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MTN makes big footprints in Africa

Investing significantly upfront and only taking on battles it can win has put MTN in the position of Africa’s largest service provider.

Incorporated in South Africa in 1994, MTN began its journey into Africa in 1997 providing services in Uganda, Rwanda and Swaziland.

Today, MTN boasts mobile licences in 21 countries and ISP businesses in 13 countries, mostly in Africa and the Middle East. The group states its vision is to lead the delivery of a bold new digital world to its customers.

MTN isn’t doing too badly at its stated goal either. It is the biggest telecommunications provider in Africa, which Khumo Shuenyane, group chief strategy, mergers and acquisitions officer at MTN, attributes to the company’s ongoing approach to investment since the early days of its expansion outside of South Africa. “We made the right level of investment upfront as soon as we went into new countries,” he says.

“We put in the right network, established our distribution channels and built our brand. Wherever we’ve established from scratch in this way, we’ve had that kind of performance. Our serious investment upfront has paid off.”

The group has a dual approach to entering into new regions, either by bidding for licences or by acquisition when the opportunity presents itself. The current focus, according to Shuenyane, is to take on opportunities in markets of scale where it’s possible for MTN to become the number-one or number-two operator.

“We’re really focussed on markets where we can move the needle and make a difference to the group.”

The importance of first-mover advantage is a lesson that has perhaps been learnt the hard way by MTN South Africa, where the company still lags behind South Africa’s leading service provider, Vodacom, which was first to market.

Risky business

The group’s willingness to invest significantly upfront has paid off, but there are certainly regions where this appetite for risk has proven, well, risky. “They’re willing to take risks in countries where other companies have been more cautious, but this could still blow up in Iran and Syria, where it remains to be seen whether they’ve bitten off more than they can chew,” says Arthur Goldstuck, MD of South African technology market research company World Wide Worx.

However, Shuenyane cites Iran as a success story for MTN, and the numbers bear this out. In that country, the group has 40.5 million subscribers, and generated R25 billion in revenue in the 2012 financial year. “In Iran, we have a successful business on an operational level, but of course the devaluing currency and US sanctions present challenges at present,” he says.

He adds that management is closely monitoring the situations in Iran and Syria – as well as any other ‘politically delicate’ countries in which the group operates.

Nigeria has been a great success story for MTN. At the end of 2012, the group had 47.5 million subscribers there, and the country generates 29 percent of its total revenue. Goldstuck says that an indicator of how strongly a company is invested in a country is the ratio of its revenue to capital expenditure there. While Nigeria delivered 29 percent of MTN’s revenue in 2012, it also took 45.6 percent of its capex. By comparison, South Africa brought in 30.6 percent of group revenue, while MTN’s capex here was 21 percent. Clearly Nigeria is perceived as a growth market – one worth continuous investment.

“In Nigeria, there’s still huge growth potential for voice and the data side as well,” says Shuenyane. “There’s significant opportunity in a significant market. We’re making big investments into Nigeria to make sure we continue to compete successfully.”

In 2012, MTN built 1 414 2G and 1 175 3G towers in Nigeria, indicating an equal weighting to improving the voice and data network in that country. Goldstuck says that with the growth in data use across the continent and the simultaneous drop in data costs, MTN will have to chase margins in future.

Shuenyane says there’s a significant pipeline of opportunity for MTN, not only in Africa, but in the Middle East and Asia. Indeed, MTN Group CEO Sifiso Dabengwa revealed in April a warchest of between $4 to $8 billion for expansion into these regions. The group also revealed it pre-qualified to apply for a licence in Myanmar (formerly Burma), signifying the start of its intentions to break into the Far East as well.

Being the biggest

“We’re always looking at opportunities to get into countries where we can be number one or two, or a strong number three,” Shuenyane says. “The challenge is making sure we enter on the right terms so that we can justify that we’re adding value for our shareholders.”

He says that along with this goes a great deal of responsibility. “Our operations tend to be among the biggest companies in the countries where we operate, which gives us a particular profile of responsibility as a taxpayer, an employer and an organisation that procures local services.”

As Africa is increasingly being perceived as a leading investment destination for global players, many service providers are trying to break into the mobile communications market. Bharti-Airtel, Orange and Vodafone are all making inroads into Africa, but MTN’s position is strategically very secure.

“The group has a tremendous foothold, and they don’t need to be afraid,” says Goldstuck. “But they also mustn’t be complacent,” he cautions.

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