MTN Nigeria

Profit analysis

“MTN Nigeria’s success story is incomplete without a mention of the 122 trade partners who contributed significantly to the distribution of the company’s products”

Launched August 2001

Market share 52%

Mobile penetration 49%

Population 153,5 million

Forecast market size in 2015 117 million

MTN shareholding 76%

Operational and financial performance

MTN Nigeria performed well in 2010, increasing its market share by two percentage points to 52% despite increased competition, particularly in the fourth quarter. The strong showing was as a result of superior network coverage and quality, attractive and innovative segmented promotions to customers and effective churn management. Improved customer service and product accessibility through enhanced distribution channels and customer call centres also contributed to a 25% increase in subscribers to 38,7 million.

The second half of 2010 began to show signs of economic recovery in Nigeria. GDP grew by nearly 8%, comparing favourably with the average growth rate for Africa of 4,5%. However, the Nigerian economy continued to feel the effects of the global recession and the 2009 domestic banking crisis, while politically there was uncertainty after the May 2010 death of President Umaru Yar’Adua after a long illness and ahead of his replacement by Acting President Goodluck Jonathan. Job losses in the local banking sector affected disposable income and hence mobile affordability, mainly among middle-class consumers. The naira remained relatively stable in 2010, closing the year at NGN151 to the US dollar compared to a closing rate of NGN149 in 2009.

Mobile market penetration rose seven percentage points to 49%, with MTN Nigeria taking more than 60% of the market’s net additions. The mobile industry continued to dominate Nigerian telephony, with an 89% share of the overall market.

MTN Nigeria’s naira revenue grew 16% mainly as a result of increased airtime and subscription revenue (up 19%). This was partially offset by lower interconnect revenue (down 18%) resulting from the introduction of lower termination rates by the industry regulator. Due to MTN’s high proportion of on-network traffic, the net impact of these changes was relatively muted with interconnect costs declining marginally more than interconnect revenue. Data (including SMS) revenue continued on a strong trajectory, growing 17% for the year, albeit off a low base. In naira, average revenue per user (ARPU) per month declined 10% from 2009, in line with penetration into lower-usage segments of the market. In US dollars, ARPU was 11% lower at USD11.

MTN Nigeria’s EBITDA margin increased 3,7 percentage points to 62,9%. This was mainly due to better economies of scale, an improvement in interconnect margin from higher on-net traffic and a once-off elimination of an impairment charge in relation to the outsourcing of spare parts in particular. The average exchange rate of the naira to the rand fell 16% in the year, leading to lower rand-reported revenue and EBITDA growth. In rand terms, revenue grew 0,5% to R33,4 billion and EBITDA expanded 6,8% to R21,1 billion.

Effective and efficient network and IT investments and upgrades

The considerable investment in the MTN Nigeria network over the past few years has enabled the company to increase its market share while maintaining good levels of network quality and capacity. Between 2007 and 2010, more than R29 billion in capital investment was made in Nigeria.

In 2010, MTN Nigeria brought on line 1 504 2G and 480 3G base transceiver stations (BTS), increasing the total count to 9 110. In addition, 4 800 BTS sites were upgraded to improve capacity. At R4,7 billion, capital expenditure dropped to 14% of revenue from 30% (R10,2 billion) the prior year. MTN Nigeria’s capital expenditure was lower than budgeted because of delays arising from the manufacturing and delivery of necessary equipment. However, spending required to complete 2010 projects has been included in the company’s 2011 budget.

MTN Nigeria continued expanding its transmission capabilities, rolling out fibre across the country and completing a 696km backbone fibre ring between Yola and Bauchi through Gombe. In an effort to enhance data capabilities, it launched a national fibre expansion project, linking 71 high-capacity BTS sites on fibre. The roll out of WiMax also gained momentum, with 89 WiMax base stations set up in five states.

Mobile operators in Nigeria continued to face the challenge of having their infrastructure damaged during road construction activity across the country. Securing rights of way, as well as environmental approvals for new infrastructure, also impacted operators’ ability to increase their fixed networks.

In July, the Main One submarine fibre optic cable system linking West Africa to Europe was commissioned. MTN Nigeria’s access to this 7 000km long cable will help it deliver greater broadband capacity at reduced cost to customers.

Ensuring the right products and value-added services

MTN Nigeria’s customer segmentation model, which offers different customer groups the most appropriate value propositions, played a key role in the company’s ability to effectively manage 38 million users. In the second half, it launched its “Richer Life” segmented bundle packages as well as numerous innovative products. These included MTN E-presence – a first-of-its-kind offering in sub-Saharan Africa which enables people in different locations to communicate through a virtual meeting room.

Brand perception improved in the year, thanks to numerous initiatives related to the Group’s sponsorship of the 2010 FIFA World Cup™. MTN Nigeria launched MTN Play (a WAP portal delivering entertainment content – including sports content during the 2010 FIFA World Cup™), and also introduced a football service offering customers a comprehensive range of football-related content, delivered by SMS and MTN Play.

MTN HyNet, a prepaid broadband internet service based on WiMax technology, was implemented in seven major Nigerian cities in the year. MTN introduced various segmented data bundles, facilitating 48% growth in data revenue and the sale in the year of 153 222 dongles (nearly double 2009’s figure) and 41 740 3G handsets. This increased take-up illustrates the strong momentum for data offerings in Nigeria.

Efficient distribution and a good customer experience

MTN Nigeria’s 2010 success story is incomplete without a mention of the 122 trade partners who contributed significantly to the distribution of the company’s products. This indirect but highly efficient distribution channel accounted for over 99% of the company’s sales in the year. MTN also opened additional customer call centres in 2010, offering quality service through its wide distribution network.

In the run up to the World Cup, MTN launched “the biggest ball tour” in Nigeria. The 35-foot ball, produced in Lagos, was endorsed by the Guinness Book of Records as the biggest ever made. It toured four major cities amid fanfare and excitement, taking the message of Africa United: One Team, One Spirit, One Supporters Club for Africa. It was also an opportunity to kick-start the SIM-card registration process across Nigeria and drive sales of MTN products and services.

In line with a commitment to deliver a single MTN-branded customer experience and engrain the customer centricity ethos in all employees, MTN Nigeria ran the second edition of the “back to the shop floor” initiative in the year. A total of 1 942 employees took part in the exercise and their feedback has been used to refine the MTN brand promise in the walk-in assistance centres. Motivated by feedback from employees, MTN Nigeria introduced extended opening hours at many of these centres.

In recognition of the strength of the MTN brand, MTN Nigeria won the Outdoor Advertising Association of Nigeria’s award for the best media brand as well as the Advertisers’ Association of Nigeria’s award for the best television commercial for MTN Fastlink.

Sustaining our success

A highlight of the year was the conclusion in June of a USD2,2 billion financing deal allowing MTN Nigeria to further expand its network. In the largest naira-denominated syndication ever, a consortium of 15 Nigerian banks extended a facility of NGN250 billion to MTN Nigeria, while two foreign banks extended a further USD450 million.

MTN Nigeria’s people remain critical to the success of the company. To foster the retention of key talent, in 2010 MTN Nigeria developed and implemented an integrated talent management strategy, involving talent review sessions and the deployment of succession plans for all divisions. It also developed and launched the Group-aligned MTN Nigeria employee value proposition to reinforce the company’s position as the employer of choice.

The provision of quality training remains vital for the development and retention of employees. The company also contributes to knowledge share within the Group. In 2010, it provided 34 employees as technical and expert support to several other operating units through short-term assignments, training and skills transfer.

In recognition of its work in the community, the MTN Nigeria Foundation (which spent NGN1,6 billion on community projects in the year) won the “changing lives award” at the AfricaCom Awards in November 2010 for its rural telephony project. This offers micro-finance services to rural women, enabling them to purchase hardware (including phones, antennas, umbrellas, solar chargers and SIM packs) to operate call centres. This is in line with the MTN Nigeria Foundation’s objective of facilitating the economic empowerment of Nigerians. It also aims to provide access to educational opportunities and alleviate health challenges in the country.

MTN continued to sponsor a number of community development projects, including the Lagos Street Soccer Championship, a grassroots football initiative aimed at developing young talent. It also engaged with customers in the youth market through various sponsorships including the MTN Project Fame West Africa televised musical talent show.

On the environmental front, MTN Nigeria started using alternative power solutions to reduce the diesel consumption (as well as operational costs) of BTS sites.

Engaging with the industry regulator

MTN Nigeria actively engaged the industry regulator, the NCC, on numerous initiatives in the year, including new mobile termination rates, SIM-card registration and mobile number portability (the commencement date of which is yet to be announced by the NCC). It secured approval for fixed numbering plans in Ilorin, Kaduna and Warri, as well as 3.5GHz spectrum allocation in 13 states and re-planning of 3.5GHz to Time Division Duplex (TDD) from Frequency Division Duplex (FDD) in all states in the federation.

The company worked with the regulator to collect debts owed by a number of other operators for interconnection services. This resulted in the receipt of several debts and MTN continues to engage with the regulator to recover amounts still outstanding.

In the year, MTN consolidated its relationship with the various regulatory agencies and consumer advocacy bodies and continued efforts to build a stable relationship with the National Environmental Standards and Regulations Enforcement Agency (NESREA).

Looking ahead

MTN will celebrate its tenth anniversary, a decade of bridging the digital divide, in Africa’s most populous country in 2011. In a market where penetration is still relatively low and where voice remains the key revenue driver, competition is expected to intensify, placing pressure on revenue. MTN Nigeria remains confident it will maintain its competitive edge by continued investment and upgrades to its network quality and capacity. The innovation of products and value-added services, deep and broad distribution as well as improved customer care also remain key.

Although data use is still relatively low, investment in 3G networks and data products and services remains a priority and is expected to continue to increase as smartphones and other 3G devices become more affordable and accessible. In 2011, MTN Nigeria will accelerate the expansion of its WiMax offering and increase the penetration of MTN fixed data services to corporate clients, small and medium enterprises and individuals by providing solutions quicker and at a lower cost.

MTN Nigeria will continue to manage and maintain its cost base efficiently. However, lower interconnect rates and lower retail prices will place pressure on revenue. This, together with potentially more investment in value-added services, means that MTN Nigeria expects an erosion of its EBITDA margin from 2010’s levels.

The company has authorised capital expenditure of R7,78 billion for 2011 – the largest single-market investment in the Group for the year. However, this figure includes a roll over from 2010, when capex was lower than budgeted. The majority of this spending will be on increasing the quality and capacity of 2G networks as usage is expected to increase following retail prices reductions implemented in early 2011.

Customer service is expected to receive a boost after the recent launch of a new customer relationship management tool. The company will continue to work to embed the employee value proposition, thereby increasing engagement, improving productivity and business results and attracting and retaining talent.

The Nigerian economy is expected to benefit from higher oil prices in 2011, however increased government spending ahead of the April elections and the measures taken to resolve the banking crisis are seen as stoking inflation. In an effort to tame price rises, interest rates are forecast to continue to rise.

By 2015, MTN estimates the mobile market in Nigeria will have grown to 117 million users from 2010’s 74,6 million. MTN Nigeria anticipates adding at least 4,2 million subscribers in 2011. This expectation takes into account the impact of SIM card registration as well as fierce competition in Nigeria in the year ahead.