MTN pulls ahead

While Vodacom and MTN`s results were on a par last year, MTN is now undisputedly the bigger company in terms of both revenue and profit.

MTN`s revenue of R23.9 billion for the year to 31 March was R400 million more than Vodacom`s revenue of R23.5 billion. But even more significant is the fact that MTN`s after-tax profit of R4.3 billion outweighs Vodacom`s R3.06 billion by more than R1 billion.

MTN CEO Phuthuma Nhleko says if the rand had not increased by an average of 27% year-on-year, MTN`s revenue would have been R2.5 billion more.

However, while MTN has overtaken Vodacom on the financial front, its subscriber base is 2 million smaller than Vodacom`s 11.2 million, despite growing by 42% to 9.54 million.

Nhleko says the difference in profit-after-tax margins can be attributed to gradual downsizing being conducted across the group, improved processes, strong group procurement, and agreement with Ericsson for the supply of network equipment.

Another reason for MTN`s higher profit margin is its higher average revenue per user (ARPU). The South African ARPU decreased from R206 to R203. Postpaid ARPU dropped from R607 to R597 and prepaid ARPU increased from R101 to R104.

This compared to Vodacom`s average South African ARPU of R177, with prepaid ARPU at R90 and contract ARPU at R634.

MTN has also been reaping the benefits of a presence in Nigeria, while Vodacom has pulled out of that country. MTN Nigeria recorded R2.37 billion profit after tax, more than SA`s figure of R2.25 billion.

It also reported a 90% growth in subscribers in Nigeria to 1.96 million, despite not issuing SIM cards for 20 weeks of the year to allow the network to catch up with the demand.

However, Nhleko says there are challenges in Nigeria. "In Nigeria we face an overwhelming demand, which is difficult to sustain. Almost 30% of revenue goes to duties. We paid a large licence fee of $285, and we have to supply our own backbone, electricity and security. This all adds up. While Vodacom may have exited, there is still competition in the market," he says.

The rest of MTN`s African operations (excluding SA) reported EBITDA increases of 42% or more.

In SA, MTN`s subscriber base grew by 33% to 6.27 million subscribers, but its market share remained static at 38%. Vodacom has reported a drop in market share from 57% to 54%.

However, one of Vodacom`s key differentiators is its growth in data services, which increased by 58% to R1 billion. MTN achieved R670 million revenue in data services, or 5% of total revenue.

MTN has so far been quiet about its plans for third-generation network (3G). All three cellular networks - MTN, Vodacom and Cell C - received 3G licences at the same time, although Vodacom has been the most vocal about its plans.

It aims to spend R100 million to roll-out 3G and EDGE (Enhanced Data rates for Global Evolution) by the end of the year to corporates and consumers and to provide GPRS (General Packet Radio Service) specials within the next month or two.

Nhleko says only that MTN is conducting tests and will announce its plans on 23 June. Its challenge is to show it can compete against Vodacom, whose UK-based shareholder Vodafone is supplying it with 3G research and technology.