MTN sees revenue increase, announces Mastercard deal

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FIFI PETERS: MTN announced some big news today – a potential $5.2 billion deal with Mastercard that got the markets all kinds of excited. Its share price was up 10% at one stage.

MTN also released its first-half results with profits in the period rising and group service revenue up some 16.5%. The number of subscribers at MTN ticked higher, up 3.6% in fact, to around 292 million subscribers across its markets. Some include Nigeria, Ghana, Rwanda and South Africa.

We have the group CEO of MTN, Ralph Mupita, on the Market Update for more on the numbers. Ralph, thanks so much for your time. Wonderful, wonderful to catch up with you. But let’s get into the numbers. You’re talking about a solid performance. In fact, you describe the performance of the group as being ‘solid’, notwithstanding the challenging operating environment.

I wanted to talk to you about some of the biggest challenges that you faced in the period. How many of those challenges are still with you right now?

RALPH MUPITA: Thanks for having me on the show and a very good evening to all your listeners. Yes, we were very pleased with the results. As you say, we characterise them as solid within the context of a challenging operating context. There was obviously heightened inflation.

Elevated inflation meant that there was actually pressure on our expenses, also pressure on our consumers, to be comprehensive there.

There were some regulatory developments that we saw in markets – the ability and sometimes inability to get tariffs increased because the cost of funding the capex is actually quite substantial. And then obviously [there were the] exchange rates in key markets like South Africa and Nigeria. So these were some of the issues we had to hurdle in the first half.

To your question about whether some of these will persist, I think many of these will persist into the second half and maybe even into 2024. Inflation remains elevated in some markets, remaining pretty sticky and high. So I think we’ll see some of that as well. And then exchange-rate volatility obviously creates uncertainty. The Nigerian naira devalued mid-June, so that went to about ₦760/dollar from ₦460/dollar, so almost a 60% devaluation.

And the rand has actually been relatively weak compared to prior periods.

So the sum of these effects we anticipate will be with us into the second half, and potentially be even more pronounced than in the first half.

FIFI PETERS: But you still are growing your subscribers, notwithstanding the pressure – particularly on the consumer wallet. So how would you describe the state of the MTN customer right now? I was speaking to the CEO of Hulamin about inflation and passing on costs to customers, so how have your customers been able to hold up against some of the increases that you’ve had to pass on to them to remain sustainable as a business?

RALPH MUPITA: Yes, we’ve passed on some increases to the customers, but in many respects all below inflation. Whether you look at Ghana, South Africa, in Nigeria, we haven’t been able to pass any of the inflation costs on to customers. Actually we’ve seen increases only in South Africa, South Sudan and Ghana – and these were all below inflation. Our motivation is that for the networks to remain strong and deliver high-quality connectivity, we have to put in an enormous amount of capex.

We put in R17 billion of capital expenditure to just sustain the networks.

But the cost to communicate for customers across our markets, when you look at them at the aggregate level, they’ve come down like 22%. The average cost per gigabyte of data consumed is on average 22% down.

So what then fuels the growth for a company like us is that there is demand for internet services, the demand for data services that we provide. We have 293 million customers, only 140 million of them – that’s like 48% – are using data-capable devices or consuming data regularly. So the demand for the services remains strong. We need to continue to invest and build out these networks and go through the technology cycles – 3G to 4G, 4G to 5G.

So the investment cycle will still be very strong for the next couple of years, and that needs to be funded by the cash generated by the company over the longer term – some of which comes through from price increases.

But they’ve all been, as I said, below inflation.

FIFI PETERS: Okay. Just one quick question on Nigeria, the change in administration there. Some of the reforms that we have seen there that you made reference to – I think most notably the reforms around the currency as well as the fuel subsidy – is that good for MTN’s business in the long term? You make reference to some of the short-term burdens on consumers, but long term, is the story a positive one?

RALPH MUPITA: Yes, the story is a positive one. There are three focus areas that we’ve observed in terms of President [Bola] Tinubu’s administration. Firstly there was the removal of the fuel subsidy. That took an enormous amount of fiscal resource for the government to fund much-needed infrastructure. That was a painful move for sure, let’s be frank, but over the medium to longer term it creates capacity to fund investment.

The second was the liberalisation of exchange rates. The naira needed to find its natural level for supply and demand, and in the last couple of weeks was somewhere closer to ₦760/dollar rather than the ₦462/dollar. So that will attract investment into the country.

Listen: Naira devaluation is a risk to MTN and MultiChoice

And there’s been a concerted effort to deal with the bunkering of oil to ensure that as Nigeria produces oil it gets the maximum amount of oil [revenue] into the fiscus.

So these all generate short-term pain, but [it’s] very positive in the medium- to long-term for the investment case of Nigeria and the investment case of MTN. We remain very constructive, and hopefully, there’s no war situation that happens, given the issues in Niger and Ecowas [Economic Community of West African States] because that could detract from the investment case. But the policy changes made so far have been very constructive and we remain bullish on Nigeria.

FIFI PETERS: Okay. So certainly then one to watch there, just as some of the geopolitics are playing out on the continent.

Let’s talk about the other big story of the day outside of your results, and of course it was the detail in the results about a $5.2 billion deal potentially with Mastercard. What does that mean for your MTN customer and what does that mean for the MTN shareholder, potentially?

RALPH MUPITA: Look, what we announced was two sides, which was firstly on the commercial agreements; we had signed the commercial agreements with Mastercard after quite some time at working through the various issues. These are focused on developing our payments and remittance businesses across Africa, focusing on issuance.

Read: Mastercard to buy stake in MTN’s R98bn fintech unit

Our customers who have Mobile Money wallets will be able to have virtual or real cards, and will be able to have interaction in terms of the payments on an e-commerce basis at kind of a global level. So they will be able to buy what you and I would normally buy with Apple Pay and payment systems of that nature.

On the acceptance side – [the] ability to really scale our merchant growth. This is a business that over time depends on the ubiquity of merchants across the African continent. And the final area was really around remittance. We signed definitive agreements in those areas.

What we announced was an MOU [memorandum of understanding] on a transaction that we’ve been working on with them. It still has closing conditions to come, but essentially we reference the enterprise valuation [of] R5.2 billion. So they will be looking to take a minority stake in a business valued at that level.

So it’s not as if they’re investing R5.2 billion, but they’ll be taking a stake into that, subject to the closing conditions, which are being progressed and which we think should be closed in the near term. We’re pretty excited about that.

So what does it mean for the customer?

For our customers whose only access to financial services has been largely Mobile Money, this lets them into the global payment system and for more remittance corridor, more transactions coming through, which should drive much more financial inclusion.

Across our African markets we have 61 million subscribers. We use Mobile Money [there] regularly, and we are targeting to grow that to R100 million over the next two years. So pretty much R20 million a year for the next two years to the end of 2025, and this deal will help us get there.

FIFI PETERS: Okay. Ralph, just one last question on some M&A here in South Africa. We have all been closely watching the various suitors that have been circling around Telkom and all the rejections that Telkom has given them. I just want to know from an MTN standpoint if that deal for MTN has been put to bed for good, or if there’s still a possibility of another attempt by MTN to perhaps talk further with Telkom.

RALPH MUPITA: Look, what I’ll say is a couple of things. Firstly, there is no deal that we are looking at between ourselves and Telkom, so I can tell you that factually.

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The second thing I’ll say is that in South Africa, as we observe in other markets, in the move from particularly 4G to 5G where we are seeing what’s called ‘fixed mobile convergence’, where operators have fixed and mobile assets at the same time to deliver services, what we’ve noticed is that there’s been in-market consolidation. Markets have five or four player markets [that] they move to three, as an example.

So we think that that theme of consolidation over the medium term is inevitable, even in a market like South Africa. I think the economics will ultimately drive the story.

Your number three and number four will really battle to generate sufficient cash to fund the investment needed to build quality networks. That’s just a fight against maths. And when you look at it globally, consolidation is a theme. So that’s what I would say. I think what we are applying our minds to is obviously a read-through to the CompCom decision on the Vodacom CIVH DFA deal, which has made pronouncements – basically that FWA or fixed wireless access and FDTH or fibre are markets we’ve always understood as access technologies as opposed to markets.

Read: Vodacom gets fibre boost as regulator approves transfer of DFA licences

They are technologies, some formings of combination, but you can’t see them as markets. So we also need to understand where that eventually lands in terms of the [Competition] Tribunal’s decision to get a sense of what will drive consolidation in South Africa.

So there is quite a lot that’s happening in South Africa at the moment. But we still maintain the position that consolidation is inevitable.

FIFI PETERS: Okay, Ralph, thanks so much for taking all the questions and providing the insights. Ralph Mupita is Group CEO of MTN.