SIFISO Dabengwa is CEO of MTN.
SUMMIT TV: MTN released its first-half results showing a 6.9% increase in subscribers and a 14.3% growth in headline earnings per share. Difficulties seem to be creeping into your two biggest markets, Nigeria and South Africa. In Nigeria, you’ve lost competitiveness and tariffs have dropped, so how are you going to address the situation?
SIFISO DABENGWA: I don’t think we’ve lost competitiveness — the markets are very dynamic, and what happened in the first and second quarter can be addressed as we go into the third. Yes, we did have challenges pertaining to our pricing and our activities in the markets, but we are comfortable that we can make that up as we go into the second half of the year.
STV: Your earnings before interest, tax, depreciation and amortisation (ebitda) margin in Nigeria is more than 60%, which is the highest in the group — but if tariffs for the country have come down by 30%, you’re presumably going to have to adjust your prices to remain competitive, and that must threaten your margin?
SD: We have always indicated that a margin above 60% is on the very high side, and we expect that as the market matures and there is more competition, that would trend more towards the middle of the 50s. What we are seeing is something that we expected as prices reduce and penetration increases. The challenge for us is to maintain our market share and grow our value share despite the high levels of competition.
STV: You are spending a lot of money, with capital expenditure north of R10bn budgeted, although that’s not all been spent yet. Is it worth it to spend that much in the region?
SD: With margins of about 60% it’s definitely worth it.
STV: South Africa returned a good performance and you were asked whether it’s sustainable, given the pressure that’s coming from Cell C and Vodacom.
SD: From an overall performance point of view, it is sustainable. We’ve learnt through our other operations that aggressive pricing competition doesn’t necessarily place competitors on a better footing, whether that’s value or market share. Generally you get value destruction across the whole market. It takes value away from the market.
STV: There’s probably a few short-term gains, and maybe in the South African market there is a bit of apathy. How is MTN going to counter this? You suggested that new products would be launched. Are you keeping your eye on your competitors?
SD: Absolutely. There is no way that we would allow our market or value share to be eroded. We will make sure we protect our market share and our value share. What we are highlighting in our experience across different markets is that aggressive price competition doesn’t necessarily lead to better market positioning for anyone.
SD: One of the challenges for a company such as yours is that you have to deal with all sorts of different currencies — the forex loss of about R1,8bn was quite substantial, and the chief financial officer did allude to potential devaluation of the Iranian currency that could have a severe impact on second-half earnings. We don’t know if that’s going to happen yet, but if it did, what would that be? Can you quantify this?
SD: That’s difficult to say. I guess the issue is that we have no control and we can’t manage currencies. The comment that he made was that if we did get a devaluation of more than 50%, that could be problematic.
STV: That’s still a big if. Will you be able to manage this if it unfolds?
SD: It’s very difficult for us to manage currency issues — that is probably one of the challenges that we face operating in so many different countries in different currencies. Currency risk is part of what we manage, so hopefully we will not get a situation where a number of different currencies devalue at the same time. We hope to see a mix with some devaluing and others strengthening, which would diversify the risk.
STV: Going back to the South African operations data, growth was fantastic, up 49%. Would you expect that growth to continue?
SD: Opportunities for data are still strong. Device penetration is still low and internet access penetration will be with mobile devices — there’s opportunity with data going forward.
STV: Is that pretty much the same with all your countries?
SD: Yes. The issue in the other countries is that internet penetration is still low. There is a great opportunity for us.
STV: Talking about great opportunities, your acquisitive growth slowed in recent years and you’ve suggested you are now looking at bolt-on acquisitions. Do you have anything on the cards?
SD: We continue to look in the same areas we talked about — such as North Africa, where we have no presence, the Middle East and other parts of Africa where there are still penetration levels of about 10%. We are looking but it’s now more difficult — there are fewer opportunities than five or 10 years ago.
STV: An issue that has dogged MTN over the course of this year is the lawsuit that Turkcell brought — we were expecting the Hoffman report to be concluded and presented around now. What has happened to that investigation into the allegations of corruption and wrongdoing?
SD: The Hoffman commission continues with its work — all indications are it will probably conclude sometime before the end of the year. The process has taken a bit longer than what we had anticipated. The issue is getting access to some of the witnesses. I can assure you the commission is making progress.
STV: If MTN finds there was criminal behaviour — I know you were not chief executive at the time, but you were a director — would you resign?
SD: The difficulty with that is what exactly is it that would have happened, and how exactly would it have happened? If it is something that as a board member one should have been aware of yes, then definitely. But if it was something that was concealed and one was in no way aware of it.... To answer your theoretical question, it’s a question of exactly what it is that would have happened that would determine how one would respond to it as a director.