MTN Irancell (49%)

Profit analysis

“Data revenue (including SMS revenue) expanded 45% to contribute almost a fifth to total revenue”

Launched October 2006

Market share 44%

Mobile penetration 92%

Population 73,2 million

Forecast market size in 2015 82 million

MTN shareholding 49%

Operational and financial performance

In its fourth full year of operations, MTN Irancell reported a solid performance, increasing its market share to 44% from 40% in 2009 and contributing to the expansion of mobile penetration in the country to 92%. Improvements in the quality and coverage of its network (particularly in greater Tehran), attractive seasonal promotions and the continued roll out of electronic distribution channels helped support gains in the health of the MTN Irancell brand. This, in turn, resulted in net additions of 6,5 million, increasing total subscribers by 28% to 29,7 million by the end of the year.

The Iranian economy grew by an estimated 2% in 2010, mainly driven by relatively stable international oil prices and increased petrochemical product output both for export and for domestic gasoline consumption in light of sanctions on the importation of gasoline. The Iranian rial depreciated by 4% against the dollar over the year. In June, the United Nations tightened sanctions on Iran.

Inflation slowed to its lowest level in over 10 years in August, before resuming its upward trend, ending the year at 10%. In December, the government started reducing subsidies on essential items such as food, fuel and electricity and introduced direct subsidy payments to households.

MTN Irancell’s rial revenue increased 42%, significantly ahead of subscriber growth. This was largely driven by airtime and subscription revenue, which grew 42%, and data (including SMS) revenue which expanded 50% to contribute almost a fifth to total revenue. These gains were partly offset by a decrease in connection revenue as a result of the lower prices charged by MTN Irancell on prepaid connections. Although growth in data revenue excluding SMS was high, it remained insignificant as a percentage of total revenue, limited by regulatory controls over content.

Reported average revenue per user (ARPU) was stable at USD8 a month, while ARPU in rials increased slightly because of improved network quality and increased data and SMS usage.

MTN Irancell’s EBITDA margin grew 6,2 percentage points to 41,1% in 2010. This was mainly due to better cost efficiencies in maintenance arising from renegotiated supplier contracts as well as a reduction in marketing expenses. A diversified channel and distribution strategy led to the reduction in prepaid dealer commissions, which together with transmission cost savings also contributed to the improvement.

The average rial exchange rate to the rand weakened 17% in the year, which translated into 21% growth in revenue and 42% growth in EBITDA in rand terms. MTN Group consolidates only 49% of MTN Irancell.

Effective, efficient network and IT investments and upgrades

The roll out of infrastructure in Iran since inception in 2006 has been the fastest ever undertaken. In 2010, the company’s main focus was on increasing the coverage, quality and capacity of the 2G network. By year end, MTN Irancell had increased coverage of the population to 77% and geographic coverage to 20%.

In 2010, the MTN Group spent R1,7 billion on its share of MTN Irancell’s capital expenditure, which equated to some 18% of revenue down from 43% the prior year. The company added 1 284 base transceiver stations (BTS), bringing its total to 6 859.

It also added 5 772km of road coverage. MTN Irancell continued to roll out its WiMax wireless data transmission technology, increasing the number of live sites by 206 during the year to 535, mainly in major cities.

While MTN Irancell recorded a significant improvement in the quality of its network in Tehran, Tabriz, Ahvaz, Mashhad and Shiraz in 2010, securing site rentals in Esfahan remained a challenge. MTN Irancell’s priority is to further enhance network quality, including securing better quality service on leased transmission links from the current provider.

Ensuring the right products and value-added services

To stimulate subscriber uptake, MTN Irancell continued to offer attractive products and also introduced various new value propositions in the year. These included the popular Buy One Get One Free SIM-card promotion introduced prior to the current year. Another successful campaign gave customers who bought a new SIM card a bundle of free MMS, a free ring-back tone and some additional content.

In January, MTN Irancell formally launched its WiMax services, providing wireless data transmission. The initial takeup was slower than expected, but activations increased in the second half, with 36 293 WiMax subscribers registered by year end. The company continues to work on optimising the network and improving its coverage, speed and quality (particularly in Tehran and Esfahan). However, securing approval from Tehran landlords for the installation of WiMax equipment is proving a challenge.

EDGE was activated on nearly 90% of the cells in the network. This, together with an increase in SMS’s and the launch of WiMax, resulted in an 800% increase in data traffic in the year.

In the second quarter, MTN Irancell introduced its Farsi short messaging service (SMS). Due to the technical structure of using Farsi (resulting in the message being sent in unicode) these SMS have fewer characters than Roman-character text messages and come at a lower price to customers. Initially, the introduction led to a reduction in MTN Irancell’s SMS revenue, which now appears to have recovered thanks to the increasing usage of the Farsi option.

In October 2010, MTN Irancell introduced its first mobile-banking-related product. This enables MTN Irancell subscribers to link their SHETAB (the interbank card switch) cards to their MSISDNs and directly purchase logical PINs from their handsets by dialling a USSD code and having the cost deducted from their bank accounts.

Other services introduced during the year included: direct top-ups through an internet portal, “magic numbers” in the loyalty programme, various enhancements to ring-back tones and further improvements to the content delivery platform.

Efficient distribution and a good customer experience

MTN Irancell made strides in honing its distribution model in the year. At year end, logical airtime sales represented 57% of the total recharge count, after the company promoted airtime top-ups through points of sale and bank cash machines (ATMs). It added 9 000 ATMs, bringing the total to 16 500, and introduced 365 000 point of sale terminals. The active dealer base grew to 9 786 from 8 000 dealers, as the number of distributors increased to 19. The number of internet banking websites on which MTN Irancell products are sold increased by five to nine.

By year end, all recharge vouchers were locally produced (up from 90% the previous year) and the Iranian production of SIM cards increased to 40% of all SIM cards used by MTN Irancell from just 5% in 2009.

The company has two call centres, in Tehran and Tabriz, and a third will start operating in Shiraz in 2011.

During 2010, MTN Irancell handled 176 million calls from subscribers, down 18% from the previous year. The company installed a new customer management system in an effort to improve customer satisfaction and continued to invest in regular training of customer management and call centre staff.

Sustaining our success

MTN Irancell remains committed to the Iranian people through employment creation and skills and knowledge transfer. As an employer of choice, MTN Irancell offers a superior employee value proposition that creates benefit not only to staff and their families but also to the community as it builds good corporate citizens.

Employees at MTN Irancell have an opportunity to gain both on-thejob experience and international training. Skills gained by our staff are then brought back into the country, driving development and sustainability. Apart from direct employment, MTN Irancell’s outsourcing model has created thousands of indirect jobs which contribute significantly to the Iranian economy.

MTN Irancell is committed to working to minimise its impact on the environment, employing concepts such as site sharing and recycling to limit its environmental footprint. The company also aims to create focus groups with communities to help drive a cleaner, healthier environment.

Engaging with the industry regulator

MTN Irancell maintained its active engagement with the authorities in the year, complying with requirements despite a lack of formal industry regulations on issues such as interconnection or facilities leasing. The company has applied for additional number ranges and in the meantime continues to “recycle” out-of-use numbers to new subscribers.

Following the award of a third mobile licence in 2010, the new entrant is expected to start operating in 2011. The new competitor has exclusive rights for a two-year period from commercial launch date to deploy a 3G network. MTN Irancell rolled out a WiMax network last year to address its customers’ data needs. The regulator is holding discussions on national roaming with operators, and has put number portability discussions on hold.

Looking ahead

The Iranian economy is expected to benefit from higher oil prices in 2011 although the government’s subsidy reform programme could impact consumers’ disposable income, with implications for spending on mobile telephony. Although subsidies on oil and energy have already been withdrawn, the government is giving monthly cash allowances to all registered citizens. This may benefit mobile operators in the short term, however the removal of the subsidies could impact the cost structure of MTN Irancell going forward.

In 2011, MTN Irancell will continue to work to improve the quality of its network, and particularly its WiMax value proposition. The MTN Group has committed R1,3 billion for its share of MTN Irancell’s capital expenditure for 2011, most of which will be dedicated to the 2G and core network.

MTN Irancell intends increasing its coverage of the population further as well as expanding into more remote parts of the country.

It plans to complete the roll out of WiMax in Tehran and Esfahan in 2011. Despite the anticipated launch in the second half of a new mobile operator, these initiatives are expected to help MTN Irancell achieve its business targets for 2011.