Size, board jeopardise MTN on home turf

04 December 2016 - 16:28 By Ron Derby
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Just where the next growth node might be for the one-time investment darlings is anyone's guess, writes Ron Derby

The scenes are nowhere near reminiscent of Winston Churchill's war room, but there's definitely smoke in the headquarters of South Africa's telecoms giants as they plot a way forward in a technological age that is burning up every piece of real estate that they once considered impenetrable.

While the newspaper world has long been reeling from the effects of disruptive provocateurs, it's reassuring to know that there are other realms in a state of flux.

Just where the next growth node might be for the one-time investment darlings is anyone's guess. Whether the answer lies in a leap to financial services or content is anyone's guess.

An insurance executive says the firm he works for is constantly talking to one or other telecoms player about potential deals - but they don't quite know what to do with their toys.

And there's no more curious a case than that of MTN.

If you had attended results presentations in the early years of MTN's success, you'd realise just how different its world has become.

Impressive subscriber growth numbers and average revenue per user figures had fund managers gushing and financial scribes such as myself lapping it all up.

Shares continued on their upward trajectory as bets such as the company's move into Nigeria - panned at the time by the investment community - paid off handsomely.

Ah, the glory years seem far removed from today's world where disruptors such as Facebook are munching away at their breakfast.

Dragged down by an ugly spat with Nigeria's telecoms authority, MTN's stock has shed about 20% over the past five years. In the 12 months before its first statement on the matter, the share dropped 28%.

Given the headache of managing its vast African and Middle Eastern empire, I wonder whether the sheer size of the group is now proving its biggest stumbling block.

The company has roped in a new management team with skills in the financial services space, but it's more than likely that managing the risks of a growing regulatory burden will be a significant distraction.

The listing of its Nigerian operation may be the first step to eventually rightsizing the business to become a regional rather than global player.

Being bogged down by policymakers carries many risks. At stake is MTN's parking space in what remains Africa's most lucrative and advanced mobile market - South Africa. It's a space being squeezed by its more focused rivals, none of which have as intense a geographic headache.

On home turf, the game is about improving the quality of service given the saturated market and finding growth from the shift in revenue from voice to data.

But MTN appears to be at a further disadvantage with a board that looks more wired to deal-making. Of its 13 board members, only four - including an executive chairman more renowned for his deal-making - have operational exposure to the world of telecoms and media.

Largely, the skills base is skewed towards financial services. Among them is former Old Mutual director Paul Hanratty, who worked for the insurer for more than 30 years.

Based on the board's strengths and inorganic path, it's clear the company is banking on a fintech future.

But as those staffing the war room just off the M1 ponder what to do, MTN has to make sure that its share of the South African market doesn't shrink to rivals such as Vodacom and a resurgent Telkom.

E-mail derbyr@sundaytimes.co.za or find him on Twitter @ronderby

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