Still hungry after all these years
Cellular network operator MTN is still keen to invest in India, despite the collapse of successive talks with that country’s two largest mobile operators, Bharti Airtel and Reliance Communications.
MTN and Bharti were unable to reach agreement about the structure of a merged business; the Reliance talks collapsed because of a family feud between the billionaire Ambani brothers, Anil and Mukesh.
“The Indian market is very important,” says MTN CEO Phuthuma Nhleko. “It’s not a market you can discount easily, particularly if you want to remain in emerging markets. But it is also a highly competitive market. Entry needs to be thought through carefully.”
Nhleko blames the talks breakdown with Bharti Airtel on the complexity of structuring a large, cross-border deal. “There was a whole multiplicity of issues that meant we never got to an amicable settlement. It’s not that there was bad spirit. Sometimes things don’t work, sometimes they do.”
Nhleko won’t name potential opportunities in India that the group might go after now. “We’re taking a breather [from looking at India]. There is nothing pushing us to do a deal urgently. There are a number of opportunities and we continue to pursue these.”
But MTN, which had notched up 74m subscribers by the end of June, clearly isn’t sated. Nhleko says the group will continue to pursue opportunities, even if that means going into non-English-speaking markets. Language is less important than ensuring critical mass to compete effectively against the large regional operators, he says.
One option for expansion is Latin America, though there is nothing specific on the radar. “You have some fairly large regional players there that have advantages if you don’t have critical mass,” he says. An acquisition in the Middle East or Southeast Asia looks more likely in the short term, given that no operator dominates markets there yet.
Smaller acquisitions also aren’t off the table, though they must allow MTN to consolidate its position in particular regions, such as West or North Africa.
Having done gutsy deals in the past, such as the blockbuster US$5,5bn acquisition of Investcom, investors have come to expect big things from Nhleko and his team. After the talks with Reliance broke down, investors dumped the share. That may simply have created a rare buying opportunity for investors, who believe Nhleko when he says MTN will build the leading telecom operator in emerging markets.
It won’t be easy, though. There are already much bigger fish in the pond — companies such as China Mobile and Latin America’s América Móvil. And other regional operators like Kuwait’s Zain have similar ambitions to MTN.
Meanwhile, MTN continues its blistering growth. Subscriber numbers have jumped 53% in the past year.
Its key markets, including SA and Nigeria, are still growing strongly. Iran has proved to be a revelation. After only two years of operation, Irancell, in which MTN has a 49% stake, has signed up 11,6m subscribers. That’s not far behind SA’s 15,6m.
Revenue in the six months to June 30 climbed 35% to R46,1bn. Earnings haven’t risen as sharply because of big, but long overdue, investments in network upgrades to address capacity constraints.
Earnings before interest, tax, depreciation and amortisation (Ebitda) rose 29% to R19,6bn for the six-month period. Ebitda margin in Southern and East Africa came under particular pressure, falling to 33,5% from 35,5% on the back of investment by the SA subsidiary in network upgrades.
Profit after tax rose just 11%, to R7bn, depressed by the end of the tax holiday in Nigeria. The effective tax rate should come down “meaningfully” in the second half of the year.
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