By Gugu Lourie
It’s been a rough ride for MTN – Africa and the Middle East’s biggest mobile phone operator.
When the telco was hit with a $5.2 billion (R71 billion) fine in October 2015 by the Nigerian Communications Commission, the country’s communications watchdog: it seemed MTN was heading for doldrums and would, for the first time, experience its “Armageddon”.
Instead, it seems the Nigerian debacle has afforded Phuthuma Nhleko, an astute dealmaker and one of Africa’s most talented executives, a chance to re-kindle MTN.
Mind you, Nhleko was instrumental in transforming MTN from the second-largest mobile group in South Africa into Africa and the Middle East’s top player, and one of the top brands to emerge from the tip of Africa.
About 18 months ago, when Nigeria fined MTN, suggestions were that the company was going nowhere slowly. MTN appeared set to join the league of failed African corporates.
To rectify the mess created by the hefty multi-billion dollar fine and other political and economic headwinds, Nhleko initiated a transformation project called IGNITE.
It was designed to optimise operations and position MTN as the most favourable telco to participate in the rapidly evolving sector.
This was done after Nhleko shrewdly negotiated with the Nigerian authorities to reduce the multi-billion fine.
So, what makes this transformation project, IGNITE, a possible solution to reposition MTN in a changing sector that requires mobile phone operators to transform to retain and attract new customers?
So far strategy has stabilised key markets: South Africa, Nigeria, and Iran
The question investors and anyone with keen interest in MTN and South African telcos may ask is why the former CEO, Sifiso Dabengwa, couldn’t implement such a strategy under the chairmanship of Nhleko?
Nhleko is an astute leader. No doubt about that, but the lapse by his board of advising Dabengwa and his team on a possible crisis in Nigeria will remain as a possible “blunder”.
The board failed to ascertain the catastrophe after it ignored Nigeria’s complex issues around subscriber registration – MTN was expected to perform duties associated with the home office.
That said, Project IGNITE was launched at the end of 2016 – starting with two big operations, MTN South Africa and MTN Nigeria.
IGNITE is about shaping the future of MTN, by proactively introducing special measures to accelerate its business and financial performance.
“These measures, which have aggressive targets, will make our organisation more agile, and our business more sustainable, efficient, innovative and profitable. IGNITE will be rolled out progressively to all operations. The programme will ensure a well-coordinated approach throughout MTN, enabling operations to execute their mandates effectively and deliver excellence in customer experience and value propositions,” MTN informs investors.
Through IGNITE, MTN aim to:
- create a path to accelerate revenue growth;
- translate a greater percentage of revenue into EBITDA and profit;
- deploy our capital more effectively;
- use more advanced data analytics to better inform decision making, particularly around customers and network deployment;
- accelerate the diversification of revenue streams;
- focus on customer experience; and
- ensure these changes are sustainable by striking the right balance between performance and the health of the organisation.
So far, MTN seems to be off to a rousing start: It has stabilised its key markets in South Africa, Nigeria, and Iran.
The project looks as if it is likely to deliver returns for investors and a distinct customer experience.
Market seems to be giving IGNITE a thumbs up
MTN believes IGNITE initiatives to be implemented over the next two years will partly offset the drag on reported EBITDA (earnings before interest, tax, depreciation, and amortisation) by 15 to 20% by 2018.
MTN is hoping to pay shareholders another good dividend in 2017 despite challenges after rewarding them with the same amount for the year to end-December 2016.
The market has given Nhleko and team a resounding yes so far in their implementation of strategy to revive MTN. The company’s share price rose 8.32% to close R126.75 on Thursday after announcing its results. The stock has risen 15.7% in the past 90 days, giving the telco a R220 billion market value.
On Thursday, Nhleko sounded positive about the future of the great South African company, which he spearheaded to be a global entity.
He was calm as always and didn’t show any signs of worry or stress, and was even able to crack a few jokes while presenting the company’s financial figures.
The past of MTN is unquestionably glorious.
Nhleko, whose stint as an executive chairman is coming to an end this month, knows very well the grandeur of building this entity loved by many Africans.
As for the present, the road ahead may be still bumpy for the mobile phone operator even though it has weathered the storm around the Nigerian multi-billion fine and other political headwinds.
The big question is whether the new CEO, Rob Shutter, and his executive team can stay the course charted by Nhleko in the past 18 months.
Circumstances may be favouring the new executive team with global experience and capable of taking MTN to the next level.
Let’s hope the handover to the new CEO and new executives is not a messy endeavour. For now, the new team seems to have so far settled without any problems.
Sometimes, once a global behemoth blunders, it’s hard to recover
What counts in their favour is that the tough challenges from MTN’s core markets seem to be slowly disappearing?
MTN has managed to repatriate R6.3 billion from MTN Irancell up to 31 December 2016, being the entire amount due under the loan advanced for the licence fee in 2005 the operation is pumping on all cylinders.
To name a few of its successes, MTN’s Iran Internet Group (IIG)- an Iranian e-commerce business that has become the largest business of its kind in Iran, has gained strong momentum.
Iran’s Snapp, a taxi hailing app with 85% market share, and an average of about 150 000 rides a day is the largest e-commerce company in Iran by revenue, despite being active only in Tehran. The company said it is currently expanding the services to other cities in Iran.
If Snapp was part of popular Uber it will be one of the top five largest cities serviced by the US-based firm.
That said, MTN South Africa is slowly recovering.
During the second half of 2016, MTN South Africa showed strong improvements in network quality and capacity.
Furthermore, in 2017 MTN South Africa expects mid-single-digit revenue growth and EBITDA margin expansion of between 50 and 100 basis points supported by a strong focus on customer service, improved billing, significantly improved network quality, capacity, and speed.
While MTN Nigeria may also benefit from listing on the Nigerian Stock Exchange.
The competitive advantage of MTN in Nigeria may improve with its investment, but if the operation is declared a dominant operator such a move could throw a spanner in the works again.
However, the Nigerian market offers plenty opportunities for MTN in the digital music space – i.e the mobile money market has a huge potential in an “unbanked” African market.
Digital services offer huge opportunities for diversifying revenues for the new management team. For more read: MTN is Winning War for Digital Services
Furthermore, Shuter and his management team will have more than R35 billion in capex to spend on ensuring the success of the group. This money could be used to deliver new solutions in the mobile money space.
In the tough year, MTN also managed to raise $1 billion in two dollar bonds. “We are in a meaningful position as far as our capital structure is concerned,” Nhleko said.
This capital structure will be leveraged by Shuter and team to grow the business.
Under Nhleko, MTN hired some of the country’s most talented financial services executives to explore the financial sector through mobile.
There are board members with years of experience in financial services. New board member, Paul Hanratty, brings a wealth of experience in financial services in the UK, US, Africa, Asia, and Latin America.
He worked at Old Mutual for over 30 years and sat on the boards of various other financial services companies.
For more on why MTN is hiring bankers read: Know Your Business Rivals: Why MTN is Recruiting Bankers
Sometimes, once a global behemoth blunders, it’s hard to recover.
For a second look at Telkom South Africa is been trying hard to make itself more agile and competitive, slowly it is getting there after years of market failure.
MTN certainty has the ingredients to be successful in Africa and the Middle East markets such as Iran, where it invested when no one was keen.
With its IGNITE initiative, MTN may be able to ignite again its strength in Africa and the Middle East.
Nhleko also brought new blood to the business to refresh its culture.
That said, Nhleko seems keen to ignite MTN into its new vision and conquer adjacent market of telecoms such as entertainment and financial services.
Let’s hope the foundation he has laid will be remembered in years to come as we redial into 2015/16 to check what was happening at Africa and the Middle East biggest mobile phone operator.
Time will tell if history afforded Nhleko a perfect time to reboot MTN – at the time everyone didn’t give him a chance to save the firm.
His strategy so far has been all sensible: MTN is stable. That may be why the market hasn’t reacted negatively to the strategy.
Perhaps, for now, the incoming CEO needs to digest the strategy and ignite MTN to be what it used to be to the market.
We wish Shuter a great of luck and his success will continue to make MTN a darling brand for South Africans like him.