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African Expansion Boosts MTN

Light Reading
News Analysis
Light Reading
8/30/2007

African operator Mobile Telephone Networks (MTN) reported first-half earnings today, noting that it's scrambling to expand as it serves a subscriber base that's grown 90 percent since last year.

Johannesburg-based MTN today reported first-half revenues of 34.2 billion South African Rand (US$4.7 billion), up 69 percent from the ZAR20.2 billion ($2.78 billion) in the first half of 2006. (See MTN Reports H1.)

The acquisition of regional holding company Investcom Holding in July last year accounted for 35 percent of that growth as it boosted the company’s geographic coverage from 11 countries in Africa to 21 countries in Africa and the Middle East. (See MTN Buy Energizes EMEA M&A.) MTN reported a 16.8 percent increase in net profit from ZAR5.4 billion ($742 million) to ZAR6.3 billion ($865.7 million).

MTN's share price saw a second day of gains on the Johannesburg stock exchange Thursday, rising by 465 cents (4.47%) to ZAR10.865. The stock had risen by 1.97 percent after the results were announced Wednesday.

MTN saw its subscriber base nearly double from 25.4 million in the first half of last year to reach 48.2 million at the end of June. Limited network coverage and low penetration rates, particularly in West and Central Africa, are providing massive growth potential for companies like MTN.

"In most of those markets our challenge is not demand; the demand is very, very strong," Phuthuma Nhleko, group CEO, said during a presentation of the results. "The constraint really is meeting that demand by being able to roll out the networks as fast as we can."

Nhleko pointed to Nigeria, where "the market is much larger than we anticipated." When MTN introduced new calling packages and cut prices last September, demand went "through the roof," and its network quickly became congested. Its subscriber base in Nigeria has grown 14 percent since December to 14 million, but growth has slowed as call quality deteriorated.

The company has earmarked ZAR5.5 billion ($755.78 million) to build out its Nigerian network, and Nhleko said he expects service quality to begin improving in September. In June, MTN Nigeria paid $150 million for a 3G license, and it plans to have a pilot network up and running by the end of the year. (See Nigeria Awards 3G Spectrum.)

MTN has also set aside ZAR4.3 billion ($590.9 million) to upgrade its South African network to improve coverage and quality.

Keeping up with subscriber growth isn't MTN's only concern -- Nhleko noted the company faces logistical and security issues in rolling out networks in war-torn countries where it has operations, like Sudan and Afghanistan. In Ghana, where rollout has gone to plan, MTN has increased its customer base from 2.6 million to 3.4 million since December.

"The story of the next six months and hopefully far beyond is the rollout," Nhleko said. "I think in a number of these markets we have done a lot now to approve additional capex and, more importantly, ensure that the capacity to roll out the networks and put that capex into the ground is actually there."

— Nicole Willing, Reporter, Light Reading

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