Nervy ride for MTN as SA revenue falls
MTN’S financial results for last year show just how difficult it has been for the country’s second-biggest cellular operator in its home market, losing ground in the prepaid market to smaller rival Cell C.
On the face of it, MTN’s numbers for last year seemed pretty solid: earnings before tax and other deductions climbed a commendable 13.4% to R59-billion, and its margins improved.
The standout performers were MTN’s business in Nigeria (earnings up 29% to R29-billion), Ghana (earnings up 34% to R3.1-billion), Ivory Coast (earnings up 68% to R2.8-billion), Sudan and Zambia. Of course, the rand’s 18.3% fall against the dollar and 15.6% against Nigerian naira helped boost its revenue by R1.1billion, but there were still some good signs from up north.
Investors were pleased, and MTN’s share price gained 2.8% in the days after the results.
Analysts, who mostly rate it a buy, were generally impressed. Vestact said MTN’s profit was “juiced up” by the weaker rand, but said that the share was “not expensive at current levels”, while Imara SP Reid said a few weeks ago that it believed MTN’s execution of its strategy remains “a cut above the rest”.
In South Africa, MTN’s revenue fell 6.1% to R39.7-billion with voice calls dropping 8.3% to R19.3-billion.
This illustrates that the pressure from regulator Icasa to slash mobile-termination rates in South Africa couldn’t have come at a worse time as MTN shed market share in a maturing and fiercely competitive market. Little wonder that MTN and Vodacom have now taken Icasa to court to overturn its new termination rates, essentially the money mobile operators pay each other to place calls on each other’s network.
But what was most concerning this week was that CEO Sifiso Dabengwa failed to outline a clear plan for MTN to regain market share at home.
Instead, MTN South Africa’s CEO, Zunaid Bulbulia, said it would have to cut nearly 500 jobs if the new mobile-termination regulations go ahead. Already, MTN South Africa has cut close to 1 000 jobs to arrest the rise in its business costs.
“While the South African business delivered disappointing results, the executive team is focused on helping this business deliver an improved overall performance in the year ahead,” said Dabengwa.
The only silver lining is that data revenue in South Africa climbed 20.2% to R8.8-billion as the number of data users rose 6.4% to 14.3 million people. To keep up with this data growth, MTN spent R5.8-billion in capital expenditure, and plans to spend another R6.3-billion this year.
MTN SA also confirmed this week that it was in talks with Telkom to share its network infrastructure, news of which was reported in Business Times last week.
This seems to be a deal with the devil, given that Telkom and MTN are simultaneously embroiled in a public spat over mobile termination rates. If anything, this proves that public battles are nothing personal.
But for Telkom, this potential deal says so much more. Telkom’s desire to partner with MTN suggests its decision to sell its shares in Vodacom a few years ago was a big blunder, especially as its unprofitable Telkom Mobile venture is struggling to attract the sort of customers that would make it viable.
In a normal market, MTN, which has a cash pile of about R39.6-billion, would make a move to buy Telkom, with its market value of more than R16-billion.
But the industry lacks risk takers, and those in charge seem preoccupied with defending market share instead of thinking out of the box.