standalone dedicated control channel congestion (SDCCH), the traffic control channel congestion rate (TCCH). The most recent disclosure (October 2019) from the NCC shows that MTNN 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 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 60per cent of the 133 respondents that were randomly polled subscribe to the MTNN network. This result is important because it underscores MTNN’s larger wallet share of urban subscribers,” it said.