Hello subscribers, goodbye revenue
Cellular subscriptions are booming, but is revenue doomed?
MTN, VODACOM AND CELL C have all announced increases in their respective subscriber base. However, mounting market pressures can’t be ignored. The slowing economy, currency volatility and decreases in customers’ disposable income are just a few of the problems facing mobile and telecommunications operators countrywide. Subscribers don’t necessarily equate to revenue.
“Strong subscriber growth continues to be a feature in almost all countries in which we operate, in line with our subscriber guidance, while currency volatility has generally had a more negative impact on average revenue/user (Arpu) reported in US dollars,” says MTN in its subscriber number update for first quarter 2009.
MTN Group’s total number of subscribers increased by 8% to 98,2m for the quarter to December 2008. The group has reached the 100m subscriber mark, which means one in five people in its 21 markets in Africa and the Middle East are MTN subscribers. However, Arpu dropped in all countries, SA’s by 6%. “The decline of many local currencies against the US dollar has negatively affected Arpu trends,” says MTN.
Analysts said that wasn’t surprising; nor is it a clear indication of MTN’s performance. “You generally see a scaling back in Arpu during the first quarter. There’s likely to be less spend after the festive season,” says Vestact analyst Sasha Naryshkine.
“Arpu is also quoted in US dollars and doesn’t really tell us much about usage,” says Kaplan Equity Analysts’ Irnest Kaplan. “If you really want to know about usage you need to work out the local currency compared to the US dollar and compare those figures to previous years.”
MTN says its larger operations – including Nigeria, Côte d’Ivoire, Syria and Sudan – experienced significantly more resilience in local currency Arpu than reflected in the reported US dollar number. Despite MTN’s outperformance in the SA market over recent years, Vestact’s Naryshkine still believes it’s a good investment.
MTN isn’t the only mobile and telecoms operator boasting an increase in subscriber numbers: competitor Cell C recently released results showing a 34% increase in active subscribers to 6,4m. Cell C reported an increase in profits to R8,6bn for the year ended December 2008 and achieved earnings before interest, tax, depreciation and amortisation of R812m.
Newly appointed CEO Lars Reichelt is upbeat about Cell C’s prospects. “The potential for growth remains strong and we’ll focus our efforts in 2009 to ensure Cell C offers simple, innovative, value-for-money products and improved customer services. Cell C will aggressively expand its network coverage and manage anticipated growth in usage. We’ll also further improve the operational and financial performance of the company.”
However, Steve Minnaar, head of investment research at Old Mutual Investment Group, says Cell C’s operating profits pale in comparison to its debt of more than R16bn. “There’s no revenue really – the company is bankrupt,” Minnaar says.
He’s also of the opinion Cell C’s increased subscriber base is meaningless. “A very savvy prepaid market in SA knows how to work the cellular networks to save money. For example they switch over from MTN in the week to Cell C at the weekend to benefit from special calling rates.”
“And with Cell C they’re probably roaming on Vodacom anyway. So Cell C gives free minutes away to attract subscribers but pays Vodacom for them. That’s bad business.”
But there’s money to be made from prepaid users. In Vodacom’s annual results for the year ended March 2009 the newly listed company revealed that while Arpu for contract customers in Africa was declining, for prepaid customers Arpu was on the rise.
Like its rivals, Vodacom also showed an increase in subscriber numbers, which swelled by 16,5% to 39,6m. It reported a 14,5% growth in revenue to R55,2bn for the year to end-March 2009, but has net debt of R17,5bn.
The SA market, with its high penetration and reduced Arpu, is seeing slowing growth, while the rest of Africa shows good growth prospects. Minnaar suggests that differentiating in the SA market is becoming increasingly difficult. “Nobody cares much whether they use MTN or Vodacom – it’s pretty much of a muchness. The networks are all selling the same white T-shirt.
“Fortunately, in the SA market they’re smart enough to realise a price war isn’t the answer. It just messes up the market for everyone.”
If the networks are to continue driving revenue, they’re going to have to come up with more than just subscribers.