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Telecom Operations Cripple, as Banks Fail to Provide Forex in 6 months Upward Period

The inability of most Nigerian telecom operators to have access to Foreign Exchange from the Interbank Market is crippling the operations to fulfilling certain obligations in the industry.

The bugging scarcity of Forex has occasioned a situation where the banks are unable to obtain Forex for an upward period of six months despite the submission of pre-requisite documentations for certain transactions in the telecom industry.

In November 2014, the Central Bank of Nigeria (CBN) excluded telecommunications equipment and invisibles from the Retail Dutch Auction System (RDAS), when the exchange rate was N155/$.

Subsequently, the CBN launched a floating Forex system at the interbank market clearing three months backlogs at N280/$ and this technically moved the exchange rate from N199/$ to N280 levels.

Before the CBN introduced the floating Forex at the interbank market, ALTON members were mandated to purchase FX from Interbank at the rate of N199/$.

It is on this note, that the Association of Licensed Telecommunications Operators of Nigeria (ALTON) drew the attention of the Executive Vice Chairman (EVC), Nigerian Communications Commission (NCC), so as to interven in the ugly situation which has stalled some action plans in the industry.

In other words, ALTON is seeking the indulgence of the NCC boss to provide a detailed investigations that has resulted to the continous regime of denying the Telecommunications Industry from the Central Bank of Nigeria (CBN) intervention window.

“The situation is adversely impacting it’s members’ network operations and would appreciate the Commission’s urgent assistance”, Engr. Gbenga Adebayo, Chairman of ALTON said in a statement directed to the NCC boss.

According to ALTON, the CBN issued a circular mandating Banks on the 22nd August 2016 to sell 60% of all Forex availability irrespective of source of inflows to the manufacturing sector and the balance (i.e. 40%) to other sectors.

“This directive tactically closed Forex inflows even from parent companies of ALTON’s members, thereby exacerbating the impact of the liquid FX market on our members operations and the industry at large, ” Gbenga said.

Furthermore, on the 14th of October, 2016, the CBN requested Banks to submit all outstanding Forex requests for Manufacturing, Agriculture and Airlines Sectors to enable it sell 2 months forwards, whilst the equipment imported by the Telecommunications Industries either via Letters of Credit or Certificate of Capital Importation (based on deferred payment terms) were excluded from the intervention.

“The telecommunications service providers are similar to manufacturing firms and deserve to be treated in the same manner” Gbenga stated.

He said the core network equipment and other auxiliary equipment procured for providing Voice and Data Services are equivalent to plant and machinery acquired by the manufacturing firms for the production of goods and services in the country.

He said the Telecommunications Sector is termed “infrastructure of infrastructures” and Social Overhead Capital which propels productivity in other sectors of the economy.

“The multiplier effects of efficient and reliable telecommunications services on other spheres of the economy, such as banking, aviation and hospitality cannot be overemphasized, ” he added.

Continuing: “Telecommunications Sector deserves to be supported through direct FX allocation from the CBN interventions”.

The ALTON boss explained that this will facilitate the deployment of pervasive broadband network nationwide and ensure that the country retains its prime position, as the largest Telecommunications market in Africa ahead of South Africa in terms of subscriber base.

Impact of the Subsisting FX Regime on Telecommunications Sector

According to ALTON, the exemption of Telecommunications Equipment and Services from items to be accorded priority in the allocation of Forex by the Banks has adversely impacted the industry as follows:

– Increased Operating Cost: In the absence of local substitutes for its plant and machinery, the Telecommunications Service Providers are constrained to source Forex from interbank market at higher rates compared to other sectors such as Manufacturing, Aviation and Agriculture accorded priority in FX allocation at reduced rates by the CBN.

Owing to the prevailing economic situation in the country, ALTON members cannot transfer the increased cost burden to the consumers, thereby contracting profitability and ability to make further investment to drive growth in the industry.

– Unfavourable Credit Terms: The prevailing scarcity of FX in the country has made it very challenging for ALTON members to honour their obligations to foreign vendors as at when due.

This has occasioned delayed payment to Equipment Suppliers and other foreign vendors, who have now resorted to imposing unfavourable payment terms on Telecommunications Service Providers in Nigeria.

Some of the Foreign Vendors had issued Notice of Disconnection of service, which could disrupt service availability with attendant impact on customers’ experience.

This further underscores the need for an urgent action to be taken towards addressing the lingering scarcity of Forex facing the industry.

– Delayed implementation of Network Enhancement and Improvement Initiatives: Recall that ALTON members made commitments intended to ensure the implementation of National Quality of Service (QoS) Fixing Project.

This is a coordinated network investment plan supervised by the Commission at designated locations nationwide over a period of time by the Telecommunications Service Providers to ensure improved QoS. The continuity of this initiative is dependent on obtaining Forex to import equipment required to carry out the intended National QoS Fixing Project.

ALTON is of the view that if proactive measures are not taken to ensure easy access to Forex, the National QoS Fixing Project is likely to be adversely impacted to the detriment of the citizenry and economy.

– Affect National Broadband Plan: The Government in 2013 published a National Broadband Plan (2013 – 2018) intended to ensure the deployment of pervasive and ubiquitous broadband infrastructure nationwide to facilitate the realisation of a fivefold increase in broadband penetration from 6% as at 2012 to 30% in 2018.

On this note, the Commission divided the country into seven (7) Zones and has licensed two Infrastructure Companies (InfraCos) for Lagos and North Central Zones to deploy metro fibre optic network.

The Commission recently published a notice on the commencement of the process for the licensing of InfraCos on Open Access Model for the deployment of optic fibre infrastructure broadband network in the other zones (i.e. North East, North West, South South, South East and South West) of the country.

It appears that the prevailing scarcity of Forex has adversely impacted the deployment of metro fibre network, as the earlier licensed InfraCos are yet to make significant progress in the deployment of optic fibre across their respective licensed locations, hence the need for strategic support to the Telecommunications Service Providers by ensuring easy access to Forex to import required equipment and undertake the pending projects, as well as fulfill outstanding obligations to Foreign Vendors without further delay for the continued growth and development of the industry.