MTN calls in big guns to fight fine in Nigeria

01 November 2015 - 02:01 By DUNCAN McLEOD

MTN has enlisted the help of the South African government and is meeting with Nigerian officials "at the highest level" as it moves to fight off a $5.2-billion (about R72-billion) fine by the Nigerian Communications Commission, news of which wiped R64-billion off its market value in three days this week. A high-level MTN management delegation, led by group CEO Sifiso Dabengwa, has flown to Nigeria for emergency talks with authorities over the fine, which threatens to wipe out MTN's cash reserves and puts its dividend in jeopardy.News of the fine, which is almost double MTN's group profit after tax of R37.7-billion in the 2014 financial year, sent its share price into a nosedive. It shed almost 20% of its value between Monday morning's open and Wednesday's close. Uncertainty about the fine has also prompted a credit downgrade on MTN by rating agency Standard & Poor's.The telecoms group, which has operations in 22 markets across Africa and the Middle East, went to ground this week, issuing only two terse statements, one on Monday afternoon confirming a report on a Nigerian news website that the commission had handed down the record-setting fine, and an update on Friday morning saying it was in discussions with Nigerian authorities.story_article_left1But company insiders Business Times spoke to this week expressed disbelief and outrage at the way the matter has been handled by the authorities.It is understood reliably that MTN management first learned of the commission's fine after it was reported in the media in the early hours of Monday morning. MTN had been in discussions for at least a month with the commission about its insistence that unregistered subscribers be disconnected in terms of Nigeria's tough new sim card registration law.The commission has accused MTN of ignoring a deadline of August 11 to cut off 5.1million sim cards that had not been registered as required by the legislation, which, like the Rica law in South Africa, is aimed at combating crime and terrorism, a major problem for the West African nation.MTN has not denied the accusation but did cut the 5.1million sim cards from its network - after the deadline had expired.The operator, which is listed on the JSE, has come under fire for not alerting shareholders earlier about the fine. The group first issued a statement to shareholders at 2.24pm on Monday, more than 10 hours after news of the penalty emerged.Business Times has learnt that MTN will provide a detailed timetable of events to investigators, if requested to do so, to show that it complied with JSE rules. Company insiders have rubbished suggestions that insider trading took place.Peter Redman, senior technical adviser for market regulation at the JSE said: "As with all price-sensitive announcements, the market regulation team is looking into trades that took place before the announcement in order to determine if there is any evidence of possible insider trading."block_quotes_start It might be about putting MTN in its place, so to speak, and a warning to anybody else that tries to behave anti-competitively block_quotes_endIt is understood MTN issued the statement to shareholders only once it was able to ascertain from Nigerian authorities that the media reports about the fine were, in fact, correct. Company insiders say the Nigerian commission failed to notify it about the fine before the information was leaked to journalists and it was only able to confirm the veracity of the reports after approaching the commission itself.The looming expiry of MTN's operating licence in Nigeria - it must negotiate its renewal in the first half of next year - could be a factor in the fine, insiders believe. There is a worry it may be an attempt at influence peddling, despite moves by newly appointed President Muhammadu Buhari to crack down on corruption.Another theory that is being widely entertained is that Nigeria is looking for new sources of revenue following a precipitous decline in income from the oil industry as oil prices collapsed. The telecoms sector may be seen as a soft target to raise government receipts, with MTN the leading target as it is by far Nigeria's biggest and most profitable operator. MTN Nigeria generated earnings before interest, tax, depreciation and amortisation of R31.6-billion last year - 46% of the group total. However, not all analysts believe this is primarily a revenue-raising exercise.Worryingly for shareholders, media reports suggest that things may get even worse. Leadership, the Nigerian publication that broke the news, later reported the commission had terminated all regulatory services to MTN until it coughed up the $5.2-billion. It has also reportedly given MTN until November 16 - a little more than two weeks from now - to pay the fine or "face the consequences", which it has not spelt out.In a report on Tuesday, Leadership cited a quarterly compliance document from the commission that outlined numerous "infractions" by MTN and "persistent violations". These had "forced" the commission to impose the "unprecedented sanction of suspending all regulatory services to MTN following its accumulation of over 28 separate and proven infractions". "This unprecedented fine is indicative of the magnitude of the transgression and the seriousness with which the NCC and the authorities are approaching this issue. It is also more likely to ensure that the wilful noncompliance by MTN ceases," the commission document reportedly says.It is "not an isolated incident" and "needs to be seen in the context of a general pattern of noncompliance with regulatory directives that actually predates the current sim registration infractions".But most analysts this week said the size of the fine imposed by the commission was out of all proportion to the alleged infringement and the group was unlikely to have to pay anywhere near $5.2-billion.The commission fined MTN 200000 naira (nearly R14000) for each of the 5.1million sim cards in question.Dobek Pater, MD of telecoms consultancy Africa Analysis, said it was not the first time MTN had run foul of the Nigerian telecoms regulator. It has been sanctioned for poor network quality, even prevented from selling new sim cards until the commission was satisfied it had rectified problems.However, the latest fine is by far the harshest penalty it has imposed and could simply be the starting point of a negotiation, Pater said. "It might be about putting MTN in its place, so to speak, and a warning to anybody else that tries to behave anti-competitively or disregard regulations."However, he said the fine could end up backfiring. "It could prove to be short-sighted of the commission or for the Nigerian government to start punishing companies that are big contributors to the economy."story_article_right2It could have the effect of scaring away foreign investors, Pater said.But a leading Johannesburg-based investment banker, who declined to be named, said MTN could find it difficult to negotiate a meaningful reduction in the fine."MTN was told in no uncertain terms that it had to disconnect these sims and if it didn't it would be fined 200000 naira per sim," the investment banker said. "The potential consequences have been out there for some time. The operators are perfectly capable of doing the maths."He played down a suggestion that by imposing a fine of this magnitude, Nigeria was shooting itself in the foot. MTN could not afford to stop investing in its network in Nigeria, he said."That's not credible. It's MTN's single most important asset. It does not really have any choice other than to keep investing, except maybe to sell it. What it can't do is not invest and watch the value of that asset wither."The banker also downplayed talk that the sharp sell-off in MTN shares would attract potential suitors such as India's Bharti Airtel, which previously made a bid to buy the group."I'm not sure it's any more of a likelihood than it has been in the past. If someone were to buy MTN, they'd have the same issues to deal with in Nigeria. The key issue is whether the risk is limited to the fine or whether there are knock-on implications. If they pay the fine, is that it, is it done? Or does the fine call into question whether they're fit and proper to hold a licence in Nigeria?"duncan@techcentral.co.za..

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