While other companies remain sceptical about how markets across the African continent will develop, cellular operator MTN has, so far, been richly rewarded for its bold expansion strategy across Africa and the Middle East.
Since 2001, the market cap has grown from R22 billion to R335 billion, and subscribers are up from just four million to more than 200 million.
MTN Group's rise to become the continent's biggest operator has involved navigating its way around numerous challenges - tax and rates hikes, currency volatility, poor technology infrastructure, political instability, and legal challenges from competitors alleging illegitimate practice.
Earlier this year, arch-rival Turkcell conceded defeat and backtracked on its $4.2 billion lawsuit against the company over the awarding of Iran's second mobile licence to MTN in 2005 - closing a difficult and expensive chapter (it cost MTN R300 million). The operator's presence and involvements in Syria and Iran continue to attract controversy.
However, these appear to be small problems when considered within the bigger picture. In 2012, MTN reported revenue growth of 10.9% to just over R135 billion. Of that, the data and SMS area showed 38% growth to hit R22.7 billion. Ultimately, EBITDA grew a healthy 7%, to R58.6 billion.
MTN Group chief commercial officer Pieter Verkade recently sat down with Brainstorm for a broad update on business across the continent.
Verkade points to data growth, mobile financial services and mobile digital services as key focus areas for the future - recognising that a reliance on voice alone will not satisfy customers and shareholders for long. He says that, for most people in Africa, the cellphone is the only access point to the rest of the world.
He sees the operator's role as enabling a diverse ecosystem of digital services providers, everything from streaming radio, to Koran readings, to instant messaging. In some regions, one of the most popular services is, in fact, Magic Voice, which changes the caller's voice into something different - like a cartoon character's, for instance. The possibilities, it seems, are endless.
Massive growth
Verkade says the key to achieving a vibrant digital services ecosystem is to ensure a standardisation of the middleware layer, which more easily allows other service providers to build services that can be made available in the different regions in which MTN has a presence.
Markets like Uganda and Ivory Coast are emerging as strong revenue spinners for the group.
Spiwe Chireka, IDC
Mobile wallets are another area where MTN is predicting massive growth. Capitalising on generally less stringent regulatory environments than that in SA, the company has launched 'MTN Mobile Money' in various territories. There are now more than four million users in Uganda alone.
"Africa is leading the world in terms of mobile financial services," enthuses Verkade, adding that, in many countries, banks cannot service large sections of the population.
Mobile Money gives people access to basic banking services, allowing for funds transfers from cellphone to cellphone, withdrawals at specially designated Mobile Money agents, and bill payments, among other functions.
Revenue spinners
For MTN, South Africa is now a distant third in terms of total subscriber numbers, with 25 million compared to Iran at 40 million and Nigeria at 47 million. Industry analysts seem to expect that SA - with its stronger competitive environment and thinner voice and data margins - will become less important to the pan-African operator over time.
"Should the Vodacom-Neotel deal go through, then the medium-term outlook in South Africa could be challenging for MTN, particularly in the enterprise segment," notes the IDC's programme manager for telecoms, Spiwe Chireka.
She describes the operator's prospects north of the border as 'very, very good'.
"Markets like Uganda and Ivory Coast are emerging as strong revenue spinners for the group. There's still a lot of money to be made from voice services in these markets and data is still in its nascency."
Africa Analysis' Dobek Pater says: "In South Africa, MTN has begun to suffer as a result of the aggressive drive for market share from Cell C. Its market share has declined and voice revenues are flattening out, while data revenues grow in low double digits year-on-year."
But he adds that this will be more than offset by strong organic growth in many of its markets over the coming years, a strong appetite for mobile data on the continent, and the ramping-up of the operator's enterprise arm: MTN Business.
It's in the MTN Business area where Verkade says MTN will invest strongly, and build out its offerings as the large multinationals continue opening satellite offices around the Middle East and Africa region.
"We're physically present in 24 markets, so it's easier for us to deliver an end-to-end service for an international company with various points-of-presence," he says, adding that the economies of scale of 'purchasing on behalf of 24 markets' means that savings on undersea cable rights are passed on to its enterprise customers.
If, for whatever reason, MTN's performance in these key markets were to decline, the other smaller MTN operations will not be able to compensate for that in terms of revenue generation.
Dobek Pater, Africa Analysis
Investing in the enterprise space is something Chireka welcomes, saying it will provide a solid alternative to slowing voice revenues in SA. She believes that, in terms of industry focus, technology and geography, the company is insured against many of the inevitable risks.
"The Group has a wide enough footprint in stable and growing economies that can, to an extent, make up for any losses incurred as a result of the political issues affecting certain markets," she notes.
Price wars
When looking at risk, Pater points to other areas, saying the biggest issues may come from the concentration of revenue in the key markets of SA, Nigeria and Iran. "While MTN is probably under the most pressure in South Africa, we have also seen emerging price wars in Nigeria, for instance.
"If, for whatever reason, MTN's performance in these key markets were to decline, the other smaller MTN operations will not be able to compensate for that in terms of revenue generation."
Verkade is cagey when asked about expansion plans further afield, saying only that there are still massive untapped markets across the entire Middle East and Africa region, which is nowhere near close to reaching a saturation point in terms of subscriber penetration.
Ensuring that data connectivity (and the associated digital services that it enables) lives up to its expectations in the next few years may well be dependent on how well consumers are educated on how to make the most of the possibilities available in a connected world. Verkade notes that MTN's history is that of having strong, on-the-ground, physical presences - and it's ready to help customers on that journey.
First published in the Dec/Jan 2014 issue of ITWeb Brainstorm magazine.
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