London — The scale of interconnection debt between mobile operators in Nigeria hangs over the industry and does not seem to be going away. Without wanting to turn this “debt mountain” into a crisis, Russell Southwood looks at what might happen.
In 2013, interconnection debt between operators stood at N20 billion (at the then exchange rate: US$123.5 million). In June 2018, it had risen to N165 billion (US$458 million). In other words, the debt has been rising at around US$67 million a year since 2013.
It is unclear who owes what between the operators but as always the biggest operator is owed the most. According to NCC, 40% of this debt (US$183.2 million) is owed to Nigeria’s market leader MTN. As with all interconnection debt, there are bound to be disputes over who owes what to whom. But the scale of debt means that even with adjustments, the total is unlikely to go down much.
Two months after NCC first warned of a “debt crisis” not much has changed. This week NCC’s CEO Professor Umar Garba Danbatta repeated his earlier position:”The NCC is worried about the accumulated huge debts from interconnectivity, which currently stood at over N165 billion and we have summoned operators and advised them to pay up their interconnect debt promptly. But be that as it may, no operator can disconnect another operator on the ground of interconnect debt, except by the express permission of NCC,” he said.
So the situation is being held together by the requirement from NCC that no operator disconnect from another but all the while the rising waters of debt continue to climb. The regulator’s fear is that if say MTN cut off an operator over the debt it might drive that operator into a financial crisis or worse, bankruptcy. NCC is said to be insisting that the new owner of 9Mobile (formerly Etisalat) clear a significant part of the interconnect debt before it takes over the company.
According to This Day in May this year, Teleology Holdings has paid US$301 million to acquire 9Mobile. But this only takes the new owner to the starting line: it will then need to invest in the company’s infrastructure, something that may require at least as much money again as the purchase price. 9Mobile is an independent company and will need to raise that money without much of a proven track record.
Adrian Wood was CEO of MTN in early days of the mobile market’s expansion but a great deal has changed since then. Also there is a world of difference between playing on the winning team and being the plucky outsider. So 9Mobile remains in a vulnerable position despite having a new owner.
MTN is clearly taking no chances and in addition to the local IPO it needs to carry out in 2018 as a condition of its earlier fine (which it hopes will raise US$500 million), it has also secured a N200 billion (US$553.5 million) credit facility from local banks.
The banks that provided the loan are: Citibank Nigeria, Diamond Bank, Ecobank, Fidelity Bank Plc, and First Bank Plc. Others include: FCMB, FSDH Merchant Bank, Rand Merchant Bank, Standard Chartered Bank, Stanbic IBTC, UBA and Union Bank.
Those looking at investing might ask themselves what impact the interconnect debt will have on the business.
Meanwhile Airtel Africa announced that it had made its first profit in the quarter ended March 2018. It put this down to increased data usage and currency stabilization acroos its operations with the exceptions of the CFA zone and Zambia. The Naira has been more stable but locally there is a feeling that it still has some distance to fall, a factor that will impact on full year profitability for Airtel Nigeria in 2018.
A report in The East African on 19 August said that the combined annual losses the year to end 2017 for its Kenyan and Tanzanian operations was US$135.6 million and accumulated losses had reached US$1.07 billion. Unable to sell, Airtel has put much store by mergers for its Africa operation: it has enhanced it market position in both Ghana and Rwanda by merger with the operations of the continent’s other “sick dog”, Tigo. However, NCC clearly ruled out the idea of merging Airtel and 9Mobile as a step too far.
The political optics make a speedy resolution of the debt crisis unlikely. The next presidential election takes place on 16 February 2019. So no-one in Government is likely to want the messy unraveling of this problem before polling day. Nigeria’s telecoms sector is seen as one of the country’s shining successes and nothing should be allowed to tarnish it. In the meantime we can only assume that the debt levels will increase. Debt vulnerability of this kind combined with downward movement of the Naira might lead to further bad news for Nigeria’s telecoms sector.
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