In early May, MTN formally launched what the company called "the first truly Pan-African Internet of Things (IoT) platform." While MTN has been offering M2M services for a few years, the launch marked an acceleration in the company's push into digital enterprise applications across its African markets.
MTN Group Ltd. 's push into IoT services is part of a broader diversification strategy designed to make the company less dependent on its core voice services and transform into what will be primarily a data-centric, digital platform business. Over the past three years, revenue at MTN's South African unit has stagnated, declining by an average of 1% each year under the impact of now pervasive stiff competition and regulatory pressure on mobile termination rates. Even the routinely successful Nigerian operation is facing challenges, with revenue growth slowing to an average of 3% over the past three years.
To adjust, MTN is accelerating its push into data services, which are growing by 7% and 28% in South Africa and Nigeria respectively, and already generated around 24% and 20% of revenue in the two countries in 2014. The other lever of diversified growth is the enterprise business; MTN aims for its enterprise unit, MTN Business, to generate around 20% of group revenues by 2018 from a level we currently estimate at less than 5% in Nigeria and South Africa (excluding enterprise mobile voice and broadband services).
African M2M has until now been mostly opportunistic; on the demand side, enterprises have had limited visibility on and interest in user cases beyond telemetry, point-of-sale apps and tracking. In the face of a relatively complex market consisting of a multiplicity of verticals, each with its production process and performance gaps, network operators have primarily focused on leveraging existing network connectivity platforms. This has worked to some extent; in South Africa, for example, we estimate the number of M2M connections at around 4 million in 2014, or around 5% of the country's SIM base. The ratios are lower in other African countries, with penetration ranging from non-existent to 2% of the SIM base.
From opportunistic M2M to a more flexible IoT model
The new MTN platform points to a new, more comprehensive approach. The first notable feature is that the ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) cloud-based platform is dedicated to IoT applications, mitigating any issues of service prioritization and establishing a service and technology roadmap that tracks IoT demand -- rather than an outgrowth of broader data services expansion.
The second notable feature is the (relatively) open platform approach. MTN has built in a service development kit into its platform, making it possible for developers to build IoT applications with pan-African reach on top of the platform -- and encouraging developers with a series of "Mind2Machine" challenges. In so doing, the company appears to eschew the traditional "do everything" telco mindset, in the process expanding its IoT ecosystem and putting itself in a position to drive growth at the connectivity and application layers.
We believe the approach bears watching, inasmuch for the potential of broadening the ecosystem and fostering a more creative IoT app development process on the continent as for its ability to generate revenue drivers for MTN that look beyond traditional M2M monetization models.
This article is extracted from a Xalam Analytics Research Note. Full note available upon request at [email protected]