By Alec Hogg
The first half of the year has not been without setbacks for the company.
The average revenue per client and prepaid growth deteriorated in the first quarter, while CellC launched scathing attacks and targeted the company’s pricing structures here in South Africa. Lower retail and interconnect rates imposed by ICASA, although deemed unlawful by the South Gauteng High Court, would have been implemented through MTN’s second quarter and will extend into the company’s third. In Nigerian operations, the Nigerian Communications Commission (NCC) imposed a fine on Glo, MTN and Airtel of $4m, while further imposing a ban on SIM card sales for more than a month due to a “poor” quality of service.
The launch of the company’s 79c per minute prepaid offering, for South Africans in April, recognises the price war publicised by CellC (99c per minute prepaid rate). The aggressive prepaid billing reduction was originally advertised as a 3 month offering but now finds itself a permanent fixture. Besides leaving those of us with contracts thinking, “How much am I paying per minute on my contract?” it also fuels the speculation that the simple pricing formula could be renewing traction in terms of prepaid growth for MTN. However, CellC has since dropped its rate to 66c per minute and then even further to 50c per minute, while the largest mobile network in South Africa, Vodacom, also has a competitive, although confusing, pricing structure. This has equated to a saturated and challenging landscape in South Africa, especially for voice call revenue.
When we combine the lowered interconnect rates imposed in conjunction with the aforementioned, it is likely that voice call revenue (largest proportion of SA revenue) will not show meaningful (if any) growth from the previous year’s comparative. Data revenue now accounts for more than a fifth of South Africa’s total revenue and is the fastest growing segment for the business although it will have to have exceeded the 13.3% Q1 2014 growth to offset voice call pressures in the interim period.Although the MTN Group faces a slowing economy and challenging domestic environment, the company benefits from more than 70% of its revenue coming from outside the country. The global footprint now extends into 21 countries. The theme within these regions is that there is a relatively low mobile and data penetration rate. The MTN Group finds itself well poised to benefit from this in the long term, as these emerging markets grow and become more dependent on the communication technologies and accessibility which are commonplace in frontier markets.
Nigeria, now Africa’s largest economy, is the most meaningful in terms of earnings for the MTN Group as it produces more than a third of the group’s revenue and around 50% of EBITDA (earnings before interest, taxes, depreciation and amortisation). The fine imposed by the NCC is easily absorbed by the company’s strong balance sheet, while the ban on SIM card sales has created a flurry of orders to follow compensating for the initial sales lost. The first four months of the interim period has witnessed strong revenue growth in both voice and data revenue, helping produce double digit growth for the group over this period.
The vast majority of capital expenditure has been directed at improving infrastructure networks capacity and quality. This is an essential factor in driving growth moving forward and is reported to be well on track. Data revenue for the group has been increasing at a rate of more than 40% both this year and last, now reported to account for 17% of total group revenue, a figure which was 14% at the end of 2013.
Consensus of Bloomberg estimates predict that for the MTN Groups interim period results, revenue will be R73.29bn, 12.3% higher than the 2013 comparative, while the adjusted earnings per share is anticipated at R6.79.
This article originally appeared on IG.com
