Teething trou­bles

Fund man­agers not too con­cerned.

Finweek English Edition - - Companies & markets - BELINDA AN­DER­SON

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”.

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