Airtime demand might not considerably change because the Nigerian Communications Fee (NCC) permitted a 50 p.c tariff enhance this 12 months.
In line with analysts, Nigerians will nonetheless demand airtime and knowledge no matter their new costs because the demand for the product is inelastic. The inelasticity of demand implies that value adjustments can have little or no impact on the amount demanded.
“Regardless of the business’s historical past of competitiveness, a tariff hike is inevitable as a result of financial realities going through telcos.”
Client behaviour and principle of demand
One of the crucial fascinating matters in economics is the idea of client behaviour, particularly the idea of demand. Customers purpose to strike a steadiness between value and amount demanded. When the worth of a product rises, they usually search cheaper options. But, this response is determined by whether or not the product in query is elastic or inelastic.
In telecommunications, the demand for SIM playing cards, recharge playing cards, and knowledge is comparatively inelastic. For instance, a 50 p.c enhance in knowledge value might not result in a proportional discount in demand, as knowledge accounts for less than about 6 p.c of family spending. Any decline in demand, if it happens, is more likely to be lower than 50 p.c.
This stands in stark distinction to elastic items like meals, which make up about 57 p.c of family spending. In such circumstances, a 40 p.c value enhance might end in a considerably sharper drop in demand.
“This example usually happens with on a regular basis family services and products. When the worth will increase, individuals will nonetheless buy roughly the identical quantity of products or providers as they did earlier than the rise as a result of their wants keep the identical. An analogous scenario exists when there’s a lower in value—demand is not going to enhance considerably as a result of shoppers solely have a restricted want for the product(s), mentioned Tim Vipond, chair of the Board of CFI Training.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Coverage and Tax Reforms, throughout a panel dialogue on the launch of the 2025 Macroeconomic Outlook Report organised by the Nigerian Financial Summit Group (NESG), helps the view that telecom providers are value inelastic. In line with him, even when telecom tariffs enhance by 50 p.c, it’s unlikely to trigger a significant shift in client demand, as telecom bills account for a comparatively small share of family spending in comparison with requirements like meals. He even highlighted how some shoppers prioritise knowledge purchases over primary wants, reinforcing the concept demand for telecom providers stays robust regardless of value changes.
Moreover, Oyedele debunks issues that the worth hike will considerably impression inflation. He explains that telecom providers presently represent nearly 1 p.c of the Client Value Index (CPI), and even when rebased, they might solely account for round 2.5 – 3 p.c. In a worst-case situation, a 50 p.c enhance in telecom costs would solely contribute an extra 150 foundation factors to telecom inflation, which interprets to a mere two foundation factors in total CPI. In sensible phrases, this implies if inflation had been projected at 15 p.c, it will solely rise marginally to fifteen.02 p.c, making the impression negligible.
These insights reinforce the argument that whereas shoppers might alter their telecom spending habits barely, total demand is unlikely to say no considerably, and fears of inflationary stress from the hike are largely overstated.
Learn additionally: Telecoms tariff hike: Be truthful in your service supply to clients – Nigerians urge telcos
Low cost calls
Information from 5 African international locations present Nigeria pays the least for telephone calls. Utilizing MTN as a case examine, BusinessDay analysis signifies {that a} Ghanaian pays a median of N16 per minute, a Ugandan pays N11.93-N34.66 per minute, South Africa pays N123.57 per minute, Cameroon pays N67.81, and a Nigerian pays a median of N11 per minute.
Moreover, Nigeria has one of many most cost-effective knowledge per 1GB on the planet, at $0.38, behind Ghana and South Africa, which have knowledge per 1GB at $0.40 and $1.77, respectively.
Having mentioned the above, direct comparability utilizing change charges might have exaggerated the common value of dwelling between international locations, on condition that Nigeria’s naira misplaced about 129 p.c of its worth inside a 12 months (2023-2024).
The identical forex depreciation made the enterprise atmosphere tough for Telcos, which suffered losses as a result of naira devaluation.
If the permitted 50 p.c is carried out, the common minute cost will transfer from a median of N11 to N16.5, whereas the common 1GB knowledge plan will transfer to $0.57, which is about N864.
Historic pricing dynamics in Nigerian telecoms
The Nigerian telecoms business has a storied historical past of pricing evolution. In its early days, telephone calls had been billed per minute at a price of N50. Even when your name lasted 50 seconds, you’ll nonetheless be charged for a full minute. The entry of Globacom (GLO) disrupted this mannequin by introducing per-second billing, which was revolutionary on the time. Regardless of this, early per-second billing charges nonetheless translated to about N25 per minute.
Telcos, recognising client sensitivity to cost, devised progressive tariff plans to draw customers. MTN’s ‘Xtracool’ plan, as an example, allowed customers to make limitless free calls between 12:30 a.m. and 4:30 a.m. for as little as N100 of their account steadiness. This plan turned wildly well-liked amongst Nigerian youths, who adjusted their schedules to reap the benefits of the provide. GLO responded with equally aggressive gives, such because the ‘GLO Infinito’ plan, which allowed customers to name designated numbers at charges as little as N0.01 per second.
Even the procurement of SIM playing cards was as soon as a luxurious. A SIM card that value about N46,000 within the early 2000s is now virtually free, due to elevated competitors and liberalisation within the business. This intense competitors has not solely lowered prices but in addition elevated accessibility, making telecom providers an important a part of every day life for hundreds of thousands of Nigerians.
Learn additionally: Telcos’ tariff hike mustn’t exceed 60% – Minister
Value sensitivity and impression of hike
Regardless of the business’s historical past of competitiveness, a tariff hike is inevitable as a result of financial realities going through telcos. The final upward value evaluation occurred 12 years in the past, in 2012/2013, when Nigeria had roughly 113 million subscribers. By 2014, this quantity had grown by 9.04 p.c to 127 million. Nevertheless, subscriber development doesn’t essentially translate to greater common income per consumer (ARPU), particularly in a low-income financial system like Nigeria.
Nigerians’ buying energy is considerably decrease than that of their counterparts in South Africa. Which means that whereas Nigeria’s subscriber base is bigger, the ARPU is way smaller.
The proposed value hike might additional marginalise these on the decrease finish of the financial spectrum, probably limiting their entry to inexpensive knowledge and name providers. But, it’s value noting that many Nigerians are unaware of the particular per-second or per-minute costs they incur, focusing as an alternative on total affordability.
Competitors and liberalisation will not be the identical throughout sectors
The Nigerian telecoms business has lengthy been cited as a case examine of how liberalisation and competitors can drive down costs. Nevertheless, this precept might not apply universally throughout different sectors. Competitors might power down telecommunications merchandise—like SIM playing cards, recharge playing cards, and knowledge. This isn’t the case for different items, resembling meals gadgets, petrol, and many others., the place liberalisation and competitors might not all the time translate to a lower in costs.
Financial implications
Telecom providers rank among the many high 5 gadgets consumed by households, based on the Nationwide Bureau of Statistics (NBS). Information, specifically, performs a pivotal position in Nigeria’s artistic financial system, together with monetary providers. It additionally helps scholar studying and abilities acquisition. Nevertheless, greater knowledge prices might widen the prevailing abilities hole, particularly amongst low-income shoppers.
This example presents a chance for states to strengthen their economies. By addressing broader financial challenges resembling job creation and revenue inequality, governments might help cushion the impression of such value hikes on susceptible populations. Moreover, telecom corporations should proceed to innovate by providing versatile and aggressive plans that cater to various client wants.
The Nigerian telecom business has come a great distance—from N46,000 SIM playing cards and N50-per-minute calls to at present’s extra inexpensive choices. Whereas challenges like forex depreciation and an unfavourable enterprise atmosphere persist, they underscore the significance of resilience and flexibility for each the business and its shoppers.