MTN keeps losing its foothold in SA market

2014-08-10 15:00

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It may be a South African company, but MTN continues to lose its foothold in the South African market.

Even most of the questions asked at the company’s interim results presentation on Thursday were focused on Nigeria, the group’s biggest market in terms of subscribers.

In the first half of the year, MTN?SA lost a net 430?000 subscribers.

Local revenue dropped 7% and its market share dropped 2.7?percentage points to 31.9%.

Group chief executive Sifiso Dabengwa said in a market like South Africa where SIM card penetration was 120%, it is better to focus on value rather than the amount of SIM cards sold.

He said it matters more how many of those subscribers will actually be using the service a year or two down the line.

Intervention in South Africa

South Africa remains an important market for the MTN group. Despite Nigeria having more subscribers, South Africans spend more.

After being hit by a marketwide loss of 825?000 subscribers in the first quarter alone, MTN has made various interventions to stop the bleeding:

Management changes

When Cell C threw the first punch in the price battle for subscribers, Vodacom was quick to respond while MTN was slow off the starting blocks.

At the same time, it also decided to limit BlackBerry customers who had previously enjoyed unlimited internet access.

In May last year, MTN?SA chief executive Karel Pienaar was replaced by Zunaid Bulbulia, who oversaw the mobile termination rates (MTR) debacle in which communications regulator Icasa controversially cut the fees mobile operators charged each other by half, thereby reducing revenue.

Bulbulia was quoted as saying a cut in MTRs would threaten network investment and jobs.

At the end of July, just before MTN?SA’s dismal results were released, Bulbulia was replaced by Ahmad Farouk, the former chief executive of MTN Nigeria, who had served in a similar role at MTN?Ghana and was group chief operating officer.

On the changes in leadership, Dabengwa said: “Reviewing our cost structure is going to be important to what we do going forward.

We are also continuously looking at competencies and capabilities within the group to decide who is more suited to what role, and at this stage looking at where we are going to basically swap around the two executives [Bulbulia is now group chief operating officer] with the view that we can address the challenges better.”

Dabengwa said these interventions were already yielding results (MTN added 394?000 subscribers in the second quarter).

Bringing in another person would enable MTN to improve its financial performance and address cost structures, according to Dabengwa.

MTN Steppa

To increase the number of smartphones on its network to drive data growth (local data traffic was up 117% in the first half), MTN introduced its cheap smartphone called the MTN Steppa.

“It has performed quite well and we’re satisfied with it overall.

We sold in the hundreds of thousands and it’s a continuing exercise,” said Dabengwa.

“It’s not just going to be the Steppa phone; there are other makes we are bringing into the market that are in the R500 to R600 range.

I guess the key issue with that is we are subsidising it a little bit, and it’s something we need to be continuously reviewing.”

Telkom deal

MTN and Telkom struck a deal that is currently being assessed by the competition commission.

The deal will help both companies cut costs and give MTN access to infrastructure that will help ease network congestion.

“The Telkom deal is really a roaming agreement and a managed services agreement.

What that does is enable their customers to roam on our network and our customers to roam on their network.

We also provide managed services to their network, and it also means there is more scale, hence reduction of costs for both of us,” Dabengwa said.

“For us it will mean we gain access to their towers and other passive assets we can use to grow our network.”

The other big deal being assessed by competition authorities is Vodacom’s R7?billion acquisition of Neotel, something Dabengwa said MTN probably won’t oppose.

“Consolidation in our market is necessary, and any steps that are heading in that direction are probably in the long-term interest of the market.”

Cost-cutting

MTN has already reduced its number of contractors by 1?200, and chief financial officer Brett Goschen said with the drop in retail tariffs, retrenchments would have to be looked at more closely.

But the company is also up against the introduction of mobile virtual network operators (MVNOs).

This is when a service provider leases parts of an already established network from an operator and sells it to customers.

Recently, Mr Price teamed up with Cell C and there is speculation that FNB is doing the same.

While Dabengwa said he was always concerned about competitors, the MVNOs worry him to the extent of the agreements on whether they are simply providing SIM cards and using another operator’s network.

He said MTN had looked at similar types of agreements but will enter into one if it is failing to capture segments an MVNO could do better at capturing.

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