What next for the adventurers MTN?

What is MTN plotting this time around?

This question screams out of the statement of financial results issued by MTN yesterday. And with Phuthuma Nhleko back in the fold as chairman of the MTN Group, another adventure is highly possible.

The financial numbers for the six months ended June reflect challenges in MTN’s major markets, South Africa and Nigeria. Tighter competition and regulation have squeezed revenue in these two markets. A challenge for MTN Group CEO Sifiso Dabengwa.

Even though other MTN markets are firing on all cylinders the situation in Nigeria and South Africa calls for innovation of higher kind to squeeze out growth and perhaps another adventure is needed to jump start earnings growth level. Earnings would have been pedestrian if the weaker rand did not deliver some wind fall. With a figure of R25bn as cash and cash equivalents, the possibilities are almost endless even though Capex is also high.

MTN seems worried as well. The group said “the results reflect a challenging operating environment given the sustained global economic slowdown, highly competitive mobile markets and regulatory pressures, which have seen average voice tariffs across our markets fall 29,5% year-on-year (YoY) in US dollar terms”.

What is to be done?

MTN says “In the medium term there remain a number of opportunities for MTN, which include providing more services to our customers by moving decisively into the digital space and taking advantage of growth in data traffic and ICT solutions”.

And it signals a possible adventure. “We will also continue to leverage MTNs inherent strength in adjacent industries and explore value accretive M&A activities”.

This statement opens up space for speculation. In South Africa theories are plenty given the fact that the mobile telecoms market is maturing and calls for consolidation. The financially squeezed South African consumer is not helping the situation.

Theories doing the rounds are helped by analysts comment. In its latest MTN rating, global rating agency Fitch, said with mobile penetration rates in South Africa now well in excess of 100% in addition to intensifying competition, the slowdown in MTN’s South African operations will place increasing reliance on cash flow growth from non-South African operations to service debt at the Holding Company level. “Fitch expects some in-market consolidation to occur in markets such as South Africa, but also across the continent, over the next three years”.

You can’t put anything past MTN, a company that has grown from humble South African beginnings to become the largest operator in the African continent and has made inroads into the Asian market living it with operation in 22 countries. MTN has ventured into markets which were considered no go zones and has been able to print money from them. These included ventures into Nigeria, Ghana, Syria, Iran, Guinea-Bissau, Afghanistan, Yemen and Sudan.

MTN has recently shown that it still has appetite for adventure. Most recently the group was gunning for one of two a license in Myanmar but lost out to Telenor of Norway and Ooredoo (formerly Qatar Telecom).

After losing the Myanmar bid MTN said “In keeping with our strategy to continue exploring and evaluating suitable opportunities for further growth in developing countries, MTN still considers Myanmar an attractive market. To this end, we will review other options as they become available, and make a decision after the appropriate due consideration”. During the six months ended June MTN recorded some corporate activity.  There was the acquisition of the remaining 50% equity interest in MTN Cyprus from its local partner, Amaracos Holdings, a decrease in MTN Ivory Coast SA stake from 67.67% to 66,83% and an increase of a stake in Mauritian internet service provider Satalite Data Networks Mauritius from 60% to 100%.

The South African picture is more complex. MTN notes in its financials that “In South Africa, the weak consumer environment and aggressive competition had a dampening effect on Revenue”.

While group revenue for the six months ended June showed 9.8% growth to R65.2bn, revenue declined by 1.4% in South Africa. While the group’s subscriber base increased by 6.5%, to 201,5 million, the number declined by 1.4% in South Africa.

Consolidation may be the answer in South Africa where MTN is positioned as the second largest player with about 25 million subscribers and after Vodacom which has about 30 million subscribers.

The third largest player Cell C with about 11.5 million subscribers is lighting some fires under MTN and Vodacom in a fight for market share. A price war is emerging. MTN notes that “MTN South Africa felt the effects of weaker consumer demand and was slow to respond to aggressive price competition in both voice and data offerings. The total subscriber base declined marginally to 25 million from 25,4 million at 31 December 2012”.

The market is awash with speculation that consolidation is bubbling under. Cell C is at the centre of the speculation which has partly been fuelled by its CEO Allan Knot-Craig. He has the benefit of practicing open mic approach because Cell C is not listed and thus not constrained by stringent rules of when and what to say about corporate activity. Knot-Craig has pronounced that the South African market needs to consolidate in order to progress. He recently revealed that he was interested in Telkom’s mobile division but nothing has come out of it. There is also wild speculation that one of the major banks may snap up Cell C. Vodacom and MTN have been quite around this consolidation talk perhaps as bound by the JSE rules. As such watchers of MTN will be excused to scrutinize a statement like “We will also continue to leverage MTNs inherent strength in adjacent industries and explore value accretive M&A activities”.


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