Nigeria to Cut Taxes for Phone Companies to Boost Investment In Spite of Poor Services, High Cost of Calls

In spite if poor services and relatively high cost of making telephone calls in Nigeria, the Federal Government plans to reduce taxes on telecommunications infrastructure to encourage companies to spend more on networks in Africa’s most populous country, Communications Technology Minister Omobola Johnson said.
“For every naira that is spent on infrastructure, about 70 percent of it is spent on taxes,” she said in an interview yesterday at her office in the capital, Abuja. “We’re going to bring that down to a much more reasonable level at 30 to 40 percent.”
Mobile-phone companies including Johannesburg-based MTN Group Ltd. (MTN) and Bharti Airtel Ltd. (BHARTI) of India have examined ways to offload networks to reduce exposure to costly African infrastructure. Apart from taxes, Nigeria operators also face the challenges of unreliable power supply and the threat of bomb attacks from Islamist militants. MTN, the Nigerian market leader, and Airtel were both fined earlier this year for poor service standards in the West African country.
While Nigerian laws allow only the federal government to tax mobile-phone companies, states and local authorities have found other ways to raise cash by heavily levying operators’ infrastructure, including towers and base stations, Johnson said. Regional governments shouldn’t charge a retail store 10 million naira ($62,000) and phone companies 100 million naira for the same-sized space, she said.

Torched Office

MTN, Africa’s largest phone operator, is planning to sell a stake in its Nigerian mobile tower network, which it values at more than $1 billion. Sunil Mittal, the billionaire chairman of India’s largest mobile-phone operator Airtel, said in a May interview that operators are unfairly taxed in Nigeria because the industry supports other areas of the economy.
A five-year insurgency by the Islamist group Boko Haram in the northeast of Africa’s largest economy has “badly affected” phone companies’ operations in the region as militants target telecommunications network sites, Johnson said. An MTN office in the northeastern city of Maiduguri was torched by suspected Islamists in 2012. Its base stations and towers have been attacked in the past.
“There are parts of the northeast that no operator can go into even if they want to,” Johnson said. “Whenever they have to desperately go and maintain, they do get the support of the security forces to escort to their base stations to do their work.”

Tap Demand

Still, Nigeria is a target for international phone companies eager to tap into demand from the country’s 170 million people. The total number of connected mobile-phones increased to 177 million as of the end of April, compared with 170 million at the start of the year, according to the Nigerian Communication Commission.
MTN said in April it secured a $3 billion loan to invest in the country, while Lagos-based Globacom Ltd., the third-biggest carrier, is spending $1.25 billion to upgrade and expand its network.
Nigeria plans to award seven licenses within a year to companies that will build fiber-optic networks in each of the country’s six geopolitical zones and Lagos, the commercial capital and sub-Sahara Africa’s largest city, Johnson said. The nation wants to reach 30 percent broadband penetration by 2017.
“These companies will build the infrastructure which they will then lease to the network operators,” she said. “So in this way, we are trying to attract more investment into the infrastructure.”
Source: Bloomberg

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