In order to save over ₦100 billion a year, MTN Nigeria and IHS Towers renegotiated their tower lease arrangements. In light of Nigeria’s difficult business climate, MTN is implementing this renegotiation as part of a larger plan to improve financial performance. The purpose of the updated agreements is to lessen the company’s exposure to currency swings by replacing the volatile Naira with a discounted U.S. Consumer Price Index (CPI) for leasing. Also, by doing away with technology-based pricing and substituting payments based on tower space and power usage, the renegotiated terms have streamlined the cost structure.
With an estimated yearly financial advantage of ₦100–110 billion, the renegotiated terms are predicted to boost MTN’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin by 3–4 percentage points in 2024. For MTN, these savings are essential as it navigates Nigeria’s regulatory constraints, high operational expenses, and currency instability. For Fiscal Year 2024, an estimated ₦75–85 billion would be added to the budget. This action is a component of MTN’s larger plan to guarantee long-term viability and return profitability. MTN will be able to sustain its dominant position in the Nigerian telecom industry by using the savings from the renegotiated tower leases into more network development and service enhancements. The share price of MTN Nigeria end at ₦199.8 per share.
These revised terms may have an overall effect on the telecom industry.
Companies in the telecom sector frequently incur high operating costs as a result of energy bills, Infrastructure upkeep, and currency changes. The Nigerian branch has brought its approach into line with international best practices, which aim to reduce telecom operators’ vulnerability to unpredictable currencies and optimize cost structures, by renegotiating its agreements with IHS Towers. These revised terms may have a significant overall effect on the Nigerian telecom industry. MTN Nigeria’s capacity to save around ₦100 billion a year improves its financial standing and establishes a standard for other telecom providers in the nation.
If the mobile network operator invests its savings in network expansion and service improvements, rivals like Glo and Airtel Nigeria would feel compelled to pursue such renegotiations in order to stay competitive. This may set off a cost-optimization trend across the sector, which might bring about more stable prices and better customer service. But, there’s also a chance that these cost reductions could cause market consolidation. Smaller telecom providers may find it difficult to compete if they are unable to obtain equivalent savings or negotiate comparable terms, which could result in a more consolidated market controlled by a small number of powerful companies.
The market may witness a more stable pricing structure.
Competition may decline as a result, which may eventually affect pricing and consumer choice. As for the customers, more network coverage, quicker data speeds, and general higher service quality might come from the network operator investing in infrastructure with the savings from these renegotiated contracts. Furthermore, if the business is successful in its continuing negotiations with regulatory bodies regarding tariff hikes, the market may witness a more stable pricing structure that strikes a balance between consumer expenses and the requirement for ongoing Investment in communication infrastructure.
More so, the significance of these renegotiated agreements was emphasized by Karl Toriola, CEO of MTN Nigeria, in a recent statement: “Our ability to renegotiate these terms is a reflection of MTN’s commitment to financial discipline and our proactive approach to managing external risks, particularly in a volatile economic environment like Nigeria.” “By reinvesting these savings in our network and services, we will be able to maintain our position as the provider of the greatest experience for our consumers while also increasing our EBITDA margin.”
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Experts within the industry have also commented on the importance of this decision. Former president of the Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola, says that the mobile network operator made a wise decision by renegotiating its tower leases, which is in line with international best practices. They are positioning themselves for long-term success, which is essential in a market as difficult as Nigeria, by lowering their exposure to currency risks and streamlining their cost structure. In order to preserve competitive parity, other operators will probably do the same.