MTN is “cautiously optimistic” that it has turned the corner in its South African operation after reporting 400 000 net subscriber additions in July.
That’s the word from group chief financial officer Brett Goschen, who made the comments at the group’s interim results presentation on Thursday. Goschen believes there are promising early signs of a turnaround in the local business.
For the six months to 30 June 2014, MTN South Africa’s revenue slumped by 7% and its profit margin, measured before interest, tax, depreciation and amortisation (Ebidta), slid by 1,5 percentage points to 33,3%.
Cuts to mobile call termination rates — the fees operators charge each other to carry calls between their networks — also hit the operation hard.
The improvement in net additions in July follows a positive second quarter, where South Africa added 394 000 customers. But this wasn’t enough to counter a decline of 825 000 in the first quarter as consumers opted for other networks.
MTN has been particularly hard hit by the price war in South Africa’s mobile sector, with Cell C a large beneficiary. Cell C recently reported that it had grown its market share — measured by active Sims — to more than 18%.
MTN hit back in the second quarter, slashing its headline prepaid rate to 79c/minute. The cost of calls on its dynamic tariff plan, MTN Zone, have also been cut substantially this year, the operator says.
Though revenues initially dipped due to tariff cuts, we have started to see this start to turn,” says Goschen. However, headwinds remain, especially when it comes to interconnection revenues.
Group CEO Sifiso Dabengwa says MTN no longer expects its South African operation to add 2m customers in 2014, as previously guided, but it is still confident it can add 1,5m to its customer base.
The group hopes to return MTN South Africa’s Ebidta margin to around 35%, from the 33,3% level now. This will be achieved, in part, through further cost cutting, including headcount reductions.
“With the effective rate where it is now, to achieve a 34-35% margin, we have to significantly review the cost structures of the operation,” says Dabengwa. He adds that he expects the effective voice tariff in South Africa to remain at the 50c to 65c/minute level for the foreseeable future.
Dabengwa plays down the loss of Sim market share in South Africa, saying revenue market share is now much more important to MTN.
Every month, we have about 4m Sims activated in the South African market,” he says. “If we assume a population of 50m, that would mean over a year, everyone turns a Sim at least once. Clearly market share really doesn’t tell you much.
“Traffic and value share are key,” he continues. “We are focusing on maintaining and growing our value share and recovering what we lost. While Sim share is still important, the issue of what revenue we’re getting from these new subscribers is something we have to keep an eye on closely.” — © 2014 NewsCentral Media
