EDITORIAL: MTN retreat could cause its advance
Telecom company rightly scales back emerging-market ambitions by withdrawing from Middle East
A sharper focus on its home continent could be just what MTN needs to reclaim its position as Africa’s second most valuable mobile phone company.
The company, Africa’s biggest mobile phone operator by subscribers, unveiled plans last week to withdraw from the Middle East, rightly scaling back its ambitions to become one of the major players in emerging markets.
Outgoing CEO Rob Shuter follows in the footsteps of companies such as Standard Bank, which has been reversing a strategy to turn itself into a top emerging-markets lender after entering markets such as Russia and Argentina.
Bar the Covid-19 impact, which is widely accepted as a black swan event, Standard Bank CEO Sim Tshabalala’s pivot back to Africa is paying off. In the 2019 financial year, the leadership team at Africa’s biggest lender by assets held up operations outside its home market as the bright growth spot.
The region delivered a more than 50% jump in headline earnings, which was more than 13 times the rate of growth at home, where it makes about 70% of its sales. Headline earnings is the widely used measure of company performance that strips out one-off, non-trading items.
Sure, the Covid-19 economic contagion will crush these numbers for Standard Bank when it reports its half-year results later this month, but no market, including at home, is safe.
It makes sense for MTN to refine its strategy and pull the plug on markets that have proven more trouble than they are worth. Until last week it seemed committed to its emerging-market strategy, and few would have thought it was about to exit Iran, its third-largest market.
The company makes just more than 4% of its R64.1bn annual core profit — or earnings before interest, tax, depreciation and amortisation (ebitda) — in the Middle East, a region that comprises conflict-ridden countries such as Yemen, Iran, Syria and Afghanistan.
But the cost of operating in these countries has been enormous, especially for shareholders. Shares in MTN, valued at about R117bn, have dropped more than three-quarters from their peak in 2014, wiping off tens of billions of equity.
With a market cap of R177bn, Kenyan rival Safaricom is now behind Morocco’s Itissalat Al Maghrib and Vodacom as Africa’s third-biggest mobile telecom group despite MTN boasting more than seven times more users.
Furthermore, legal battles in the Middle East have not only tested the commercial logic of keeping some of these businesses but MTN’s reputation as the poster child of SA’s postapartheid commercial success has been tarnished.
The company is facing a lawsuit brought by families of US troops killed or wounded in the battle with the Taliban in Afghanistan. The families accuse MTN of funnelling money into the group that has launched insurgent attacks on US soldiers.
Furthermore, since at least 2012, MTN has been trying to defend its position after Turkish rival Turkcell slapped it with a $4bn lawsuit accusing it of using bribes and corruption to win a mobile operating licence in Iran. Though MTN denies any wrongdoing, the case, which is stuck in legal procedural wrangling, has tainted its image.
As Iran is subject to US sanctions, MTN is unable to repatriate its share of the earnings from the joint venture.
What’s the point of clinging to markets that cause a company so many headaches and provide such an immaterial contribution to the bottom line? Shuter, who will step down in March 2021 after four years at the helm, rightly figured there is none.
Like Standard Bank, MTN could find the rewards of refocusing its attention on the rest of the continent could soon outweigh the cost of operating in problematic markets such as Nigeria.
With a coherently laid out plan to branch out into mobile financial services, which has been the driving force behind Safaricom’s breakneck growth in East Africa, and determination to win an operating licence in Ethiopia, one of the world’s last closed telecom markets, MTN’s earnings should be more than enough to restore earnings lost in the withdrawal from the Middle East.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.