You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

MTN faces investor and competitor pressure

SA’s data prices seem fairly comparable with those in North America and Europe – Duncan McLeod – founder and editor – TechCentral.

SIKI MGABADELI:  South African mobile operator MTN Group says that investors are concerned with lower returns and revenue growth, despite a boom in data traffic. Africa’s biggest telecoms firm, which set aside R11.7 billion for capital expenditure in 2016, said in a presentation to parliament that further significant investment is required to deal with higher data traffic as a result of spectrum constraints in this mature market.

Let’s chat to Duncan McLeod, who is founder and editor of TechCentral. Duncan, thanks so much for your time this evening. Firstly, what do you make of this statement? Do you believe that investors are worried about lower returns and revenue growth?

DUNCAN McLEOD:  I think we may see lower returns over the next few years. There’s no doubt that MTN is ramping up capital expenditure – not only here in South Africa but also in Nigeria. In Nigeria they have just secured access to some crucial radiofrequency spectrum, which is going to allow them to build a national 4G/LTE network, and that’s going to require significant investment, and they’ve already said that they are going to be ramping up investment in the Nigerian market.

In the South African market they’ve been on an increased spending curve for some time, actually. Last year they spent I think about R10 billion. This year they’ve ramped it up even further. I think this is a bit of catch-up that they are playing. Vodacom, their principal rival in South Africa, has invested very heavily in network infrastructure in recent years, and I think MTN probably allowed itself to fall a little bit behind in terms of their investments.

So they are putting a lot of money into their network now. And they are right when they say there is a spectrum constraint. It’s starting to bite. The fact that the government has been so slow in coming up with a policy for allocating new spectrum is forcing them to densify their networks in urban areas. Vodacom is doing the same thing. They are forced to do this because they don’t have access to this new spectrum. So it’s starting to cost these operators – the delays in the spectrum process.

SIKI MGABADELI:  The pressure, also, on reduction of data prices, data costs – what would that mean for them and their margins? And not just MTN – I suppose all of the network operators.

DUNCAN McLEOD:  I think what we are seeing with this data fall  noise this week – I think it really is just noise. I don’t think in the short term that we are going to see any moves to try and regulate data prices. I think that would be a mistake.

We have actually seen data prices come down over the last few years. MTN was quoting some figures – I stand to be corrected, but I think they were around a 70%-mark reduction in average data fees over the past five years on their network. I think we’ve seen the smaller players, particularly Cell C and Telkom, be quite aggressive in this market, and I think they’ve put pressure on the bigger guys to bring down their prices. And obviously this has an impact on operating margins.

So there is no doubt that the market is competitive and I think those data prices are going to come down – not so much through parliamentary processes, but just through the process of competition.

SIKI MGABADELI:  And the fact that the people pushing for this are doing this comparative analysis, saying that we are paying more than other countries in Africa, for example, like Kenya and Ghana and so on. One argument I heard yesterday was that, well, there is also the quality issue here. We have better quality, for example.

DUNCAN McLEOD:  Absolutely. I think that’s often missed in this debate. I think with a lot of the numbers we’ve seen quoted, people are going to the most expensive operator in South Africa for a gig of data – and then going to the cheapest operator in another market that may not have the well-developed network. And the challenge of smaller operators who don’t invest as much as the big operators are the ones who come to market with lower prices because they need to compete with the bigger guys. So I think you have to be very careful when you put these comparisons, especially the ones that make their way around social media.

But if we compare our data prices with those in North America and Europe, I think they are fairly comparable. There is no doubt that there are many markets across Africa where data prices are lower than in South Africa, but you are right, I think you have to ask questions about what the quality of those networks is like relative to ours, where our operators are investing significantly more in infrastructure.

SIKI MGABADELI:  Alright, we’ll leave it there. Thanks, Duncan.

Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.

COMMENTS   0

You must be signed in to comment.

SIGN IN SIGN UP

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / PODCASTS SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: