MTN has grand ambitions. It hopes to expand its reach beyond South Africa with a bid for one of Ethiopia’s new telecoms licences, lodged on 26 April. In so doing, it partnered with large Chinese government financiers: the Belt and Road Initiative known as the Silk Road Fund.
And MTN hopes to grow its offer into a payments and communication ecosystem that rivals those offered by China’s WeChat, or Apple or Facebook, and other US tech giants.
This will require raising of new funds from investors, taking on other rivals in Africa like Orange, and investing heavily in fibre optic infrastructure. The firm’s chief executive officer Ralph Mupita explains why the dividend was suspended, and how they will exit from their Middle East markets, which have brought MTN an entanglement with the US Justice Department…
You chose to separate mobile money from your other operations? Why?
Ralph Mupita: Mobile money represented 46 million subscribers at the end of last year, 8% of group service revenue and $152bn of transaction value in our MoMo (Mobile Money) system. The business is expanding and we believe that a structural separation for better operation is needed going forward.
The second thing is that these businesses are actually very valuable. The current share price does not reflect the inherent value of the infrastructure, neither does it reflect platform assets of fintech. We will create an opportunity, in due course, where other investors can put money directly into this operation to reveal the actual value.
How do you plan to use the money from this operation?
The money will help us support growth of the businesses because there is a very narrow window of opportunity to accelerate. Part of the logic is to improve management of the businesses because they have different regulatory requirements, financial profiles and risk profiles.
To reveal the crystallised value, we would bring in minority — but strategic — investors to the business. This plan would exclude our Nigerian subsidiary because we don’t have a MoMo license ($5bn-$6bn worth).
So is the plan to have an initial public offering (IPO) for MoMo?
Actually we have not decided on that, but we will pursue the avenue that best reveals the value. If it is through an IPO, then that is what we will focus on. But right now, we are not being prescriptive that the businesses need to be separately listed. You could have them unlisted and still revealing value. However, an IPO can also be the mechanism for this.
With the Ayoba app, you are in direct competition with the likes of Google and Facebook. How do you plan to compete with WhatsApp?
We have very bold ambitions with Ayoba right now. At the end of last year, we had 5.5 million monthly active users on the app. Over the medium term — three to five years — we will get to 100 million.
Ayoba is an African developed app. We have taken cognisance of what we believe are the specific needs and requirements of our customer base, and where Africa is in terms of internet adoption.
So when we developed Ayoba, we focused on factors that would make Ayoba unique compared to the other global instant messaging apps. One of them is recognition of level of literacy on the continent, thus the need for local-language versions of an instant messaging platform. Secondly, we created emojis that are relevant, centred on understanding local needs.
Third, we acknowledged that a lot of the subscribers in our market still use 2G phones. Most Africans have not seen Ayoba, Signal or Messenger because of their 2G handsets, which is why Ayoba has an SMS fallback. When you send a message on Ayoba from your smartphone, to someone who has a 2G handset, it is delivered as an SMS.
Are you following Chinese app WeChat’s strategy with Ayoba?
Yes. Over time, we are looking to integrate mobile money onto Ayoba. We have a huge mobile-money base — 46 million subscribers — to try and create a composite of the two and create a bit of a WeChat recap. It will consist of many channels where we make some of the content available for free, and charge for others. We want to create an ecosystem of merchants where mobile commerce can take place.
To be successful in creating this type of architecture for services and channels on Ayoba, and link it to mobile money, we will create a mobile commerce system that can accelerate the growth of the app and enhance that through the concept of a WeChat for Africa.
According to industry analysts, lowering data and handset prices is one of the main priorities for operators in 2021. Do you see that as the trend?
Data pricing across our markets is, as you know, progressively coming down. Last year, it was down 33%.
What is critical and often misunderstood is that the sector is very capital-intensive and you need to earn return on capital. What reduces cost of operations is having the right frequencies across various technologies: whether it is 3G, 4G, or ultimately 5G.
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Making frequencies available at market-related pricing is another catalyst that lowers cost of communication. However, I anticipate that in 2021, we will see the cost of communication reducing from an average of 25% to 33% across our markets.
Going back to MoMo, how is the competition with Orange Money in French-speaking markets?
We already compete with them in Côte d’Ivoire, Cameroon and Liberia. I think what is more interesting is that over time, interoperability is going to become very important to enhance velocity [of cash] in the system and create more ubiquity for mobile money.
You are trying to do that with the Mowali interoperability joint venture with Orange.
It is exactly what we are trying to do, and ultimately, when Mowali succeeds, it will need the involvement of other mobile-money operators across African markets. This is the ubiquity that is needed to underpin and support financial inclusion across our markets.
You say that you want to make selective acquisitions or mergers until 2025. What markets are you targeting?
The selective mergers and acquisitions we are considering is what we say ‘moves the needle’: the one that can change the profile of the group as it is today, with a five to 10-year horizon of growth.
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An example that would tick that box for us is to access opportunities in Ethiopia. The country is a ‘needle mover’ because we acknowledge the need to build the business for long term. Today, Ethiopia represents probably one of the largest, single-growth opportunities in Africa; part of emerging markets for the nascent telco market.
What do you think about Ethiopia? Is the market likely to open in 2021?
It is probably best not to say too much because we are very close to the bidding date, 26 April, and maybe because that date could change. [This interview was conducted in early April]
However, we are aware of some challenges in this market, particularly because of the situation in the northern region. But as it stands, if the bidding date has to be moved again, we will adjust.
Are you working on getting conditional funding like the one Vodafone got from DFC?
Bid submissions are not too far in the future for Ethiopia, but I also need to be quite circumspect in what I say. We will plan ourselves around partnerships, but suffice to say, we are prioritising our focus on this. We will bid at the level that we believe generates a decent project rate of return, over a 10-year period.
The CEO of Orange, Stéphane Richard, said in June that his company is interested in acquisitions in Nigeria or South Africa? Do you believe this? Would it be a threat for MTN?
Competition keeps everybody on their toes. We operate in markets where Orange or Airtel have already established themselves too, so we are used to being in competitive regions. And if there is more competition that will come from South Africa or Nigeria, we will welcome it; because ultimately, it brings the best out of all market participants.
What about the persistent rumours about a possible sale of MTN to Orange?
I really can’t comment on speculation. As far as I am concerned, since I have been here, it has not been something that we have taken too seriously. It may have been in the past, but it is certainly not something that we are focusing on at the moment.
MTN plans to invest $500m in fibre. Which markets will be prioritised?
Internet adoption in Africa is at a very early stage, and as the technology curve moves to 5G, we will see that even at a more nascent level, data is what will underpin growth across markets in this continent.
There is an incremental investment that will come in the near future, at least $1bn. We believe that $500m is what we would need to put in and we are very comfortable with that.
At MTN, we largely do self-provision of fibre and very little is required from third parties. Going forward, the right model is an open-access one. We have the capacity, within fibre, to sell some of our capacity to third parties at a commercially-agreed pricing.
So you’re not particularly engaged in developing the fibre to the home?
There is the ‘own the home’ opportunity, but fibre will actually be a fairly small part of that. There will be some interesting technologies that get us to own the home, such as fixed wireless access for example. However, we plan to get at least 10m homes across the African markets over the next three to five years. A large part of that will be in Nigeria, Ghana and South Africa for sure.
Will the current legal troubles you have with US courts slow down the sale, or impact the value of your Middle East businesses? What is your timeline on this?
We are very cognisant of the issues that we are dealing with in the Afghanistan matter in the US courts. They are not directly impacting how we are looking to exit either Syria, Yemen or Afghanistan. We are independently looking to exit the Middle East in a very orderly manner within the near to medium term.
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Our strategy is two pronged: first, we look to exit the consolidated subsidiaries — Syria, Yemen and Afghanistan — and then over time, the Iran project. The latter will take more time as it is where there is a major store of value: it is a significant business and we will continue to engage with our partners there to develop and then exit.
What is happening in the court case that alleges MTN financed terrorist groups in Afghanistan?
In February this year, we went back in with our responses. It is pretty much around the same premise as last year: we are seeking to have the court dismiss the case on the basis of lack of jurisdiction and no specific claims targeted at MTN. That has been the pattern since November. The case is still on in the US and we are waiting for that to play out as per the court calendar.
You want to make MTN stock stronger. Is suspending dividends a good signal to the market?
Suspending the dividend was based on wanting to deleverage the holdco faster. We have historical debt — of about $1.75bn — which was carried forward post-2015, and is related to the SIM registration in Nigeria. We need to deal with it in the next three to four years and we want to accelerate that deleveraging. This is why we made the decision to suspend the dividend.
However, there were also some near-term uncertainties. First, we have not had any material dividend upstreaming from Nigeria. Second, uncertainties linked to Covid-19.
More importantly, we also want to invest in growth. We have been talking about exciting growth prospects. These require investments and we believe we will capture that.
Finally, the dividend suspension was really driven by an abundance of caution and wanting to deleverage faster. Some near-term uncertainties will work themselves out in the next six to 12 months and then in March next year, we will announce a dividend policy that is much more long term.
Hopefully, by then, vaccines will have been rolled out systematically within African markets and maybe we will see the continent returning to growth.
You are now the sole leader of MTN. Did Rob Shuter give you any advice before he left?
I worked with Rob, pretty much all the time I was at MTN. He joined two weeks before I did: he as CEO and I was CFO. We had actually worked together way back when he was a banker and I was in financial services at Old Mutual. He was mostly involved with insurance and asset management when I was there. He didn’t leave me any special notes so I worked with what was going on across our markets.
How would you define your your role?
I’m super excited about the prospects for MTN across our markets to deliver on the growth potential that we see in Africa, as well as unlock value that we believe is embedded in MTN group in particular.
As usual, there will always be challenges. We are not starry-eyed, we are realists; but you know, what gets us up in the morning is a sense that we can make a difference in Africa’s progress. This helps us to deal with any difficulties we may have.
Africa has got a very unique opportunity to leapfrog industrially and economically by leveraging digital technologies. A lot of people say that 5G is only for the developed markets; but the counter view is that when properly scrutinised, it has the ability to increase industrial capacity for Africa and economic growth.
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