The Nigerian Communications Commission (NCC) has approved a 50% tariff increase for telecom operators, lower than the industry’s proposed 100% hike.
This marks the first adjustment since 2013. Since 2013, Nigeria’s economic environment has shifted significantly, with inflation rising to 34.80%, diesel prices surging, and the naira depreciating drastically.
Meanwhile, mobile tariffs have remained unchanged at N11.00 per minute, failing to reflect rising operational costs.
The tariff increase comes at a critical time for key players like MTN Nigeria (MTNN) and Airtel Africa, who are grappling with skyrocketing operational expenses, particularly in energy costs, and exchange rate volatility.
Both companies are under pressure to maintain profitability while delivering quality services in an increasingly challenging environment.
This analysis focuses on MTN Nigeria (MTNN) for now, examining how the new tariffs could impact its bottom line, share price performance, dividend payout capacity, and overall appeal to investors.
A similar review of Airtel Africa will follow subsequently, providing a comprehensive look at how these changes could reshape the telecom industry.
MTN Nigeria’s financial performance in 2024 reflects resilience in revenue growth, despite macroeconomic headwinds.
The company recorded 33.6% service revenue growth to N2.37 trillion for the first nine months, driven by its core business segments: voice and data, which together account for 88% of total service revenue.
However, profitability has been severely affected, with EBITDA contracting by 5.3% and a loss before tax of N713.63 billion, attributed to escalating finance costs and foreign exchange losses.
The Nigerian Communications Commission’s (NCC) approval of a 50% tariff increase, effective January 2025, provides MTN with a pathway to financial recovery.
While total subscribers declined by 0.9% to 77.0 million, active data users increased by 5.1% to 45.3 million, reflecting rising demand for data services.
Data traffic grew by an impressive 42.1%, while voice traffic increased by 9.8%, highlighting the growing reliance on telecommunications services in Nigeria.
Revenue growth in 2025
With voice and data revenues contributing the bulk of MTN’s income, the 50% tariff hike is expected to boost revenue significantly.
Voice and data revenues are projected to grow by 40–50%, leveraging the 31.2% growth in data usage per user (now at 11.3GB).
Based on these trends, MTN’s total annualized service revenue could climb to about N4.1 trillion to N4.4 trillion in 2025. This increase reflects not only higher tariffs but also the robust demand for digital services and mobile connectivity.
Improvement in EBITDA and margins
The revenue boost is expected to positively impact EBITDA, which contracted to N860.15 billion in 2024, with margins declining to 36.3%.
Assuming operational expenses remain stable or grow modestly, EBITDA margins could recover to 40–42%, translating to an annualized EBITDA of approximately N1.64 trillion to N1.85 trillion in 2025.
Profitability and earnings multiples
With the tariff-driven revenue growth, MTN is likely to transition from a loss before tax of N713.63 billion in 2024 to a positive pre-tax profit in 2025, reversing the negative earnings trend.
As profitability improves, earnings multiples, which stood at -4.61x in 2024, are expected to return to positive territory, making the stock more attractive to investors.
Share price and dividend outlook
In 2024, MTN’s share price closed with a Year-to-Date (YtD) decline of N23.90, reflecting market concerns over its financial challenges.
However, the anticipated recovery in revenue and profitability could drive the share price in 2025, as investors’ price in the improved outlook.
Already as of the close of trading on January 21, 2025, the stock closed at N247, reflecting a 23.50% YtD gain.
Additionally, a return to profitability may enable the company to resume dividend payments, further enhancing investor confidence.
Risks to consider
Despite the positive outlook, several risks should be factored in:
- Consumer pushback: A 50% tariff increase could lead to reduced usage, especially among price-sensitive customers. This could limit the expected revenue increase from voice and data services.
- Inflation and operational costs: Rising inflation and energy costs could offset some of the gains from the tariff hike, particularly as operational expenses remain under pressure.
- Foreign exchange exposure: Persistent naira depreciation and FX losses could continue to weigh on profitability, despite the revenue boost from the tariff increase.
- Regulatory risks: If the tariff hike generates significant consumer dissatisfaction or opposition, there could be regulatory pushback, potentially delaying or modifying the approved increase. Already subscribers have rejected the tariff increase. The National Association of Telecoms Subscribers says it will sue the Nigerian Communications Commission over the 50 per cent tariff hike.
Overall, the 50% tariff increase, effective January 2025, marks a significant opportunity for MTNN to recover from its recent financial challenges.
While the macroeconomic environment remains tough, the new tariff offers substantial upside potential for the company’s revenue, profitability, and investor returns.
- If you are a long-term investor, this is a good time to buy into MTNN at its current valuation to capitalize on the expected recovery in 2025. The tariff hike, combined with strong growth in data and voice traffic, positions the company for significant upside.
- If you are an existing shareholder, it’s prudent to hold your position and monitor how the tariff impacts early 2025 performance, while remaining cautious about near-term risks.
