After two weeks of uncertainty in which its share price fell by 17,5%, MTN finally provided some clarity to shareholders on Monday. The announcement that CEO Sifiso Dabengwa had resigned with immediate effect led to the first substantial engagement with the market since the operator was issued with a 1,04 trillion naira (US$5,2bn; R75bn) fine by the Nigerian Communications Commission (NCC) for failing to disconnect 5,2m unregistered sim cards.

It was not just the news that Dabengwa had stepped down or that former CEO Phuthuma Nhleko would act as executive chairman for six months that brought some comfort to investors. The operator finally showed a willingness to engage more thoroughly on the issues it is facing in Nigeria.

As a starting point, MTN group executive for corporate affairs Chris Maroleng said that Dabengwa’s resignation should not be taken as an admission of guilt.

“Effectively, Mr Dabengwa said that he was stepping down in the interests of the company and its shareholders,” he said. “And our position as MTN has been quite clear in that we think it is important that his resignation isn’t necessarily seen as an indication of any wrongdoing on his part.”

The announcement appeared to lift both sentiment towards the company and its the share price. The consensus was that Dabengwa had done the right thing.

“It was the honourable thing to do,” said Jean Pierre Verster of 36ONE Asset Management. “It would seem that Dabengwa has fallen on his sword and taken responsibility for the material issue of the fine imposed by the NCC, whether he was directly responsible or not. Whether it was those in charge of MTN Nigeria or the head office who blundered, ultimately, the buck stops with the CEO.”

CEO at Contego Asset Management JC Louw agreed. He said that Dabengwa’s decision was “a step in the right direction”.

“The company needed a wake-up call, to get good compliance, risk management and governance back, as they are perceived to have dropped the ball in this instance,” he said. “Fresh blood and new energy might be exactly what is needed at the moment as it will show their willingness to commit to negotiations and corrective measures.”

Efficient select analyst Callan Williamson pointed out that Dabengwa’s tenure has been a difficult one, and that the Nigerian fine was probably “the last straw” for him.

“Longer term this should be positive for MTN, assuming they fill the post adequately and can put an end to the high turnover of senior management seen recently,” Williamson said. “It’s very unclear what this means behind the scenes at the negotiation table with the NCC, however it’s unlikely MTN would have made such a drastic move if it was going to in any way hurt its bargaining power of getting the fine reduced.”

MTN’s Maroleng also tried to allay concerns that MTN’s relationship with the Nigerian authorities was dysfunctional. Given the size of the fine and that sources have indicated that the operator had still been in consultations with the regulator about the exact number of Sim cards that needed to be disconnected when the penalty was levied, there has been speculation that the two parties do not see eye to eye.

However, Maroleng said that the fact that the NCC had renewed MTN’s operating licence last week for a further five years and that it had at the same time harmonised the expiry of the operator’s various licences was an indication of exactly the opposite.

“We are engaged with the regulator and our relationship, notwithstanding the fine, remains cordial,” he said. “We do have a good working relationship and there is a good level of trust.”

He also responded to the speculation that the company had failed to take security concerns seriously in the way it dealt with the problem of unregistered sim cards. In particular he was candid on whether or not MTN had been unable to provide information to security agencies with regards to the kidnapping of former finance minister Olu Falae in September.

“We would be interested to see confirmation of the request for such information,” Maroleng said. “We cooperate fully with law enforcement authorities when lawful requests are made in terms of providing information on subscribers on our network, and we do take this very seriously.”

Nhleko back in charge
Maroleng also stressed that the board was confident that Nhleko was the man in the best position to lead the company through the current difficulties given that he was behind MTN’s entry into Nigeria in the first place.

“The board believes that it is necessary, given the gravity of current events and the need to act swiftly, that a man like Mr Nhleko be brought in to oversee operations and our engagement with authorities in Nigeria, particularly given his depth of experience,” he said.

The decision to appoint Nhleko as executive chairman was also met with widespread approval. CEO of Anchor Capital Peter Armitage said that “Nhleko is well respected and well positioned to help resolve the situation”.

Investment professional at Old Mutual Equities Philip Short said that it “made sense” for Nhleko to take over at head office. However, there are still questions around MTN’s management in Nigeria itself.

“I expect local MTN Nigerian management will come under the spotlight, not only in their handling of the Sim deregistering issue, but also MTN’s general lacklustre operational performance over the past 18 months,” Short said.

While Maroleng would not comment directly on what steps MTN was taking to address management failings in Nigeria, his response suggested that more may come to light in due course.

“We have not updated the market at this stage or made any decision that we have publicised about the management of our Nigeria operations,” he said.

Which implied that things may be happening, but the operator isn’t willing to talk about them yet.

Nevertheless, there won’t be any kind of quick fix. Clearly MTN has some serious problems to resolve in its Nigerian operations whether it ends up paying the full fine or not.

“Replacing the CEO, temporarily or permanently, will not resolve the operational issue in Nigeria any time soon,” said Short. “It is difficult to turn such a large company around, especially when you’re on the back foot. For example, in Nigeria, certain mobile operators have been successful in grabbing market share from MTN and have built up strong brand equity. In addition, MTN Nigeria will be facing a determined and invigorated regulator who will now feel it has the power to enforce its will on all the mobile operators.”

MTN shares closed the day 1,6% higher at R160,01.