Why MTN Nigeria Recharge Card Sellers Jacked Prices Up

Nairametrics| The last two years have been difficult for MTN Nigeria. From the N1.04 trillion (later reduced to N330 billion) fine slammed on it in 2015 by the Nigerian Communications Commission (NCC) in 2015 for not disconnecting unregistered subscribers, to macro economic challenges in Nigeria, the telecoms firm is not having it easy.

It has now issued a notice to its customers not to buy recharge cards above their face value. Rather than issue a notice to its customers, the company should have cautioned its dealers who have a legitimate reason for the increase.

The recharge card business has a very thin profit margin, but favours those with a quick turnover. The street hawkers, make the least amount of money. Next on the chain are the distributors they buy from. The major distributors at the very top, make the most money, because they have the largest volumes. They also get the biggest incentives directly from MTN. Selling recharge cards may have been profitable in the early years of GSM in Nigeria, but as time went on more dealers were accredited. Which reduced the monopoly the pioneers had. The advent of mobile banking through USSD short codes, means fewer people are loading physical cards with each passing day.

MTN Nigeria historically, has always given the smallest commission on its recharge cards. The commissions given by the firm have gradually gotten smaller. From a ratio of 5%, it has gone down to slightly over 2%. So recharge cards with a face value of N10,000 would be sold to a street hawker at a rate between N9750 to N9800 depending on the dealer. Other networks have a much higher profit margin, with Etisalat Nigeria having the highest profit margin.

MTN has two options to solve this issue. The first option would be to increase the profit margin it gives its dealers. The company may be unwilling to do this since it is facing tough times itself. The second option would be to phase out recharge cards with a face value of 100 naira and 200 naira respectively. The larger denomination of cards carry a bigger profit margin, but are largely shunned by the street hawkers who sell more of the smaller denominations.

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Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training.

He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE).

He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy.

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