Fund managers not too concerned.
THOUGH IT APPEARS THAT there may have been some teething problems in starting up mobile operations in Iran, the fund management community isn’t too concerned that its favourite ICT company has slipped up in that country or that the investment won’t prove to be a good one for MTN over the long term.
Last year MTN lowered its early subscriber targets in Iran – where it has a 49% stake in second mobile operator Irancell – from 1,5m by end-December 2006 to 1m, due to regulatory and logistical delays.
However, it’s widely believed that sub-
A long-term perspective
is more important
scriber numbers during the first few months of operations were disappointing. MTN will give details when it presents its full-year results to December towards end-March.
MTN declined to grant an interview concerning Iran following its launch and more recently again after entering a closed period, but said it would make more information available with the release of its results.
Most fund managers say they’ll be expecting an update on Iran (particularly an indication of performance post year-end) as well as how some of the recently acquired Investcom country operations – such as Ghana, Syria, Sudan and start-up Afghanistan – are performing and whether those acquisitions have been bedded down.
Sanlam Investment Management fund manager Andrew Kingston says it’s more important to hold a long-term perspective than to worry about whether or not the company met its three-month targets in Iran. Kingston says any new market will be fraught with issues, particularly as MTN has entered the Middle East for the first time.
Coronation fund manager Pallavi Ambekar says any early stage logistical problems are not a concern, as there is significant demand for mobile connectivity in that country. Even if that doesn’t come
through in the first few months, it will come over time, she says.
Ambekar says she would only be concerned about Iran were its government to make any material changes to the licence conditions or regulatory environment.
Old Mutual Investment Group fund manager Steve Minnaar says while Iran is an entirely new environment for MTN, it is also the first time that it’s working with such a significant local partner. Despite lower than expected early sign-ups, Minnaar says he’s still positive about the potential for MTN in Iran and has confidence in management’s abilities. The incumbent simply didn’t have the capacity to sign up subscribers quickly enough, so there was huge pent-up demand. The economy is also doing well.
Though difficult to correctly forecast numbers at the outset, Minnaar says it remains key for MTN to sign up as many subscribers as possible early on, given that it is able to initially charge connection fees of up to US$150/subscriber. That would significantly help cash flow.
Renaissance Asset Management fund manager Khulekani Dlamini says the authorities had delayed the implementation, which was why Irancell cut its targeted subscribers. However, he says it will be on target to do slightly better than indicated.
When it reported half-year results last year, MTN cited the delayed availability of clean spectrum as one regulatory issue in Iran. Other challenges included getting customs clearance for equipment, as well as site acquisition and building permits.
Of more concern than early subscriber numbers, says Dlamini, is to see what the average revenue per user (ARPU) numbers come out at to determine if it would be able to achieve a net 25% to 30% earnings before interest, tax, depreciation and amortisation margin in time.
Dlamini says another key issue is achieving its targeted population coverage so as to avoid paying penalties. The regulator required that Irancell reach 50% coverage of the population within the first year of operation.
Dlamini says he’d also like to get a sense of how MTN is looking against its targets from a cash flow perspective. Once it becomes cash flow positive in Iran then it should be “coining it”.