NewsNorth AfricaFew operators make money - MTN's CEO Sifiso Dabengwa


Posted on Monday, 20 May 2013 16:35

Few operators make money - MTN's CEO Sifiso Dabengwa

By Gemma Ware

Sifiso Dabengwa, Chief executive, MTN Group/Photo©MARTIN RHODES/BUSINESS DAY/GALLO IMAGES/GETTY IMAGESAt the Mobile World Congress in Barcelona, the world's largest mobile-phone conference, MTN's chief executive Sifiso Dabengwa spoke to The Africa Report about expansion, data and why he might decide to raise prices.

Sifiso Dabengwa knows he is sitting pretty. The chief executive of MTN, Africa's largest mobile telecoms company with 189.3 million subscribers, saw the group through a trying 2012 from which it still came out with revenue growth of 10.9 percent.

In February, a committee chaired by the British peer Lord Leonard Hoffmann exonerated the company over allegations of corruption by Turkish firm Turkcell linked to the way it won a licence in Iran in 2005. It had been facing a US court case, but Turkcell dropped the charges in early May following a US Supreme court decision implying a US court would not have jurisdiction over the case.

MTN's Nigerian operations recorded an earnings drop of 6 percent last year, but its profit margin was still a robust 58.3 percent.

Dabengwa must steer the company through a period of change as chairman Cyril Ramaphosa steps down in May after his election as deputy president of South Africa's African National Congress.

The Africa Report : Will MTN continue to grow internationally outside of its operations in Iran, Syria, Afghanistan and Yemen?

Sifiso Dabengwa: We really do intend to continue growing internationally, looking at Africa, the Middle East and also looking at opportunities in Asia. Obviously there's only one greenfield left in Asia, which is Myanmar. We are amongst the 90 or so [operators] that have expressed interest.

Where are you looking in Africa?

We're very keen on the possible second licence in Ethiopia. There are still a lot of internal discussions taking place [on its schedule], but we do have a value-added services licence and we are in the process of rolling out some services.

We have limited fixed-line ISP [internet service provider] skills, so we would look at opportunities that would enable us to acquire skills we don't have. We're really not looking at transformational-type deals or M&A [merger and acquisition] opportunities. We're looking more around bolt-on single operations which we can easily digest.

Is it a good thing the Bharti deal you were discussing in 2010 never went through?

Well, based on what we know today, probably. Their value has shrunk quite significantly.

How damaging have the Turkcell corruption allegations about your Iran licence been to MTN's reputation and brand?

Initially, one can assume they were damaging. There were questions in people's minds as to whether the allegations were true or were baseless. From all the evidence [the Lord Hoffmann Committee] were able to put together, they found those allegations to be totally baseless.

We've always believed that. It was all based on the evidence of a single former MTN employee and very little else to corroborate it.

Will you change your governance procedures?

I think the way we manage our business and our governance has always been of the highest standards. The allegations that were put forward were completely inconsistent with the way we do things.

MTN chairman Cyril Ramaphosa is stepping down. Will it be a big loss for MTN?

Yes, MTN will miss his abilities as a chairman and his ability to contribute and guide the business. He had a very good working relationship with his board, and I as CEO had a very good working relationship with him. So yes, he will definitely be missed. But he will always be somebody that we have access to, we talk to, you can still bounce things off him.

The GSMA [an industry body] said that by 2018, data is going to take over voice. What about in Africa?

On our continent, we're still quite far behind. Getting devices into consumers' hands is the main issue. It's really been a question of affordability. You do have 3G devices now at the $30-$40 level, and we are seeing good take-up.

How do you balance the pressure on average revenue per user (ARPU) with the need to invest in your network?

That's a challenge that operators in Africa are facing, that the pressure on pricing as a result of competitiveness will render quite a lot of operators unprofitable. Operators have to think hard about whether to continue investing or not because clearly with the kind of price reductions that you're talking about, returns are impacted negatively. To continue investing in a declining revenue- or declining profitability-type environment is a challenge.

I don't think there are too many operators on the continent that are actually making money.

In Nigeria, your ARPU is going down, but your profit margin is very high. How can you explain that?

I think sometimes we miss the point that having a network and having a licence doesn't definitely mean that you're going to get good results. You still have to run your business properly.

We're probably the biggest investors in Nigeria outside the oil industry. Last year we spent over a billion dollars. This business is about efficiently putting in your infrastructure. That's been the core strategy of MTN: we've not gone into a country and skimmed on investment.

MTN has been sanctioned over poor service quality in Nigeria, Ghana and Uganda. Why?

Nigeria is a classic example of where prices came down much quicker than we expected, and therefore demand was much higher than the network capacity.

The demand we experience today, if you look at all our plans, is probably the kind of demand we expected in two to three years' time. What tends to happen – it happened again in Uganda – you have these aggressive price fighters, they bring down the prices, [our services] end up at a premium.

We get to a stage where we believe that it's starting to impact on our business, so we also reduce prices but then the demand on the net- work increases quite significantly and hence you get the poor quality. Then we have to invest in order to improve the quality.

In Kenya, Safaricom have raised their prices at the end of 2011 and saw an uptick in profits. Will you?

Yes. When we feel the market is right, depending on the market. The point that I'm trying to make is there's not too many profitable operators in Africa. Whilst people might talk about being EBITDA positive, but if you go right down to the bottom line, once you've catered for tax and depreciation and everything else – how many operations are actually able to give back cash to shareholders? You can check for yourselves – there's not too many.{jacomment on}

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