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MTN Ghana

Profit analysis

December
2010
Rm
  December
2009
Rm
  %
change
  Local
currency
change %
 
  Revenue analysis                
  Airtime and subscription 4 089   4 077   0   15  
  Interconnect 1 023   1 145   (11)   3  
  Data 109   58   89   118  
  SMS 288   293   (2)   11  
  Connection fee 59   38   56   79  
  Mobile telephone and accessories 62   45   36,3   55,9  
  Other
20
  12   76,0   66,8  
 
Total revenue
5 651
  5 667   (0,3)   14  
  Direct network operating costs 624   519   20,2   32,7  
  Costs of handsets and other accessories 266   194   37,1   54,4  
  Interconnect and roaming costs 689   646   6,7   21,5  
  Employee benefit costs 334   256   30,4   48,9  
  Selling, distribution and marketing costs 647   592   9,4   24,6  
  Other expenses
588
  894   (34,2)   (28,3)  
 
Total operating expenditure
3 147
  3 101   1,5   15  
 
EBITDA
2 503
  2 560   (0,7%)   13  
 
EBITDA margin (%)
44,3
  45,3   (0,2)   (0,3)  
 
Capex
3 130
  2 616   20   (7)  
  Capex as a percentage of revenue
55
  46   9   (9)  

“The company’s performance was encouraging considering the extent of aggressive competition within the Ghanaian market”

Launched
November 1996
Market share
53%
Mobile penetration
67%
Population
24,5 million
Forecast market size in 2015
20 million
MTN shareholding
98%

Operational and financial performance

MTN Ghana performed satisfactorily in 2010 despite a marginal decline in market share to 53% from 55% in 2009. The company’s performance was encouraging considering the extent of aggressive competition within the Ghanaian market and the impact of mandatory customer SIM registration which led to reduced gross connections in the second half. It recorded a 9% increase in subscribers to 8,7 million at December 2010, driven largely by the introduction of new price plans and the revision of MTN Zone dynamic tariffing to allow subscribers to view tariffs charged in monetary value rather than as percentage discounts.

Ghana moved into the ranks of middle-income countries in 2010 following the statistical re-basing of the country’s national accounts to better reflect growth in areas such as telephony and banking. This resulted in a sharp upward revision in economic growth. In December, Ghana started producing oil from its Jubilee field, adding crude to the economy’s main resource exports of cocoa and gold. Initial production of 120 000 barrels per day is expected to rise to 250 000 bpd by 2013.

After a slowdown in inflation in the previous year, the central bank cut interest rates in the first half of 2010, before keeping them on hold for the rest of the year. Mobile telephony continued to grow, outpacing fixed-line growth, and increasing mobile penetration in the year to 67%.

MTN Ghana’s cedi revenue grew 14%, ahead of subscriber growth, mainly because of the increase achieved in airtime and subscription revenue. Although data revenue (including SMS) grew strongly at 13%, this was off a low base and contributed 7% to revenue. Reported ARPU decreased USD1 a month to USD7 while cedi ARPU remained stable.

MTN Ghana’s EBITDA margin edged down slightly to 44,3% from 44,5% in the prior period. This was mainly because of the increase in direct network operating costs, specifically rent and utilities and maintenance costs associated with a price hike in May 2010, as well as a bigger network. Staff costs also contributed to the decrease in margin as a result of improved retention initiatives. Again, in light of aggressive competition through headline tariff reductions, this was an encouraging performance.

The average cedi/rand exchange rate fell 18% in the year. Because of the strong rand, the results translated into no revenue growth in rand terms at R5,6 billion and a 3,8% decrease in EBITDA to R2,5 billion.

 
 
 

Effective and efficient network and IT investments and upgrades

In the face of stiffer competition, MTN Ghana was the only major operation in the Group to increase capital expenditure in the year, raising it to more than 55% of revenue (R3,1 billion) from 46% (R2,6 billion) the year before. The company maintained high network quality and capacity despite a meaningful increase in traffic by rolling out 940 BTS, bringing the total to 4 033, including a further 77 3G BTS.

Like MTN Nigeria, MTN Ghana benefited from the commissioning in July of the Main One open access submarine fibre optic cable system linking West Africa to Europe. Access to this broadband capacity has resulted in accelerated data use in the region. MTN Ghana also obtained approval in the year for a landing station in Ghana for the WACS submarine cable, which is expected to add to the regional data drive early in 2012.

Ensuring the right products and value-added services

MTN Ghana maintained its reputation for innovation, with the launch of various new products in the year, including changes to MTN Zone dynamic tariffing. As well as offering customers reduced rates when traffic volumes are low, the renewed offering (which shows discounts in cedi amounts rather than percentage terms) also allows MTN to offer its customers discounted prices while optimising its network capacity.

Customer perception about network quality improved significantly, but MTN Ghana lagged some competitors in terms of price perception. As a result, MTN introduced new tariff plans, including Talk-a-lot, So Cool and So Easy, and benefited from loyalty programmes. MTN MobileMoney continued to grow, with 1,8 million people using the service by year end, making Ghana the largest Mobile Money base in the Group.

Following the launch of 3G services in Ghana in the past two years, MTN Ghana introduced bundled data offerings and reduced data prices, leading to the sharp increase in data usage in the year. Some 44 000 data dongles and 166 000 3G subscribers were registered on the MTN Ghana network in 2010. MTN Ghana developed a separate value proposition to serve the data needs of its business customers via MTN Ghana Business Solutions, that started operating in the first quarter of 2010. It is focused on managed data network services (MDNS) for the corporate business market with three main products: leased lines, dedicated internet and VPN over mobile. Though demand for these services was very high in the year, performance was constrained by the absence of dedicated internet bandwidth and so-called “last mile” equipment.

MTN Ghana expects the completion of the WACS landing stations in 2011 to significantly enhance MTN Ghana Business Solutions’ value propositions through the improved availability of capacity. In particular, MTN plans to tap into the significant demand for bandwidth and data capacity from offshore oil companies.

Efficient distribution and a good customer experience

MTN Ghana’s regional distribution model again proved successful, reducing the distance between the company and its customers. In the year, MTN Ghana had 14 wholesale dealers, 28 MTN branches and 22 “connect” stores. Electronic airtime vouchers continued to gain momentum, reducing the company’s reliance on paper recharge vouchers. MTN Ghana also invested in the trade channels in the year, with the deployment of 68 new distributor branches dedicated exclusively to driving MTN business as well as the deployment of 800 active sales canvassers dedicated to sales of pay-as-you-go SIM cards and ultra-low- cost handsets to limit churn and improve data penetration.

Sustaining our success

A highlight in the year was the agreement with American Tower Corporation to establish a joint venture in Ghana (TowerCo Ghana), in which MTN will hold 49%. The transaction involves the sale of up to 1 876 of MTN Ghana’s existing sites to TowerCo Ghana for approximately USD428,3 million, of which American Tower will pay up to USD218,5 million for its 51% stake. This initiative provides an opportunity for an additional source of revenue as well as a chance to reduce operational and capital costs associated with maintaining passive infrastructure. It also offers opportunities to expand coverage into previously underserviced areas, which will further help to bridge the digital divide. Infrastructure sharing will also reduce MTN Ghana’s environmental footprint.

Efforts to develop local skills – especially in network building and maintenance – continued in 2010. MTN Ghana spent USD2,5 million on various training and staff development initiatives from which more than 55% of the employee base benefited. The company also increased the number of staff seconded to other operating companies in 2010, enabling skills transfer, knowledge share and career development.

In 2010, MTN Ghana recorded improvements in a cultural audit of employees and won the Group’s Y’ello Care Trophy for the voluntary work carried out by staff in the community. This included support to a government effort on eradicating malaria, various educational initiatives and a blood-donation exercise. The MTN Ghana Foundation is driving other community support programmes, including the rehabilitation of some hospitals and schools in deprived areas in Ghana.

MTN Ghana continues to explore more environmentally friendly ways of operating and has introduced community phones that are fully powered by solar panels. Another 45 sites that had previously relied on diesel generation are now powered by hybrid systems.

Engaging with the industry regulator

Ghana continued to increase mobile regulatory requirements in the year. In July, subscriber registration started and by year end, 70% of the subscriber base had registered their details. The process is scheduled to be completed by the end of June 2011.

MTN Ghana continued to engage proactively with the National Communications Authority on various issues, including mobile number portability (which is due to be introduced in 2011) and the increase in SIM box activity. This occurs when third party carriers bypass interconnect fees by using devices called SIM boxes or GSM gateways (essentially two phones on different networks rigged up so that a call arriving on one is routed out again on the other). To the networks involved, each call appears to start and end on its own network. To customers, these services can often be of poor quality.

During the year, Ghana implemented new telecoms governance technology to monitor inbound international calls for revenue. The authorities asked telecoms operators to charge, from June, a new, higher fixed rate for all inbound international calls. This move, along with the increased incidence of SIM boxing, affected MTN Ghana’s international incoming revenue.

Late in 2009, the Environmental Protection Agency put a halt to the building of mobile towers until it had agreed an environment framework with operators, holding back network expansion in the interim. After intense industry engagement, this ban was lifted in the middle of 2010.

Looking ahead

The outlook for the mobile market in Ghana in 2011 remains challenging in a 67% penetrated market with five mobile operators and a sixth set to launch in mid 2011. However, MTN Ghana remains positive that it will sustain its leadership position despite increased competition and increased regulatory requirements. It will continue to focus on churn management as data and other value-added services – including MobileMoney – become increasingly important.

Sustaining the EBITDA margin is unlikely in the short term given the market pressures on revenue and the establishment of TowerCo Ghana. MTN Ghana will continue efforts to maintain a tighter cost base and focus on data and value-added services initiatives.

To ensure that it continues to deliver leading network quality and capacity, MTN Ghana has authorised capital expenditure of R1,2 billion for 2011, mainly in 2G, cable and fibre.

The Ghanaian economy is expected to expand strongly, benefiting from its new oil exports, but inflation could return to double digits after sharp rises in retail fuel prices. Apart from the effect on consumers’ disposable incomes, there will also be pressure from increasing maintenance costs (related to higher diesel prices), while increased competition will mean more downward pressure on mobile tariffs.

Among regulatory challenges in the year ahead are the completion of subscriber registration and preparations for the introduction of mobile number portability. By 2015, MTN estimates the total addressable mobile market in Ghana will be 20,1 million. This compares to a mobile market of 16,37 million in 2010. MTN Ghana expects to achieve at least 9,1 million customers by the end of 2011.