Johannesburg — MTN Group will invest about 200m (R1,5bn) in submarine cables to increase its bandwidth capacity for its Africa and Middle East operations.

MTN has so far invested 85m in undersea cables - Sat3, Sat-3/ Safe, the Europe-India Gateway, the East African Submarine System, Kenya's East African Marine System and the West African Cable System.

MTN Group CE Phuthuma Nhleko said at yesterday's results presentation the aim was to ensure high-speed connectivity and improved quality and capacity in voice and data offerings. The investments would also boost plans to grow data revenue. "We want to increase capacity for our operations and reduce costs."

Dobek Pater, a telecoms analyst at Africa Analysis, said although the rate of return on submarine cables was becoming longer because of competition, increased investment was justifiable as the demand for cellphone broadband and overall data services would grow strongly in markets where MTN operates.

The investments are part of MTN's capital expenditure of R31,2bn in the year to December to upgrade its network, increase 3G coverage and for other network-related projects. Nhleko expects capex to drop to R23bn in the 2010 financial year.

The bulk of last year's capex was in Nigeria, its biggest contributor in subscriber numbers, and in SA, which had a dismal performance in the period under review. SA's total subscriber numbers dropped 6,4% to 16,1-million, the first time that MTN has seen a decline in local customers.

MTN's net profit attributable to equity holders for the year to December fell 4% to R14,7bn, hurt by rand strength against the dollar, which eroded profit from its international operations. Adjusted headline earnings per share for the year to December dropped by 16,6% to 754,3c.

Sales rose 9,2% to R111,9bn, while total subscriber numbers increased 28% to 116-million. MTN makes 80% of its profit outside SA, with the biggest contribution from west and central Africa . Nigeria's subscriptions grew 34% to 30,8-million, increasing its market share to 49,6%.

Nhleko said except for SA, MTN's operations experienced a strong underlying growth overall. MTN SA's "challenging" year was a result of the recession, combined with maturing market conditions and increased regulation of the industry, he said.

MTN SA revenue grew 3,1% to R33,1bn, indicating that those prepaid subscribers lost during the SIM card registration process were "not as meaningful to revenue", said Nhleko.

The reduction in interconnection fees from R1,25 to 89c per peak minute from this month would also erode earnings.

Spiwe Chireka, an analyst at Frost&Sullivan, expects a recovery from MTN SA in the next 12 months. Frost & Sullivan's global analysis indicates that cellphone operators' short-term revenue tends to suffer after interconnection cuts, but they can make a full recovery through strategies such as higher subscription charges, lower subsidies and reduced incentives for distribution.

The Soccer World Cup is likely to boost revenue for MTN, Chireka said.

Pater said the South African market had matured and MTN should focus on maintaining its market share, converting some customers into cellphone broadband subscribers and growing its Middle East and rest of Africa businesses, where there were still huge growth opportunities.

MTN would continue its strategy to look for acquisitions and this time it might go farther east depending on the size of the company. Nhleko said MTN would look at every opportunity but it was unlikely to look at Eastern Europe. But he quickly added: "I'm not saying never."

An opportunity in South America would have to be of a significant size to be pursued.

MTN has R24,7bn in cash, with net debt of R12,2bn.