Telcos and strains of dysfunctional federalism

Nigeria’s telecommunications industry has witnessed phenomenal growth in the last decade, holding prime position as the leading mobile telephony market in Africa with regard to subscriber base and revenue.

Despite significant strides in the industry, the telecoms industry is awash with incidences of delays in site build approvals by state governments, multiple taxation, exorbitant right-of-way charges all of which slow down network expansion initiatives and impede operators’ ability to meet the quality of service mandates of the telecoms regulator.

The World Bank says Nigeria’s dysfunctional fiscal federalism is holding back the enactment of policies necessary to unlock growth, due to a lack of national consensus between the Federal Government and the 36 federating states.

According to the body, poor co-ordination between the Federal Government and states prevents the efficient concentration of government resources toward priority investments and interventions that could unlock the country’s economic potential. This is evident in the failure to agree on binding national legitimate taxes and charges for telcos in Nigeria by the different ministries, departments and agencies (MDAs) at federal, state and local levels.

Investigations show a raft of multiple taxes imposed on operators across the federation. Operators are oftentimes forced to pay taxes, such as permitting tax, annual renewal tax, miscellaneous fees, development levies, tenement rates and even sanitation fees, in one base station, sometimes running well above N200 million depending on the state.

These taxes, fees and charges are those payable to the MDAs of the federal, state and local governments. There are also myriad charges imposed by non-governmental bodies such as community development areas, resident associations and street urchins otherwise known as ‘Area Boys’. This huge tax burden, according to industry analysts, has taken away a lot of value from the industry.

Telcos are lining up big budgets and signing new contracts for network expansion with high optimism that multiple taxation will soon be resolved. United Arab Emirates’ (UAE) Etisalat announced plans to spend $500 million in network expansion this year. MTN Nigeria obtained a medium-term loan facility of $3 billion from a consortium of 17 local and seven foreign banks. Second national carrier, Globacom, signed contracts with two Chinese firms, Hauwei ($750m) and ZTE ($500m), totalling $1.2 billion for network optimisation and upgrades. In the last 30 months, India’s Airtel Nigeria said it had invested $1.5 billion in network upgrades and expansion.

It is estimated that there are little over 22,000 Base Transceiver Stations (BTS) in Nigeria to meet the communications needs of Nigeria’s 114 million active mobile lines. To meet the quality of service mandates of the telecoms regulator, industry analysts say operators will need to deploy additional 60,000 BTS sites by 2018.

The telecoms regulator has also expressed concern over the spate of multiple taxation and its adverse effects on the growth of the industry. We believe there is need to create a conducive climate for the growth of the industry in order to allow more private investment.

Considering the relevance of the telecoms industry to economic growth and development, policymakers should ensure that telecommunication policies are transparent and stable. Policies and regulations should be made to promote a conducive and competitive climate for foreign investment so that the capital required for building telecoms infrastructure can be met.