As many as 400 jobs may be on the line at MTN South Africa, sources close to the company say, as the telecommunications operator moves to cut costs in a market that has become significantly more competitive.
MTN is considering a number of options as it looks to reduce costs, including headcount reductions and outsourcing certain operational functions, say the sources, who ask not to be named because of their relationship with the mobile operator.
Future job cuts will come on top of a thousand people — mainly external contractors — who were let go between July and December 2013.
South Africa human resources executive Themba Nyathi says the MTN group is “driving a group-wide strategy to respond to challenging market conditions by improving its operational efficiencies and adapting its business model so as to continue expanding its product offering into the digital space”.
“As part of this process, and as announced in our interim results on 7 August, MTN South Africa will continue to review its cost structures, including employee costs, to ensure better alignment with revenue performance and the changing needs of the business and our clients,” Nyathi says.
“To deliver on this commitment, MTN South Africa has begun a process of internal staff consultations on a proposed organisational restructuring for better efficiencies. This process and the proposals are at a very early stage and we will update the market as key decisions are made.”
MTN has come under intense pressure as a price war in South Africa’s mobile industry has gathered pace in the past 24 months.
For the six months to 30 June 2014, the company’s revenue slumped by 7% and its profit margin, measured before interest, tax, depreciation and amortisation, slid by 1,5 percentage points to 33,3%. The company also lost market share.
Cuts to mobile call termination rates — the fees operators charge each other to carry calls between their networks — also hit the local operation hard.
MTN South Africa added 394 000 customers in the second quarter of 2014 after aggressively cutting prepaid tariffs. But this wasn’t enough to counter a decline of 825 000 subscribers in the first quarter as consumers opted for other networks.
Data released this week by JSE-listed Blue Label Telecoms — by far the country’s largest distributor of prepaid airtime — provides insight into the squeeze that MTN is under.
In the six months to end-May, its share of the rand value of outgoing prepaid airtime sales for Blue Label fell to 29% from 32%, while Cell C increased its share from 17% to 19%. Vodacom remained steady at 50%, while Telkom Mobile’s contribution doubled from 1% to 2%.
Blue Label co-CEO Brett Levy said on Wednesday that the fall in MTN’s market share in the past six to 12 months was “significant”.
Though its airtime sales through Blue Label fell by three percentage points in the past six months, the decline over the past year was even more precipitous, tumbling from 36%.
MTN said at its interim results earlier this month that it was “cautiously optimistic” that it has turned the corner in its South African operation after reporting 400 000 net subscriber additions in July.
MTN has been particularly hard hit by the price war in South Africa’s mobile sector. Cell C recently reported that it had grown its market share — measured by active Sims — to more than 18%. The smaller operator’s share of market revenue has, however, not matched the growth in Sim cards it’s enjoyed.
MTN South Africa 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 in the past year.
The company this month replaced its CEO, Zunaid Bulbulia, who has taken on the group chief operating officer role. Ahmad Farrouk, who had been in the group COO role, was moved into the hot seat at the South African operation on 1 August.
In an interview with TechCentral in March, Bulbulia warned that between 400 and 500 jobs could be on the line at MTN South Africa as it sought to trim costs in 2014. He said the cuts would be necessary if communications regulator Icasa went ahead with plans to chop mobile termination rates on 1 April.
Although the high court found that Icasa’s regulations governing the rate cuts were both invalid and unlawful, it ordered that the new rates be implemented anyway in the public interest.
As a result, the rates that mobile operators could charge each other for calls between their networks fell from 40c/minute to 20c. At the same time, smaller operators were given a big leg up through “asymmetry”, which meant their bigger rivals, including MTN, had to pay them significantly more — 44c/minute — for calls.
Both MTN and Vodacom have objected strongly to Cell C benefiting from this regime given that it has been in the market for more than 13 years. Asymmetry is usually only afforded to new operators. — © 2014 NewsCentral Media