The telecoms sector remained the bright spot in a weak economy in 2021 (Q3 2021 GDP:10.87%). The growth in the telecommunications sector was supported by the advent of the global pandemic which led to the increased use of digital channels for daily routine activities ranging from telecommuting, entertainment and social engagements.
This was seen in the surge in data traffic which partly offset the decline in subscribers caused by the NIN-SIM integration exercise (MTNN: down 7.5m to 67.5m subscribers in 9M 2021 and Airtel Nigeria: down 1.6m to 40.4m subscribers in H1 2022).
The growth in the sector was evident in the performance of two of the listed players in the sector, MTN Nigeria and Airtel Africa, as MTNN recorded a 23.6% y/y increase in revenue as of 9M 2021 while Airtel Africa delivered a revenue growth of 27.6% y/y in H1 2022.
The news of the receipt of approval-in-principle (AIP) by the two telecom giants (MTNN and Airtel Africa) in November brought the year to a close with a reminder that the sector is still just scratching the surface of its potential given the opportunities in the payment business. Also, Airtel Africa received a super agent approval in principle, all of which should contribute to promoting financial inclusion upon approval of the final licenses.
We expect the conversation around the NIN-SIM integration to continue for the most part of 2022 even though the deadline is March 2022. Currently, only 71 million Nigerians have enrolled for NIN, implying a large percentage of subscribers are at risk of disconnection should the 31 March deadline remain in place. The largest telecom operator, MTNN, indicated that 58% (39m) of its total subscribers have linked their NIN to the network as of September 2021. Similarly, for Airtel Nigeria, 66% (26.7m) of its active subscribers have also been verified.
The country is gradually moving from a voice-centric market to a data-driven one, further accelerated by the pandemic. Accordingly, for MTNN, we forecast data will contribute 36% to the total revenue in 2022 from 30% in 2021e. Focus has intensified for the eventual approval of the PSB license since the approval-in-principle received by the two largest players (MTNN and Airtel Africa) in November 2021. Given the 6-month window to put in place all necessary infrastructure, the least possible time to get the final approval is in May 2022. We estimate about 10% contribution from Fintech revenue to the total revenue of MTNN in the medium term.
In our view, the medium to long term growth prospects of the sector will be supported by increasing smartphone penetration, favourable country demographics, a fledgling social media culture and rapid investment by the industry players to enhance the quality of network infrastructure. With internet penetration still below 50% (47% as at October 2021), we believe significant potential exists for telecom and internet service providers in Nigeria to unlock its transformative potentials.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
