Fortunately, people want to chat
MTN chief executive officer Phuthuma Nhleko is planning for a big year.
This year he aims to push his business in two directions: one is expansion into new countries; the other is to promote and increase the use of cellphones for data and Internet communication.
Nhleko said he would like to find opportunities in Angola and Senegal, but would also be looking for opportunities in developing southeast- Asian markets.
He said he did not see any strategic rationale in buying into established markets, but would consider an opportunity in China, the world’s biggest cellphone market — or India if it made sense and was of sufficient scale.
“There is no emerging or developing market at this stage that would be out of bounds to us,” he said.
While the company tries to enter into partnerships only where it can be the majority shareholder, its 49% stake in the highly successful, partly state-owned Irancell operation has been an exception Nhleko is willing to replicate in Africa if MTN is assured of a strong management role.
“We don’t have an issue going in with governments. There is a lack of greenfield opportunities that are big enough to really move the needle of a company of the size of MTN today.
“Everybody has gone mobile, but there are regions where the incumbents are wholly government owned and they tend not to be as agile or to provide as competitive a service as a lot of the private sector-owned mobile operators. I think that is where the opportunity is,” he said.
While the sub-prime contagion is forcing companies around the world to assess the likely effect on their business and the subsequent effect on resource-dependent emerging- market economies, the view from Nhleko’s vast office in the largely residential area of Fairland, Johannesburg, remains rosy.
“I’m not saying there is no relationship, but it’s not one-to-one or as direct as you might envisage,” he said of the gloom affecting most companies amid fears of a US recession, declining world growth, domestic inflation and intermittent energy supplies.
MTN’s ultra-modern, purpose- build head office overlooks the homes and small businesses that are the company’s bread and butter.
The company ranks second to Vodacom in the South African cellphone market with just about 14.8-million subscribers — the vast majority on prepaid deals — and a 36% share of the market.
But outside SA, where the company began operations in 1994, MTN is racing ahead with vast subscriber recruitment and soaring profits in 20 countries ranging from Zambia to Iran, where the number of users is likely to overtake the company’s South African client base this year.
Nhleko’s biggest headache last year was meeting demand.
Earlier this month, a Nigerian federal high court upheld an order against MTN and Celtel to pay subscribers up to 175 niara (about R12.25) each for failing to meet minimum service standards in January. Meanwhile, in other African countries, MTN has stopped advertising while it tries to boost capacity to match the soaring demand.
In Ghana, where demand almost doubled in a year, MTN took numbers of subscribers off the market and suspended its advertising to buy breathing space and boost infrastructure.
“I wouldn’t call it a crisis. All we are saying is that at the moment demand is somewhat ahead of capacity,” Nhleko said.
In a bid to match demand and catch the building data communications wave, MTN has doubled the group’s capital spending budget to R30-billion for this year.
In what he called a “peak year”, the group would instal fibre-optic loops in key markets, including SA, Ghana, Sudan and Iran, he said.
South Africans are surrounded by anecdotal evidence of the cellphone explosion. From postmen to company presidents, everyone seems to choose to spend large parts of the day on the phone. Elsewhere in Africa, the cellphone is increasingly the only way to communicate.
“We really are pushing very hard to try and keep up with the demand. It comes back to the fundamental point.
“The need, particularly outside SA, is so fundamental in the sense that our mobile infrastructure has become the telecommunications infrastructure because there has been a lack of fixed-line installation.
“We have taken over the role of providing what is basically an essential service,” he said.
Nhleko said demand appeared to be holding up against the spending squeeze that has been caused by slowing global growth.
“Our business is by and large driven by very, very ordinary people. We’ve found over the years that the mobile spend as discretionary spend has been fairly robust compared with other sectors. I’m not saying we are not affected — that’s just not possible. It’s a discretionary spend, but for a lot of people it has become almost an essential.
“If growth slows down, unemployment goes higher, interest rates are higher, would we be affected? The answer is yes, but I suspect much less than most other sectors.”
Even the Eskom electricity emergency has left the cellphone sector largely unscathed because the base stations all have battery power to keep going for at least six hours — and when the lights go out and the television won’t work, people tend to want to chat.
The group’s debt has been halved in the past year from 1% to 0.5% of earnings before interest, tax, depreciation and amortisation.
“Absolutely, if there is an opportunity that we believe gives us strategic advantage, that is commercially justifiable as well as attractive, going back to one is not a problem. If you benchmark us against our peers, we would be among the most lowly geared,” he said. The debt strategy for any new venture would remain to supplement an equity injection with local borrowing that could be serviced largely from local earnings in the same currency. Nhleko said MTN hoped in time to double the revenue share of data communications in SA from the current 10% towards the 20% ceilings currently apparent in some Asian markets.
“Mobile, fixed and data services are getting integrated. I think there is going to be huge growth in that area.”
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