Sifiso Dabengwa (L) and Mazen Mroué (R)Higher data revenues boost telecom giant amid rising competition on voice segment
Telecommunication giant MTN's interim results for the six-month period up to June 30 have soared, buoyed by "strong organic growth from Uganda" where the company registered a 15.4% increase in year-on-year revenue.
According to the mid-year report issued last week, MTN Uganda increased its market leadership by growing its subscriber base by 4.4% to 8 million from 7.7 million at the end of December 2012 - driven by strong promotional activity, a reduction in churn and the continued success of the MTN Zone offering.
MTN Uganda revenue increased by 15.4%, on the back of strong data revenue growth particularly the rolling out of 4G LTE network, which boasts the fastest internet on the market. However, though revenue increased, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) declined by 41% due to the tower sales in the prior period. Excluding the sale of the towers, EBITDA grew 11.4%.
While the South-Africa based telecom operator is finding the going tough in its own backyard owing to failure to respond faster to rising competition in that country, market analysts say the recent merger of Warid and Airtel in Uganda could give the operator some respite in Uganda despite its market leadership status.
Over the last few years, an increase in competition has driven tariffs downwards and subsequently the operators' revenue. The coming of Warid was particularly a key driver as it forced all operators some of which had enjoyed near monopoly to respond by offering tariff cutting promotions.
However, analysts say the recent Warid/Airtel merger will create a duopoly with MTN, which could eventually lead to more stability in tariffs structures unless a new operator joins the market. Also, the ongoing SIM card registration is likely to impact negatively on the subscriber base of the top operators as millions of unregistered SIM cards are likely to be disconnected from the networks.
MTN Uganda will be watching the cutoff date of Aug.31 closely. This is because MTN Nigeria disconnected more than three million of its subscribers after the expiry of a similar regulator-driven mandatory subscriber registration process.
The report also shows that as is the case in many other countries, SMS revenue declined by 14.6% as customers opted for newer data-driven social media platforms such as Twitter and Face book to communicate given the increasing popularity and availability of smart phones and tablets.
This though positively impacted data revenue, which increased by 57% on the back of simplified and more affordable data bundles offerings and upgraded internet speeds.
Also, MTN Mobile Money showed strong growth in popularity and recorded a 51% increase in subscriber base and more than 25 million transactions per month - the highest in the Group. The company has now launched MTN Mobile Money services in 15 markets and a key focus is to establish a solid base and improve returns from this product.
MTN Uganda CEO Mazen Mroué was optimistic of better things to come. "I am happy to note that the results show a steady performance for the MTN Group and particularly for MTN Uganda, which has passed its 8 million customer landmark," he said.
He added that MTN Uganda's focus over the last year has been on network quality, the rollout of innovative products and services and improvement of customer experience. The operator is implementing a multi-million dollar investment strategy which has included the introduction of 3G+ and 4G LTE internet technology, expansion of the mobile distribution foot print, and enhancement of the mobile core, radio capacity and infrastructure technology.
Furthermore, the extension of the fibre network backbone and setting up of regional switching centres in the East, West, North and Central regions. Last year, MTN completed an additional 600km of fibre infrastructure closing the year with 2,800km of fibre to provide the capacity for high speed data connectivity and wider national coverage of 3G+ mobile data services that extend internet access to the rural areas of Uganda. All these investments have been a strong indication that the Ugandan market is key to the company's operations on the continent.
"I would like to congratulate the MTN Uganda staff for their contribution and support in achieving these positive results," Mroué added.
Sifiso Dabengwa, the MTN Group president and CEO, was however, cautiously optimistic. He said the results "reflect a challenging operating environment" in light of the sustained global economic slowdown, highly competitive mobile markets and pricing pressures, which have seen average voice tariffs across our markets fall by about 30% year-on-year (YoY) in US dollar terms.
"Despite these challenges, our substantial investment in network infrastructure and robust subscriber growth position us well for improved organic growth," he said.
Over the first six months of 2013, Group subscribers increased 6.5%, to 201.5 million, supported by competitive offerings and increased network capacity. At the end of July, the Group recorded a total of 200 million subscribers after adjusting for the 3.2 million disconnections in Nigeria related to the mandatory subscriber registration programme which closed on 30 June 2013.
Reported revenue for the six months increased 9.8% despite being negatively impacted by the tariff cuts in both Nigeria and South Africa
However, for the remainder of the year, the report says the Group expects to deliver improved YoY organic growth in both revenue and EBITDA.
"Although operating conditions in South Africa are expected to remain difficult, we will continue to focus on competitive, value-added propositions and on improving cost efficiencies. The recovery in our Nigerian operation is expected to continue over the second half, supported by a strong capital expenditure programme. We expect the Group to add a total of 21.1 million subscribers for the full 2013 year," the report adds.
The main worry for the group is that of rising competition both from rivals and from other means of communication especially social networking, which has led to less people calling and for less time.
For instance, the report shows that over the first six months of 2013, Group traffic volumes on the voice segment increased by 26.2% YoY and voice revenue grew by about just 8%. Voice revenue now accounts for 63.7% of total revenue, down from 64.8% in 2012. On a YoY basis, the average price per minute (APPM) declined by 29.5% in US dollar terms.
"Amid greater competition, which in turn pressures revenue and margins, we will remain competitive by providing an excellent customer experience, improving network quality and capacity, lowering the cost base of our business and improving operational efficiency," the report says.
Market analysts say high taxes on telecommunications services in Uganda are becoming a key concern for telecom operators. Loaded with a 12% excise duty on mobile phone services, in addition to the standard 18% VAT, operators in Uganda incur higher taxes than in many other countries.
This in turn means that the customer will be forced to pay higher tariffs, which forces them to opt for cheaper means of communication such as the social networking sites. A recent report by the GSM Association showed that Uganda tops the list of the 10 markets with the highest taxes on mobile telephony worldwide.
It suggested that African countries such as Uganda must work at lowering taxes on the telecom industry if they are to roll out rapid penetration and increase tele-density and help their economies expand faster.
Yet, in the recent budget speech, the government imposed yet another new tax on mobile money transactions. However, generally, the Group's taxation bill decreased by 5.4% and the effective tax rate declined 5.1 percentage points to 31.3% thanks to the action of South Africa to lessen the burden on businesses as a way of lowering the cost of doing business.
The lower tax charge and effective tax rate were mainly the result of the secondary tax on companies (STC) in the country being discontinued and a reduction in withholding taxes in that market.
Analysts say that while operators were in the past making supernormal profits, declining average revenue per user (ARPU) of telecom service providers could impact negatively on the future growth of the industry.
Last year, top officials at the Uganda Communications Commission, the regulator of the industry, intervened to curtail a 'tariff war' between telecom operators saying that a higher-than-expected decline in ARPU posed a risk to the industry.
The battle-front however is now shifting to data services, which were the key driver of the Group's revenue growth thanks its apparently superior network and the rising popularity of mobile internet.
The number of data subscribers increased by about 30% while data traffic grew by about 56%. With more than 31 million smartphones on the Group's network, the Group says increasing smartphone penetration remains an important objective. "We also continue to support innovation with products such as Magic Voice, MTN Play, MTN Opera Mini and MTN Afrinolly," it added.