MTN: mo’ music, mo’ messaging, mo’ money
MTN is pinning its hopes for growth on carefully chosen areas as it seeks to wring more from data-hungry users
As African mobile operators continue making efforts to diversify their revenue streams, MTN is betting on music streaming, instant messaging (IM) and mobile money (again) as a way to shift customers from voice to data, and keep them spending on its platforms.
Africa’s largest mobile operator has been on a strong push in recent years to diversify its business, pursuing new revenue streams in mobile data, enterprise ICT services, wholesale network services, fintech and digital services.
Key to this is knowing what MTN CEO Rob Shuter calls "the digital life" of a customer.
What are people spending their time on?
Not on calling their friends, for a start.
In its financial results to end-June, MTN reported a 19.8% rise in data revenue to R16.1bn, with group service revenue amounting to R67.9bn. Traditional voice revenue, on the other hand, grew only 4.5% in the interim period.
But the digital revolution in Africa is different to that in Asia, or the US, for example.
"The first thing we said is for social media, there’s not really an opportunity to build our own service to take on Facebook, Instagram or Twitter," says Shuter.
Instead, the company is finding opportunities in music streaming and instant messaging.
To that end, MTN has launched its own devices: initially with a smart feature phone earlier this year and now a $20 Android- powered phone.
"The phone is a conduit. We want to make money on the data consumption," Shuter says. It’s a canny move: supply customers with a cheap smartphone and lock them into your digital offerings.
"I like the path they are taking," says Peter Takaendesa, portfolio manager at Mergence Investment Managers.
But, he warns, "the jury is still out" on whether MusicTime! and Ayoba will be golden geese for MTN, given past failures such as Mxit and Naspers-run WeChat in the local IM space.
Digital revenue, for example, fell 42.5% in the interim period, notwithstanding MTN recording 300,000 active Ayoba users at the end of the half year.
MusicTime! is MTN’s time-based music streaming service, which allows customers to buy time on the service, data inclusive, as opposed to a monthly subscription. It launched in SA last year in December and has more than 240,000 downloads across Android and iOS. The operator plans to launch the service in Nigeria and Ghana.
Shuter says major streaming platforms including Apple Music, Spotify and Deezer are largely subscription services for about R60 a month, with an added cost of accessing the services on Wi-Fi or mobile networks.
"That model is not suited to dynamics in Africa," he says.
Many customers don’t have debit or credit cards to make payments and tend to be more worried about the underlying and background data consumption than the actual subscriptions, he explains. "And there’s very little Wi-Fi."
MTN aims to have 20% of its data users using its music platform in the next 24 months in the markets where it’s available, says Shuter.
"Spotify has about 150-million subscribers. For small MTN on the southern tip of Africa to reach 10-or 15-million is no small thing," he says.
Shuter admits that such a rate of adoption would not be transformational for MTN’s revenues. But it would be a way to keep people on its network, using more of its services and attracting new subscribers.
As for instant messaging, Shuter says: "The Ayoba strategy is a much bigger dream."
At the moment, IM penetration across MTN’s markets for Facebook Messenger, WhatsApp and Telegram is only 18% of its 240-million-strong subscriber base.
"It basically means 80% of our customers are on voice or SMS and have likely not used or are not aware of services like Messenger or WhatsApp. So there’s still time in Africa to build a competing IM ecosystem."
The trick is that MTN has to build it better and with more advantages than the existing players.
Ayoba offers SMS continuity, which allows users with basic 2G to send messages to those on the Ayoba app and vice versa. "The network converts an Ayoba message into SMS and sends it to you. That’s integration at the network level. WhatsApp can’t do that," Shuter says.
MTN plans to launch payments on the Ayoba app, giving users the ability to send and receive money by integrating with mobile wallets or traditional Visa or Mastercard accounts.
MTN is also having a second crack at mobile money — or MoMo — in SA, which it is relaunching in the second half of the year.
Shuter appears to be shaking off a torrid few years for the cellphone operator, which has been hobbled by its regulatory run-ins in Nigeria, sanctions in Iran, and the SA government’s inability to free up desperately needed spectrum. But while MTN’s margin has inched up to 35.2%, headline earnings fell to 195c a share from 215c last year.
Headline EPS would have been 102c higher were it not for International Financial Reporting Standards charges, interest related to the Nigeria fine, hyperinflation, forex losses and the depreciation of the Iranian rial. Still, MTN upped its dividend 11.4% to 195c a share.
Bloomberg Intelligence analyst John Davies writes that "MTN’s judicious strategy gave management confidence to nudge up guidance earlier this year — yet as uncertainties endure, we believe there’s still some way to go before the problem-filled track record is shaken off".
The company also has to face the possibility that the government may fail to allocate spectrum to the market any time soon, forcing it to spend more cash on boosting its own networks.
But Takaendesa says final payment of the fine in Nigeria earlier this year will help free up cash flow.