MTN CEO Ralph Mupita is leading the company out of risky regions. Picture: Freddy Mavunda For a company with a well-received strategy to reduce risk and improve returns for shareholders, few investors disapproved of MTN’s decision in recent weeks to shun Ethiopia as the next growth area.
When Ethiopia decided two years ago to change its policy barring foreign players from entering the country, international companies including MTN and Vodacom showed interest in entering Africa’s second-most populous nation and one of its few telecom sectors still protected by a state monopoly.
However, in the end, only two companies submitted bids for the licence that would pave the way to compete with Ethio Telecom. One of them was MTN, which put in a $600m bid (about R9bn) that was rejected as too low. That left a consortium led by Vodacom’s associate Safaricom, the biggest operator in neighbouring Kenya, to walk away with the licence for $850m.
MTN’s decision — confirmed last week when it issued an earnings report — to stay out of the auction makes sense. To begin with, what was on offer was disappointing because the licence would have prevented it from offering mobile money services.
Financial services, which allow users to transfer and receive money using their phones, is the biggest immediate opportunity for mobile phone companies, which are pumping billions of rand into this area as competition and regulatory heat keep pressure on basic telecoms services. In fact, MTN values its mobile money unit at $5bn.
Additionally, Ethiopia would have prevented MTN from bringing in third-party tower operators to build infrastructure, which is standard practice elsewhere as regulators acknowledge that mobile companies have commercial imperatives to focus on the core business of providing services rather than managing masts and towers.
Telecommunications is capital intensive. That’s no secret. Masts, towers, fibre and data centres do not come cheap. That’s the burden of building and operating a telecoms network. MTN, a dominant force in the sector, knows this.
Safaricom, whose lucrative M-Pesa mobile money platform in Kenya has convinced executives in the telecoms industry that the next growth area lies in financial services, is expected to cough up more than $8bn to build its network. That is something MTN investors — who have been piling into the stock over the 12 months in a high-stakes bet on CEO Ralph Mupita’s growth blueprint — would have frowned upon.
Furthermore, the economics of being a number three telecoms […]