MTN: Major African Mobile Markets: Future Growth Prospects

Company Overview

MTN is a telecom services and business solutions provider, with mobile operations in nine African countries comprising South Africa, Nigeria, Cameroon, Cote d'lovire, Uganda, Botswana, Rwanda, Swaziland and Zambia. It conducts its mobile operations in Africa through three business units, namely MTN-SA (South Africa), MTN International (territories other than South Africa) and Strategic Investments. The group had 20.6 million mobile subscribers as on 30th September 2005, with 80 percent of the subscribers present in South Africa and Nigeria.

Table 1 provides a regional snapshot of MTN's mobile operations in Africa as on 30th September 2005.

Table 1: MTN - Mobile Operations in Africa

MTN - Mobile Operations in Africa

Source: Company Reports

At the end of the financial year 2005, the group employed 5,283 people, of which 2,490 were based in South Africa, 1,844 in Nigeria and 949 in other regions. The total revenue of the group for the financial year ending March 2005 was USD 4.7 billion. MTN Group is listed on the JSE Securities Exchange South Africa under the telecom sector. Prior to 2002, the group was known as M-Cell.

Chart 1: MTN Group operations in Africa

Map of Africa showing countries that mobile phone operator MTN Group currently has active operations in

Business Strategy

MTN has been focussing on increasing its network coverage to more and more African countries. This is being done by forming alliances with local operators or by acquiring those operators altogether. It has strong strategic interests in Nigeria, where the number of subscribers increased by 123 percent in the financial year 2005 and the group incurred a capital expenditure of USD 890 million. The group has adopted a customer-focussed strategy in its markets of operation and has taken steps to improve the customer care services.

Specifically, MTN highlights the following strategies:

Expand geographic scope

MTN has long term geographic expansion plans in developing countries both within and outside Africa, either by acquisitions or by forming alliances with local operators. For instance, it acquired operators in Cote d'lovire and Zambia recently and the company is renewing bidding opportunities in Tunisia and Namibia. It has strong interests for network expansion in Nigeria, where it incurred a CAPEX of USD 890 million in 2005, the highest investment by any company in a single year, in that country.

Improve customer care services

MTN has adopted a strategy of customer retention and overall customer base growth by offering better customer care services. For this, it has:

Built more customer call centers

Appointed senior executives for managing customer care operations

Has been offering prioritised customer care services to high usage customers, without lowering the quality of service offered to lower usage customers

Increase Profit Margins in South Africa

MTN is focussed on increasing its EBITDA margin in South Africa. In the financial year 2005, its South African EBITDA accounted for about half of the total EBITDA of the group. As such, the group believes that the increase in EBITDA in South Africa will give an impetus to the overall EBITDA of the group. It has aimed to maintain its EBITDA margin above 40 percent in all its markets in Africa. Further, the group has adopted a pro-active bargaining policy, by which it aims to maximise savings by bargaining with the top suppliers over procurement of network equipment, airtime vouchers, handsets, etc.

 

Financial and Operational Performance

Revenue

In the financial year 2005, the group reported revenues of USD 4.7 billion, an increase of 38.2 percent over the previous year. The increase in revenue was primarily due to strong performance in Nigeria and South Africa, boosted by the favourable economic environment in these markets. Together, the operations in South Africa and Nigeria accounted for 93.1 percent of the group's revenues. The revenue from data services has remained almost constant during 2004-2005, with non-voice services contributing only 3.9 percent in 2005 fractionally up from 3.6 percent in 2004.

Profitability 

In terms of profitability, MTN recorded an EBITDA margin of 41.5 percent in 2005, registering an increase of 3.6 percentage points over the margin of the previous year. The EBITDA in South Africa accounted for about half of the total EBITDA of the group. The group continued to improve MTN South Africa's margin, and EBITDA margin in South Africa increased by 10.4 percentage points and had reached 34 percent at the end of financial year 2005.

Figure 1 shows the revenue and EBITDA margin of the operator from 2003 to 2005 and Figure 40 depicts the revenue break-up, by geography, for 2005.

Figure 1: Revenue from Mobile Sector (2003-2005)

Revenue from Mobile Sector (2003-2005)

Source: Company Reports

Note: Others include Cameroon, Uganda, Rwanda, Swaziland and other operations

Figure 2: Revenue Break-up - by Geography (2005)

Revenue Break-up - by Geography (2005)

 

* Note: Others include Cameroon, Uganda, Rwanda, Swaziland and other operations

Source: Company Reports

Capital Expenditure

The total CAPEX incurred by MTN was USD 1.2 billion for the financial year 2005. Capital expenditure had increased by approximately 72 percent over the financial year 2004 due to the group's strategy of network expansion in developing countries, particularly in Nigeria.

Operating KPIs

The total size of the group's mobile subscriber base had reached 14.3 million at the end of March 2005, registering a year-on-year increase of 50 percent. Moreover, the number of subscribers increased significantly by about 45 percent during the six months ending September 2005 to 20.6 million.

Figure 3, below, shows the total mobile subscribers of MTN in Africa from 2003 to September-end 2005.

Figure 4, also below, depicts the break-up by geography of the total mobile subscriber base as on 30th September 2005.

Figure 3: Mobile Subscribers (2003-2005)

MTN Mobile Subscribers (2003-2005)

 

* Subscribers till September 2005

Source: Company Reports

Figure 4: Mobile Subscribers in Africa - by Geography (September 2005)

MTN Mobile Subscribers in Africa - by Geography (September 2005)

 

* Others includes Botswana, Cote d'lovire, Rwanda, Uganda, Zambia, Swaziland

Source: Company Reports

Table 2 gives the key performance indicators of MTN for the financial year 2005.

Table 2: Key Performance Indicators in different geographies (2005)

MTN Key Performance Indicators in different geographies (2005)

 

Source: Company Reports

Ownership Structure

A majority of the shares of the operator (85 percent) are free floating. The other shareholders of the company are the employees, directors of MTN Group Limited and major subsidiaries and Newshelf 664 (Proprietary) Limited, which have been together referred to below as 'Non public'.

Figure 5 shows the ownership structure of MTN as on 31st March 2005.

Figure 5: MTN - Ownership Structure (March 2005)

MTN - Ownership Structure (March 2005)

 

Source: Company Reports

Recent Developments

The following are some recent developments for MTN:

Mergers and Acquisitions

In October 2005, MTN entered into Iran by acquiring 49 percent stake in Irancell, one of the two mobile network operators in Iran. This was the first expansion of the group outside Africa.

In August 2005, it entered Zambia by completing the acquisition of Telecel Zambia after finally getting the approval from the local telecom regulatory body. Telecel Zambia was one of the three mobile network operators in the country and accounted for 19 percent of the market share (in terms of number of subscribers), in September 2005.

In June 2005, it launched its network in Cote d'lovire by acquiring 51 percent stake in Loteny Telecoms, which had over 80,000 mobile subscribers in the country with a market share of 50 percent.

Network and Service Expansion

In November 2005, MTN introduced trial 3G services based on the High Speed Downlink Packet Access (HSDPA) technology in South Africa for corporate customers. In the same month, it also launched Blackberry Connect in South Africa in partnership with Research in Motion (RIM).

In August 2005, it launched MTN banking in partnership with Standard Bank in South Africa, enabling its subscribers to manage their banking transactions through their mobile.

In April 2005, it launched Blackberry commercially in South Africa.

Future Outlook

MTN has adopted an aggressive network expansion strategy in a number of developing markets in Africa by entering into strategic partnerships or alliances with local operators, or by acquisitions and mergers. The group is yet to launch its 3G services fully in South Africa and GPRS in Nigeria, which are its two biggest markets. The future outlook for the group's operations in Africa is as follows:

South Africa

The group has launched 3G services commercially in South Africa, as of June 2005. With the liberalisation of the telecom market and changes in regulatory policies in 2005, the group is expected to face challenges in South Africa from other operators due to increased competition in the market. The regulatory market began to change with the introduction of convergent billing in February 2005, which opened more sources for revenue and extended operating rights for the existing operators.

Nigeria

The group's operations in Nigeria will be the most interesting and most likely fastest growing, in the years to come. In the financial year 2005, the number of subscribers in Nigeria had increased by 123 percent, while revenues increased by 53 percent. The group will endeavour to maintain its hold in Nigeria by increasing network coverage and services, by offering innovative solutions, by increasing penetration levels and MTH is also expected to launch GPRS services in the country very soon. Furthermore, a recent increase in the GDP of the country, due to economic reforms introduced by the government and the privatisation endeavours, should further help to expand the subscriber base of the group.

Cote d'Ivoire

The country continues to be of strategic importance for the company, which can be judged by the fact that it had registered the highest growth rate for GSM services in Africa in the last five years. The country holds a good potential as the penetration level is low, at only 11 percent in 2004.

Zambia

The group has recently entered this country following the acquisition of Telecel Zambia. The key growth drivers in this market will be the recently increased competition among the players and the low penetration rate of mobile services, which stood at just 3 percent in 2004. Moreover, the network coverage is presently concentrated in urban areas and the rural market continues to remain untapped. Telecel has already introduced 400 community payphone lines and intends to penetrate deeper into the rural areas of the country, and the local telecom regulator is also encouraging such measures by all operators.