MTN SA ops struggle for the first time

Article tools

	PRINT ARTICLE
	SEND TO FRIEND

Services

	Subscribe to newsletters		Feeds
	Become a Facebook fan		Follow Moneyweb on twitter

MTN FY profits drop

Despite a 28% increase of new custo...

Rica, billing problems knock local business.

JOHANNESBURG - MTN's (JSE:MTN) South African business was hit hard by the rather onerous process of registering customers for the new Regulation of Interception of Communications and provision of Communication-related information Act, which came into effect last August.

Where Rica really hurt the operators was in the prepaid space, where the law required subscribers who purchased new SIM cards to first register them before they could make calls. Operators are targeting subscribers in the lower LSMs (1-4), as this segment has sub-50% penetration.

In the year to December, MTN said it saw a 6.1% reduction in subscribers in South Africa to 16.1m. This is below market expectations. In October, after its third quarter subscriber update, it revised its target for South Africa to "zero net additions for the year". It cautioned at the time that there would be challenges achieving this.

The numbers are telling. In the South African prepaid base, its subscribers dropped by 10% to 13.04m (from 14.4m). In the second-half, when the full effects of Rica were felt, it lost 1.16m customers (in terms of "net additions") across both post-paid and prepaid.

The damage from Rica was limited to the prepaid space. On the contract (postpaid) side, it managed to grow subscribers by 9.8% to 3.02m.

There is a bright spot in the Rica mess. To date MTN has collected the details of 5.5m prepaid customers, about a third of its subscribers.

It also reported higher prepaid ARPU (average revenue per user) of R100 per month (an increase of R3).

In the SA business, revenue increased "modestly by 3.1% to R33.1bn" for the year, "indicating that those prepaid subscribers lost during the Rica process were not as meaningful to revenue". Questions will be asked how "meaningful" those prepaid subscribers were to profitability. The EBITDA margin declined by 1.7% to 31.4%.

"For the first time we have seen MTN really struggling with its operations in South Africa," says Frost & Sullivan ICT industry analyst Spiwe Chireka. "Regulatory risks have been a key factor impacting the company's performance. Interconnection fee cuts and subscriber registration have dampened both revenue and subscriber growth."

Group President and CEO Phuthuma Nhleko cautioned in his presentation that there are "challenges registering SIMs ... in nearly all our markets". This will no doubt temper subscriber growth in many of the group's operations in the next one to two years.

In Nigeria, it is required to start registering SIM cards on May 1, a process Nhleko euphemistically described as "quite a task".

For 2010, it has published guidance for net additions in the SA market of 800 000 subscribers.

MTN also admits its billing system chaos caused problems with growing subscribers in the country. It says "system improvements remain a key focus".

"Although some progress has been made on improving the various IT functions, further improvements are required. Increased management attention is also being given to support systems, including customer care and call centres, in order to cope with the challenges."

MTN Group (JSE:MTN) reported a 16.6% drop in adjusted headline earnings per share for the year to end-December to 754.3c. Revenue grew by 9.2% to R111.9bn. Group-wide subscribers were up 28% to 116m.