Big Game Hunter

In late-November 2005, MTN announced it had paid the equivalent of around US$362 million to the Iranian government in return for a 49% stake in the greenfield entity set to run the country's second GSM operation. The investment marks the significant breakthrough MTN has been actively pursuing in the Middle East region, and CommsMEA spoke to MTN Group CEO Phuthuma Nhleko about the operator's success and future plans.

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By  Tawanda Chihota Published  January 12, 2006

|~||~||~|The achievement of an African operator to successfully negotiate an equity position in a sort-after greenfield opportunity in the Middle East at this time is not a feat to be scoffed upon. For a number of years now, the appeal of foreign investment in the telecoms sector in the region has been waning as local capacity — both financial as well as skills-based — has evolved to such an extent, that most of the major investment opportunities in recent years have had a distinctive local flavour. Unsuccessful bids for opportunities in Oman, Algeria and Saudi Arabia could justifiably have led South Africa’s MTN Group to resign itself to never gaining a foothold in the region, and its success in Iran is a triumphant for African operators seeking to define themselves beyond their own geographic boarders. “All markets are challenging for different reasons and in different ways,” comments Phuthuma Nhleko, MTN Group CEO, when asked whether the prospect of operating in the first market outside of the African continent is daunting. “MTN is really a world-class operator. People who have been here and seen the operation and the skills base that we have, I think will concur with that. So not withstanding that we originally came out of South Africa, we are comparable if not better than any other operator that you can put out there. So there’s no disadvantage as far as skills and ability to execute on the mobile side.” The operator’s latest results for the six months to end-September confirm it as Africa’s largest mobile player both in terms of subscriber numbers as well as financial clout. During the period, the operator acquired further interests in Cote d’Ivoire, Zambia and Botswana and continues to actively evaluate and pursue investment opportunities. The operator counted 20.6 million subscribers at the end of September, 56% of whom were to be found outside of South Africa. Revenues for the six months to end-September 2005 amounted to the equivalent of US$2.8 billion, up 25% year-on-year, and EBITDA amounted to around US$1.17 billion, representing an EBITDA margin of 41.7%. “We think the results are satisfactory, I think it has been a tough six months, particularly for South Africa,” says Nhleko. “We still see meaningful growth in the operations. We still believe there is room for us to take down the cost base quite a bit and churn out more efficiencies out of the Group. And then of course on the international front, we continue to look for opportunities that are worth pursuing,” he adds. Already present in nine countries, with Iran becoming the 10th territory, Nhleko is keen to maintain the operator’s focus on opportunities in the Middle East and Africa before seeking any further investments in other parts of the world. Another factor that the operator is seeking to rectify is to reduce its heavy reliance on its two largest markets — South Africa and Nigeria — for scope to its overall portfolio. The two countries combined account for over 80% of the operator’s installed base as at the end of September, and over 85% of the Group’s EBITDA, a situation that suggests the portfolio is simply not diversified enough. ||**|||~|Phuthuma2002.jpg|~|Nhleko believes MTN is a world-class operator capable of competing against the best in the world.|~|“Iran will most probably be the third biggest operation for us,” forecasts Nhleko. “We are looking for greater scale all the time. This business is very much about volume and economies of scale, so that’s the reality.” In search of that “greater scale,” MTN has successfully been short-listed as one of the bidders for a 35% stake in Tunisie Telecom, and is reported to have tied up with Egypt’s GPP, Stars Communications, and voice and data network provider Raya Holdings in a bid for Egypt’s third GSM licence. Near the beginning of last year, MTN had the opportunity to transform itself into a completely different beast had it been able to convert the opportunity to acquire Celtel International, an operator with the widest footprint on the African continent spanning 13 countries at the time. However, MTN was beaten to the post by Kuwait-based MTC Group, which tendered an offer 20% higher than that offered by MTN, to walk away with the prize. Nhleko is frank and straightforward about the missed opportunity: “I think there is no doubt that if we had done Celtel it would have been beneficial. So it was a setback for us in some respects, but I think we have long overcome that and we’ve moved forward,” says Nhleko. “So it (the acquisition of Celtel) would have helped us to get to where we want to go a bit faster, but that wasn’t to be and we’ve gone to plan-B and I think we are progressing.” The investment community would agree with Nhleko’s analysis that his company is progressing. MTN’s management gained a large degree of support from the analyst community when it refused to bid higher than the US$3.4 billion offered by MTC for Celtel. It is a widely held view that MTC did possibly pay too much for Celtel. The value of shares in the MTN Group have also more than doubled in value during the two-year period to the beginning of this year, with the stock trading somewhere in the region of US$4.90 in Jan. 2004, valuing the operator at US$7.7 billion. The share price now trades around US$10 a share, with MTN Group’s market capitalisation having risen to reach US$16.87 billion. “I think at the moment really we’ve said Africa and the Middle East is where we want to focus and not be all over the place,” states Nhleko, with regards to exploring further growth opportunities. The operator is faced with general underperformance of its local operation in the face of stiff competition and falling ARPU levels and international expansion is a must to maintain its growth. “(Our focus on Africa and the Middle East) does not mean in future we may not look at other regions but at the moment, that’s what we are really focussed on.” CommsMEA would like to thank the management and staff at Dubai Country Club and Dubai Archers Club for allowing us access to their archery facilities and equipment for the January issue cover shot. ||**||

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