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MTN Nigeria looks to rural connectivity, backhaul to balance earnings

MTN Nigeria is looking at improved pricing, increased focus on rural connectivity and backhaul in its network in the longer term to make up for an anticipated drop in its earnings, according to a statement from the telecommunications services provider.

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Company Secretary Uto Ukpanah said the drop follows an amendment to a service agreement in place with tower services provider IHS.

The change in the agreement, which has been in place since 2014 when MTN Nigeria chose to sell its passive infrastructure (including towers) to IHS, entails expanding the scope of their current service to include focusing more on rural connectivity and fibre deployment.

IHS stated that the renegotiation of certain terms of the tower rental agreements will also see the amendment of their currency conversion provision for tower services.

The overall effect of the changes is expected to set the indicator of the profitability of Nigeria’s leading telco back by a slight margin. The anticipated EBITDA margin drop of about 0.4pp will come mainly from the reference rates for conversions to naira being moved from the Central Bank of Nigeria rate to the Nigerian Autonomous Foreign Exchange Rate (NAFEX) though there’ll be additional cost to be incurred for the infrastructure changes too.

Both MTN Nigeria and IHS declined to comment further on the situation.

Another telecommunications services provider Airtel reportedly cited the devalued rate of naira to US dollar as eating into its earnings - though still profitable Y-o-Y - but gave no indication of any negative impact on future earnings.

Meanwhile, the confusion over the lack of a unified foreign exchange rate policy by the Nigerian apex bank has been raised as a concern of late.

While the West African country’s government said recently it seeks to unify the rates in a year, coupled with the aftermath effect of the global COVID-19 pandemic, the extent to which the falling value of the country's currency will affect the telecom sector may still be too early to determine.

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