Nigeria: MTN calls in the big guns - TechCentral

Nigeria: MTN calls in the big guns

MTN Group CEO Sifiso Dabengwa

MTN Group CEO Sifiso Dabengwa

MTN has enlisted the help of the South African government and is meeting with Nigerian officials “at the highest level” as it moves to fight off a damaging US$5,2bn (R72bn) fine by the Nigerian Communications Commission (NCC), news of which wiped R64bn off its market value in three days this week.

A high-level MTN management delegation, led by group CEO Sifiso Dabengwa, has now flown into Nigeria for emergency talks with authorities over the fine, which threatens to wipe out MTN’s cash reserves and put its dividend in jeopardy.

News of the fine, which is almost double MTN’s group profit after tax of R37,7bn in the 2014 financial year, sent its share price into a nosedive. It shed almost 20% of its value between Monday morning’s open and Wednesday’s close. Uncertainty about the fine has also prompted a credit downgrade on MTN by ratings agency Standard & Poor’s.

The telecommunications group, which has operations in 22 markets across Africa and the Middle East, went to ground this week, issuing only two terse statements, one on Monday afternoon confirming a report on a Nigerian news website that the NCC had handed down the record-setting fine, and an update on Friday morning saying it was in discussions with authorities there.

But company insiders this week expressed disbelief and outrage at the way the matter has been handled by the Nigerian authorities.

It is understood reliably that MTN management first learnt of the commission’s fine after it was reported in the media in the early hours of Monday morning. MTN had been in discussions for at least a month with the NCC about the commission’s insistence that unregistered subscribers be disconnected in terms of Nigeria’s tough new Sim card registration law. The commission has accused MTN of ignoring a deadline of 11 August to cut off 5,1 Sim cards that had not been registered as required by the legislation, which, like the Rica law in South Africa, is aimed at combating crime and terrorism, a major problem for the West African nation.

MTN has not denied the NCC’s accusation but has, subsequent to the expiry of the deadline, cut the 5,1m Sim cards from its network.

The operator, which is listed on the JSE, has come under fire for not alerting shareholders earlier about the fine. The group first issued a statement to shareholders at 2.24pm on Monday, more than 10 hours after news of the penalty first emerged.

TechCentral has learnt that MTN will provide a detailed timetable of events to investigators, if requested to do so, to show that it complied with JSE rules. Company insiders have rubbished suggestions that insider trading took place.

It’s understood that MTN issued the statement to shareholders only once it was able to ascertain from Nigerian authorities that the media reports about the fine were, in fact, correct. Company insiders say the NCC failed to notify it about the fine before the information was leaked to journalists and it was only able to confirm the veracity of the media reports after approaching the commission itself.

The looming expiry of MTN’s operating licence in Nigeria — it must negotiate its renewal in the first half of next year — could be one of the factors behind the shock fine, insiders believe. There’s a worry it may be an attempt at influence peddling, despite moves by the newly appointed president, Muhammadu Buhari, to crack down on corruption.

Another theory that is being widely entertained is that Nigeria is looking for new sources of revenue following a precipitous decline in income from the oil industry as oil prices collapsed. The telecoms sector may be seen as a soft target to raise government receipts, with MTN the leading target as it is by far Nigeria’s biggest and most profitable operator. MTN Nigeria generated earnings before interest, tax, depreciation and amortisation of R31,6bn in 2014 — 46% of the group total. However, not all analysts believe this is primarily a revenue-raising exercise.

Worryingly for shareholders, media reports suggest that things may get even worse for MTN in Nigeria. Leadership, the Nigerian publication that broke the news of the fine, has subsequently reported that the NCC has terminated all regulatory services to MTN until it coughs up the $5,2bn. It has also reportedly given MTN until 16 November — a little over two weeks from now — to pay the fine or “face the consequences”, which it hasn’t spelt out. The suspension of regulatory services could put negotiations for the renewal of its operating licence, which expires in June 2016, in jeopardy.

In a report on Tuesday, Leadership cited an NCC quarterly compliance document that outlined numerous “infractions” by MTN. The document reportedly accuses MTN of “persistent violations” of the country’s telecoms regulations. This has “forced” the NCC to impose the “unprecedented sanction of suspending all regulatory services to MTN following its accumulation of over 28 separate and proven infractions”.

“This unprecedented fine is indicative of the magnitude of the transgression and the seriousness with which the NCC and the authorities are approaching this issue. It is also more likely to ensure that the wilful noncompliance by MTN ceases,” the NCC document reportedly says.

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It is “not an isolated incident” and “needs to be seen in the context of a general pattern of noncompliance with regulatory directives that actually predates the current Sim registration infractions”.

But most analysts this week said the size of the US$5,2bn fine imposed by the commission is out of all proportion to the alleged infringement and they don’t believe the group will have to pay anywhere near the quantum being sought.

The NCC fined MTN 200 000 naira (about $1 000, or nearly R14 000) for each of the 5,1m Sim cards that were not disconnected by an 11 August deadline. Yet MTN’s average revenue per user in Nigeria is less than $5/month.

Dobek Pater, MD of telecoms consultancy Africa Analysis, said it’s not the first time MTN has run foul of the Nigerian telecoms regulator. In the past, it’s been sanctioned for poor network quality, even prevented from selling new Sim cards until the NCC was satisfied it had rectified the problems.

However, the latest fine is by far the harshest penalty the commission has imposed and could simply be the starting point of a negotiation, Pater said. “It might be about putting MTN in its place, so to speak, and a warning to anybody else that tries to behave anticompetitively or disregard regulations.”

However, he said the fine could end up backfiring on the Nigerian government. “It could prove to be short-sighted of the NCC or for the Nigerian government to start punishing companies that are big contributors to the economy.”

It could have the effect of scaring away foreign investors, Pater said.

But a leading Johannesburg-based investment banker, who asked not to go on the record because the “sensitivity” of the matter, said MTN could find it difficult to negotiate a meaningful reduction in the NCC fine.

“MTN was told in no uncertain terms that it had to disconnect these Sims and if it didn’t it would be fined 200 000 naira per Sim,” the investment banker said. “The potential consequences have been out there for some time. The operators were perfectly capable of doing the maths.”

He played down a suggestion that by imposing a fine of this magnitude, Nigeria is shooting itself in the foot. MTN can’t afford to stop investing its network in Nigeria, he said.

“That’s not credible. It’s MTN’s single most important asset. It doesn’t really have any choice other to keep investing, except maybe to sell it. What it can’t do is not invest and watch the value of that asset wither.”

The banker also downplayed talk that the sharp sell-off in MTN shares would attract potential suitors such as India’s Bharti Airtel, which previously made a bid to buy the group.

“I’m not sure it’s any more of a likelihood that it has been in the past. If someone were to buy MTN, they’d have the same issues to deal with in Nigeria. The key issue is whether the risk is limited to the fine or whether there are any knock-on implications. If they pay the $5bn fine, is that it, is it done? Or does the fine call into question whether they’re fit and proper to be holding a licence in Nigeria?”

  • This article was first published in the Sunday Times
  • Duncan McLeod is TechCentral’s editor

18 Comments

  1. Vusumuzi Sibiya on

    >>over the fine, which threatens to wipe out MTN’s cash reserves and put its dividend in jeopardy.

    What about the numerous businesses and persons who have been ruined or completely destroyed by such criminal activity perpetrated using the networks…???

    I just hate how the attitude is such that there should be sympathy towards a huge business like MTN that deliberately undermines regulations aimed at combating serious crimes that affect the lives of people and other businesses around world;

    …deliberate non-compliant behavior and undermining the law; all for the sake of protecting the bottom line – and even now we still have the main concern being;

    >>>>which threatens to wipe out MTN’s cash reserves and put its dividend in jeopardy.

    #PayTheFine #NoSympathyForMTN

  2. Magomarele Gomi Thobejane on

    I don’t think you know all the facts to just simply condemn MTN to such fate. There’s a lot about Nigerian regulatory body that contributed to this reluctance and subsequent late disconnections. MTN can’t criticise NCC’s actions in the media for fear of degenerative relationship and lack of professionalism. They do everything to cultivate good relationship with the regulator. Hold your horses before unleashing destructive hatred against those whom you share unsavory history.

  3. Is it by flouting many previous regulations, as the article noted, that MTN is “[doing] everything to cultivate good relationship with the regulator”?

  4. Vusumuzi Sibiya on

    >>MTN has not denied the NCC’s accusation but has, subsequent to the expiry of the deadline, cut the 5,1m Sim cards from its network.

    …so disconnecting unregistered Sims is not something that is difficult to do after all;

    …it is in-fact in complying with regulations and the deadline set by the NCC which MTN fragrantly undermined knowing very well that a fine of USD1,000 can be imposed per unregistered Sim.

    >>“The potential consequences have been out there for some time. The operators were perfectly capable of doing the maths.”

    Get your head out from your backside; you may be supporting a winning team – as your avatar suggests but you definitely have the wrong end of the stick on this one…

    …MTN is deserving of the fine imposed and they were well aware that they had to disconnect unregistered Sims by 11 August,

    …exactly where do you stand on applying the rule of law…???

  5. Let it serve as a lesson unto others that flaunting the laws and caring little for clients rarely pays. I have my doubts but just maybe they will get a wake-up call and become a better service provider in the future. Otherwise continued shoddy service and the fine combined could well be the start of a major down slide.

  6. Greg Mahlknecht on

    Indeed. And then there’s this gem:

    >It could have the effect of scaring away foreign investors, Pater said.

    Or maybe, just maybe… it could have the effect of having people comply with the law! Shock and horror!

  7. There will definitely be middle-ground reached here, I foresee the fine reduced at most by 40%. ICASA one hopes you are watching because the same happens here. Not long ago there were stories of the ease of getting a pre RICA(d) sim off the street. With romaing possible, these sims can be used for clandestine activities as well.

  8. Andrew Fraser on

    While MTN are definitely not blameless, or at the very least fairly incompetent in their handling of this regulatory issue, it does seem that there may be some other forces at work. Is it coincidence that the MTN (largest network in Nigeria) operator licence is up for renewal next year?

  9. I am not defending MTN for not complying with the NCC’s rules. However, what you say about the relationship between SIM registration and and effective crime reduction is not true. There is no body of evidence anywhere that suggests that mandatory SIM registration has any impact on crime. If it is effective as is claimed, in the post-911 environment, surely it is curious that the United States has never implemented mandatory SIM registration. I would be happy to be proven wrong on this and I invite you to point to a shred of evidence supporting your claim.

  10. The rule of law normally implies an appeal process (to the NCC) followed by the option to go to the court.

    It seems to be you that wants to skip the appeal and the courts and find them guilty and deserving of the full fine.

    Magomarele is quite right – We need the full process to run its course

  11. Vusumuzi Sibiya on

    A speed limit of 100 as apposed to 120 is what has been claimed would lead to less accidents in some quarters…

    …it really doesn’t matter what is claimed but there are regulations and laws in every country which have to be observed and adhered to;

    What these Sim regulations are – is a measure to combat criminal activity just like speed limits are aimed at curbing accidents.

    And those who question regulations, behave just as MTN has behaved and deserve the consequences… you can move back to the planet where all measures and regulations that are for combating crime have been proven to be effective;

    On this planet, I don’t know of any country that has such proven claims regarding any regulation or law which is in-place –

    …so next time when you visit Earth from that ideal planet you come from, you can do us all the favor of sharing with us such regulations and laws which you’ve proven and found to be effective;

    …whilst you are here though, I’d strongly suggest that you comply with all regulations in the country you find yourself in without question or you too will find yourself in hot water, just like MTN.

  12. Vusumuzi Sibiya on

    When you skip a red traffic light – you have broken the law and there is a fine with respect to that non-compliant behavior which is imposed;

    …and sure enough, in law there is an appeal process available; but how exactly does that process change the fact that you skipped a red traffic light and did not comply with the required action of stopping…???

    Please think before you make comments that are nonsensical.

  13. Who denied they had in all likelihood infringed?
    I didn’t

    It is you that is saying they are deserving of that fine despite the fact you have heard zero of the other side of the story.

    And equating a $5.1B fine for a breach (severe as it seems) to a traffic fine is the nonsensical part.

    BTW – Even with a traffic fine you are still innocent until
    – You sign an admission of guilt by paying OR
    – You do a deal to pay a reduced fine OR
    – You ignore the instruction to contest or pay OR
    – You lose in court

  14. Vusumuzi Sibiya on

    And here we go with the nonsense –

    >>“The potential consequences have been out there for some time. The operators were perfectly capable of doing the maths.”

    So MTN was clear as to what the consequences of the infringement would be; and chose to flagrantly undermine the regulations in-place.

    >>BTW – Even with a traffic fine you are still innocent

    Even Oscar was allowed to plead; …we all know the processes of law; and at the end of the day it does not change the fact that his actions did cause the death of Reva.

    The process that you are referring to does not change the fact that there has been an infringement committed by MTN;

    …and now all that they are doing is an attempt to mitigate; which they are entitled to –

    …but they were indeed well aware of the fine that can be imposed and are therefore deserving of it, given the decision which they knowingly made to ignore the deadline.

  15. So Cyril Ramaphosa is there is well
    Why do you not mention that in the article?

    Gag order?