MTN South Africa is feeling the impact of the lost revenue from former roaming partner Telkom, with the company’s service revenue declining by 2.5% year on year despite a strong operational performance by the business.

However, in the six months to 30 June 2020, MTN South Africa still managed to improve its margin, measured using earnings before interest, tax, depreciation and amortisation, by 3.4 percentage points to 39.9%.

MTN Group, which reported interim 2020 financial results on Thursday, said its South African business reported a “good performance delivered through strong commercial execution in all of the underlying businesses, supported by the accelerated digitalisation of customer behaviour under the Covid-19 pandemic in the second quarter”.

The results were impacted, however, by reduced wholesale business from both Cell C and Telkom. Telkom previously roamed on MTN’s network, but it switched to rival Vodacom last year. The financially distressed Cell C, meanwhile, has been struggling to make payments to MTN for roaming services for some time.

“The 2.5% decline in service revenue was because of the lost national roaming revenues arising from the discontinuation of our roaming agreement with Telkom and effects of the continued accounting for Cell C revenue on a cash basis. Excluding the impact of national roaming (both Cell C and Telkom), MTN South Africa would have recorded service revenue growth of 2.3%; including an acceleration in growth in the second quarter to 4.3%,” it said.

Wholesale slump

Wholesale revenue declined by 41.4% because of the lost national roaming revenues flowing from the discontinuation of our roaming agreement with Telkom and the effects of continuing to account for Cell C revenue on a cash basis.

“We recognised R788-million in revenue from Cell C in the six months to 30 June 2020, and R673-million of Cell C revenues remained unrecognised as at June 2020. MTN South Africa commenced phase two of the roaming agreement with Cell C, effective 1 May 2020. The arrangement envisages a three-year transition towards a full national roaming arrangement under which MTN will carry all of Cell C’s network traffic.”

On the plus side, MTN said its South African prepaid business has started to recover from the impact of changes in regulation as well as a marked improvement in both its customer and enterprise business units. The enterprise business performed “strongly”, growing service revenue for the third consecutive quarter, the group said.

MTN South Africa’s total subscribers increased by 137 000 to 29 million, with the prepaid base stabilising as the impact of the discontinuation of a 1GB promotion abated. At June 2020, prepaid subscriber numbers were down 349 000 to 22.5 million, while post-paid subscribers were up 486 000 to 6.6 million. However, included in the post-paid base are 323 000 gross additions for short-term student deals.