MTN trips up in Iran

Johannesburg, 30 Jan 2007

MTN is expected to entrench its Nigerian stake, but concerns over its Iranian operations have resurfaced.

Analysis firm Merrill Lynch expects the company to make further Nigerian acquisitions, but says its Iranian operations are not performing as expected.

Despite the scramble for subscribers on the continent, MTN also has to face worldwide concerns over Iran. The country made headlines recently as a result of its nuclear programme and concerns it may join forces with Iraq against the US.

Merrill Lynch says it is "concerned about problems experienced by the newly-launched Iranian operation". It notes that it is also concerned over apparent weak subscriber growth.

MTN, which launched MTN Irancell in October, initially expected to have a million subscribers at the end of the year. However, the analysis firm estimates it has just over a third of that.

In addition, it is concerned about delays in the launch of prepaid services and regulatory challenges. "This would prevent MTN Iran from becoming a major catalyst in the short-term."

Other analysts have raised concerns that if MTN is behind in its targets, it could face financial penalties. One added that negative news could adversely affect the company's share price, which has been tracking upwards for some time.

MTN's share price closed yesterday at R82.60, after Friday's close of R82.50. On 16 January, it closed at R85. Its 12-month high is R87.70 and its 12-month low is R48.30.

Another analyst points out that MTN's targets were stretched to begin with. "It is physically impossible to do that number of connections."

Lofty ambitions

Merrill Lynch's note follows MTN's confirmation that it had bought out Nigerian telecommunications provider VGC Communications for an estimated $70 million, following a month of media speculation.

Merrill Lynch says the rationale behind the deal is "to leverage VGC's unified telecom licence (which allows for the provisioning of wireline and wireless telecoms services), with a particular focus of strengthening MTN's position in the business market".

VCG's service offering includes high-speed data communication, broadband, Web hosting, data-networking and VSAT-services.

Increasing competition

MTN is facing competition on the continent from South African operators as both Vodacom and Telkom expand northwards. A year ago, Telkom stated it would grow into Africa and released a shortlist of five targeted African countries: Angola, Botswana, the Democratic Republic of Congo, Kenya and Nigeria.

In April, Telkom CEO Papi Molotsane said the company was examining a number of opportunities, including Nigeria. "Nigeria is a market that you cannot ignore."

Vodacom, 50%-owned by the fixed-line operator, has said it is assessing expansion opportunities in Algeria, Nigeria, Ghana and Angola, based on opportunity and current market share.

African ICT market research firm BMI-TechKnowledge says broadband connections on the continent are expected to reach over seven million by 2011. DSL subscribers are expected to make up just over half over the forecast period, with mobile cellular technologies and fixed wireless broadband fighting for second place.

Merrill Lynch says MTN has an estimated 12 million Nigerian wireless subscribers.

Fragmented market

"We believe MTN is likely to consider additional acquisitions," says Merrill Lynch, citing XS Broadband as one possible takeover target. This, says the firm, is "part of an anticipated consolidation of the Nigerian telecoms market and to further strengthen its position".

Another analyst - who asked not to be named - says the Nigerian market is characterised by a plethora of small, regional telecoms firms that have subscribers in parts of a province or state. "As opportunities come up for MTN to mop up companies, it certainly would do so."

He adds this strategy would make sense, as it would reduce competition in a fragmented marketplace. However, he does not see MTN going after the larger players on the continent, such as Celtel.

Another analyst agrees, saying Nigeria lacks backbone infrastructure, which requires the use of various technologies to achieve coverage.

MTN, he says, would do well to acquire smaller firms that it can bolt onto its existing infrastructure. "It makes 100% sense and ties in with its local strategy."

MTN, which is in a closed period, says it will comment when it announces its annual results on 29 March.