Reason for concern at MTN?
MTN‘s latest numbers would suggest reason for concern – particularly over its operation in South Africa; however two analysts provide differing opinions of how the group may progress in the medium-term.
Last week, MTN said that it only grew its total subscriber base by 1.1% to 203.8 million in a quarterly update for the nine-month period ended September 2013, from 201.5 million in the prior quarter, and from 195.4 million in Q1.
MTN Group President and CEO, Sifiso Dabengwa said: “The third quarter has been characterised by lower than anticipated subscriber growth following ongoing price competition and subscriber registration requirements across a number of markets.
For MTN South Africa, revenue growth declined, (YoY) mainly due to lower effective voice tariffs and slower subscriber growth, the group said.
Nadim Mohamed, an investment analyst and partner at First Avenue Investment Management said: “There were two contrasting signals that I read into the MTN results. Firstly, Nigeria looks to be recovering from last year with about 10.4% revenue growth YoY – however, quarter on quarter subscriber growth was flat and ARPU was down.”
MTN Nigeria grew subscribers marginally (0.6%) to 55.6 million.
“Secondly, it confirmed strongly for me that the SA market is going to be in decline due to pricing pressure and regulatory intervention – and this will intensify with the next round of MTR cuts,” Mohamed said.
The analyst believes that MTN needs a sizable acquisition to resume the growth path that it has been on over the past few years.
“Almost every market they’re in is experiencing some level of maturity or strong regulatory action – the result is slower growth [and] an inability to maintain high prices,” he said.
Mohamed said that MTRs are a very difficult pill to swallow for the larger operators.
“It forces them to lower pricing for both on-net and off-net calls as smaller operators often pass on the MTR benefit to the consumer. The reduction of on-net rates are painful due to the high profitability of this revenue stream.”
He said that Nigeria in particular will be interesting to watch as the regulator introduced a new round of MTR cuts just a few months ago, “and we have seen no pricing action by smaller operators as yet”.
“Data is also not growing as fast as I thought it would at 34.7% – perhaps it will accelerator as smartphone penetration increases in the African operations. However, from watching other international operators, I find that data does not have the same ‘network effect’ as voice and is more prone to commoditization than voice,” Mohamed said.
“In my view, it will be tough going next year for MTN and Vodacom. MTN is particularly dependent on a strong recovery in Nigeria – in addition, their results will be influenced a lot by exchange rate movements which have been quite volatile recently.”
He noted that enterprise is an additional revenue stream for MTN, adding that its still early days on that front.
Another view
Paul Theron, CEO of Vestact paints a different picture for MTN.
“Data sales are strong, and Iran sanctions potentially being eased. That’s enough to offset the negatives around competition, MTRs and regulatory snaggles in Nigeria,” the analyst said.
“The margins on data sales to wealthier clients in well-served areas (4G) seem to be fine. That’s the experience in US markets, anyway,” Theron said.
Despite declining in trade on Friday, shares in MTN have advanced since January, adding 11.3%, and 30% over the past year.
More news on MTN
MTR price cuts: how it will affect Vodacom and MTN
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