Thanks solely to the events of the past week-and-a-bit, 2015 is set to go down as the worst annus horribilis for MTN in its history.
The company, which was birthed in 1994 when SA’s telecommunications landscape started opening up, has grown into one of SA’s best exports.
MTN is Africa’s largest cellphone operator by subscriber numbers, with more than 233 million subscribers across its operations in Afghanistan, Benin, Botswana, Cameroon, Cote d’Ivoire, Cyprus, Ghana, Guinea Bissau, Guinea Republic, Iran, Liberia, Nigeria, the Republic of Congo (Congo-Brazzaville), Rwanda, South Africa, Sudan, South Sudan, Swaziland, Syria, Uganda, Yemen and Zambia.
Wow. That’s a lot of people connecting to other people through a home-grown country.
Unfortunately, about 5 million of these - in MTN’s biggest market - should have been cut off because they were not registered.
This is because Nigeria is clamping down on fraud and is implementing its own version of SA’s RICA. Not that RICA - or the Regulation of Interception of Communications and Provision of Communication-Related Information Act - has actually done anything in SA except add to red-tape burdens.
MTN’s failure - which it totally is - will cost it. Heavily. Not only is the $5.2 billion fine equivalent to about two-and-a-half years’ worth of profit, according to calculations done by Vestact, but the news of the whammy caused MTN’s shares to lose around a quarter of their value.
Ouch.
Then its empowerment scheme started trading on the bourse. MTN Zakhele - owned by about 100 000 black South Africans - had to move to the bourse because such schemes, which own shares in the parent company, can no longer be traded over the counter.
While listing on the JSE provides shareholders with more transparency, it also means the stock is more liquid.
Which explains why the shares lost about half their value yesterday. Ouch again.
MTN has already been battling to boost its bottom line and keep shareholders happy. Yet, it is facing flat revenue, as voice use continues to decline in favour of data, which has thinner margins.
It’s not alone in that battle, a look at any mobile operator’s numbers shows the same picture; and the only way it has been growing its bottom line is through what companies call cost optimisation, which is cutting out duplicated functions and doing more with less.
MTN has been hard at work trying to find new sources of revenue, as has every other mobile operator. Sadly, this is taking a tad long to pay off. And has maybe resulted in it taking its eye off the ball of running its operation.
‘We’re serious’
It’s now in damage-control mode. It has been very quiet about what is happening with the fine, apart from saying it’s in talks with Nigerian authorities, and has also pointed out what a good operator it has been. Here’s an excerpt from its press release on the issue.
“It is also important to note that MTN has operated in Nigeria for over a decade. In this time, and as in the other markets where we have a presence, MTN has conducted its business in accordance with established principles related to sound corporate governance.
“As a company which owes its founding and growth to the emerging world, we are conscious of our responsibility to invest in the growth of local economies and development of communities wherever we operate. Nigeria is no different. Since launching more than a decade ago, we have made significant investments in connecting customers to our network. We take these responsibilities and obligations very seriously.
“In conducting our business, MTN is always mindful that our growth has not only been due to the success of our commercial propositions. We therefore remain committed to maintaining solid partnerships with regulators, governments, communities and our markets, including in Nigeria, to build a sustainable industry that contributes to the growth of local economies.”
Not so fast
I’m not the only one who doesn’t agree with MTN’s statements about good corporate governance.
Several comments on Business Report’s LinkedIn page have asked about corporate governance, and why King III wasn’t adhered to.
Vestact analyst Sasha Naryshkine - who notes the fine amounts to 17 years of Nigerian revenue - says: “I agree that if MTN have got it wrong, from a compliance point of view, then yes, they should be subject to a fine. We, however, do not know the full story, we do not know how long they had, whether or not the ‘know your customer rules’ are too onerous or not.”
AdviceWorx says in a client note that, while MTN has indicated CEO Sifiso Dabengwa is in talks with Nigerian authorities over the fine, “we do believe that MTN handled the situation with the regulator poorly and the communication of this development should have been much better. We wouldn’t be surprised if there are management changes coming and this will take time to be bedded down.”
As a result of the headwinds Nigeria as a whole is facing, and a lack of clarity around the fine, “we have therefore exited our clients’ positions in MTN and are currently looking at replacing the earnings profile with alternative opportunities”.
Vestact is holding on, for now. But who knows how many other brokers or asset managers will sell out?
And then there is still the tricky business of the JSE probe into possible insider trading because MTN didn’t tell the bourse about the fine when it should have. This mess makes the Pinnacle Holdings debacle - the one where it didn’t tell shareholders a director had been arrested and then other directors traded shares - pale by comparison.
Pinnacle was eventually cleared, but not before a lot of damage was done.
The message is clear: keep your eye on the ball and your shareholders informed, or face the consequences, which could turn out to be very, very costly - and not just for your company.
* Nicola Mawson is the online editor of Business Report. Follow her on Twitter @NicolaMawson or Business Report @busrep.
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