The proposed merger between MTN and Indian telecoms operator Bharti Airtel could help Africa’s biggest cellular network significantly reduce operational costs through job cuts, according to a report by an Indian stock brokerage.<\/p>\n
MTN’s staffing and network costs, which equal 15 percent of its R73 billion revenue, would be the only “candidates” for the chop in its operations expenditure (opex), IIFL Cap said. This could be done by adopting Bharti’s network management outsourcing model and sharing some base stations and transmission towers.<\/p>\n
In its 2006 annual report MTN said it employed 14 067 staff, up from 8 360 a year earlier.<\/p>\n
Analysts say Bharti’s expertise in running networks at minimal cost would expose MTN to a culture of low-cost operations. The two firms are in talks that could lead to a merger.<\/p>\n
Based on Bharti’s staffing and network cost per subscriber being 37 percent lower than MTN’s, IIFL Cap estimated that a 20 percent cost reduction on these items was achievable. This could lift earnings by 330 basis points.<\/p>\n
“The bulk of MTN’s opex, including interconnect costs, handset subsidies and marketing costs, would likely be out of bounds. Africa’s substantially lower population density would prevent capex per subscriber from reaching Bharti’s levels, despite potentially lower unit prices,” it said. “We don’t assume any reduction on capex for the present.”<\/p>\n
Bharti is India’s largest cellular operator with 62 million customers. MTN has 68.2 million clients in 21 operations in Africa and the Middle East.<\/p>\n
Imara SP Reid analyst Stephen Meintjies said Bharti’s lower cost per subscriber was mainly because it operated in a high population density area.<\/p>\n
“So I don’t think there will be major cost cutting in the [combined entity], but more likely expansions,” he said.<\/p>\n
MTN closed 3.4 percent up at R157.22 yesterday on speculation that it was discussing management structures with Bharti.<\/p>\n
According to the Financial Times, the companies would have an equal share of the key executive positions. MTN chief executive Phuthuma Nhleko would run the merged entity, while Bharti chairman Sunil Bharti would chair the group.<\/p>\n
At the weekend the newspaper said Bharti was considering paying R165 to R175 a share, valuing MTN’s equity at up to $44 billion (R330 billion).<\/p>\n
It said the cash and stock deal would enable MTN’s major shareholders to take significant stakes in the merged entity via a JSE listing of Bharti’s shares.<\/p>\n
MTN said yesterday that it would sell 50 percent in Areeba, trading as MTN Cyprus, to Cypriot-owned Amaracos for an undisclosed amount. MTN Cyprus would then buy Infotel, a handset retailer, and Otenet, an internet service provider. In the year to March, MTN Cyprus had 120 000 subscribers with a market share of 16 percent.<\/p>\n