Nigeria and Iran continue to perform strongly for MTN but in its home market of SA, where the market is fast maturing, growth is stalling.
MTN is performing wonders in Nigeria, where it now has about 27m subscribers, or more than twice the number of customers it has in SA. But back home, the group has fallen short of expectations, missing its own targets for growth.
“This has been the most difficult six months in SA’s history,” says MTN Group president and CEO Phuthuma Nhleko (pictured), who blames the worst economic recession in years and “operational challenges” for the difficulties.
In the prepaid market, competition intensified dramatically, with rivals Cell C and Vodacom discounting handsets into this market to boost market share. Churn rates sky-rocketed as a result, with average revenue per user (Arpu) plummeting to R136 from R148 a year ago. Pre-paid Arpu declined from R97 to R92 and post-paid Arpu went from R403 to R362 as consumers felt the recession’s bite.
SA prepaid subscriber numbers fell, from 14,4m to 14,3m while post-paid customers increased only marginally to 2,9m. Nhleko estimates the local operation has shed about 1,5 percentage points of market share.
He says new legislation in the form of Regulation of Interception of Communications and Provision of Communication-Related Information Act (Rica), in terms of which cellphone Sim cards have to be registered, has also contributed to the slowdown in subscriber growth, and this is likely to continue.
Internal problems also cost the SA operation dearly. An IT outsourcing project, awarded to IBM, went awry, leading to billing problems. The IT problems also led to the company experiencing stock shortages and other problems in its distribution channel. But, says Nhleko: “I’m not blaming IBM. It was a transition period and the issues have been resolved.”
The slowdown comes as MTN ramps up its capital expenditure in SA — building fibre infrastructure and rolling out more 3G base stations to keep pace with rival Vodacom. The company’s 3G masts now cover 44% of SA’s population after it added 307 new 3G base stations. It spent R4,9bn on new network infrastructure in SA in 2008 and is likely to spend even more in 2009. In the first six months of 2009 it has spent R3bn.
Long-serving MTN chief technical and information officer Karel Pienaar has been appointed to oversee the SA business. Tim Lowry, who previously had responsibility for SA and the South and East Africa region and MTN SA, will now focus on the regional role. Nhleko says Lowry was too stretched in both roles. “SA is a 17-hour job just on its own.”
Nhleko says the worst is not yet over for MTN SA. “Most probably there will be a few more tough months ahead but we are top of the key issues to ensure we maintain our competitive position,” he says.
Elsewhere, though the group is doing well in the 21 territories in which it operates — with the exception of Sudan. Nigeria is now the flagship business, contributing more than twice what SA does to earnings before interest, tax, depreciation and amortisation (Ebitda). Ebitda margin in Nigeria is a startling 61,5%.
MTN’s third key market, Iran, where it has a 49% stake in MTN Irancell, is also growing strongly, though Arpu is low at just US$8. Irancell has 19,1m customers in a market of 72m people. Its market share is 37%.
Group-wide, MTN has 103m customers.
MTN is not saying much about its talks with Bharti Airtel, though Nhleko has again defended the potential deal. “The MTN Group board took a very conscious decision almost two years ago that one of the key strategic objectives we have to achieve is to have a wider and broader base of earnings,” he says. “We also took a view that we don’t regard the company as cash cow and wanted to continue to find growth.”
On his own future plans, Nhleko says he must still decide if he will seek to have his contract renewed when it expires in June 2010. He has indicated previously that he may leave the group to pursue other interests. — Duncan McLeod, TechCentral
Click play to listen to Phuthuma Nhleko explaining his future plans to Duncan McLeod