Determining materiality

Material issues for the purposes of the 2015 integrated report are those issues which had a financial and/or reputational impact on MTN in the year and had the potential to disrupt the delivery of our strategy. When identifying the matters we considered material, we took into account the most pressing themes of our quarterly reporting meetings (attended by the chief executives of the 22 operations) as well as those matters which received the most management and board attention in the year.

Building on the 2014 process, we identified issues in both the external and internal operating environment and refined those to the factors which influenced MTN’s performance and reputation in the year. We considered the key concerns of stakeholders , as well as the risks identified through our risk management process ( 24). These factors were then debated at workshops at which senior managers of a broad range of MTN departments participated.

While we discussed matters considered material in all operations, we narrowed down the Group’s material issues in 2015 to those which impacted the top nine operations
( IFC) and so, ultimately the Group^†. The executive committee and the board then endorsed these as the material issues in 2015.

^† In this section we do, however, discuss a few issues in smaller markets, listing them by name, given their potential to spill over into other markets.

The material issues of 2015 cut across the Group’s top risks, which are monitored by management.

We use the icon throughout this report when we refer to these material issues.

1} Ensuring sound governance, ethics, legal compliance and overcoming regulatory challenges

Across our markets, regulatory pressure continued to increase. This included greater customer SIM card registration requirements. MTN Nigeria disconnected 6,7 million subscribers in 2015. In November and December 2015 MTN Uganda disconnected 3,7 million subscribers who did not fully comply with the subscriber registration requirements. Impact on MTN in 2015 Subscriber net additions for the year were impacted negatively, eroding the market share of MTN Nigeria and MTN Uganda.   Action taken by MTN We worked to improve our relations with regulators, and all stakeholders. We focused on enhancing our regulatory compliance processes, including greater use of biometrics to improve subscriber registration. In Nigeria, we set up additional registration points and invested approximately US$20 million in new systems and hardware in the year.

During October 2015, the Nigerian regulator imposed a N1,040 trillion fine on MTN Nigeria, subsequently reduced to N780 billion (equivalent to approximately US$3,9 billion using the exchange rate prevailing at the time). This related to the late disconnection of the 5,1 million subscribers whose registration documents were considered incomplete. The factors related to the disconnection of these Nigerian subscribers and the fine provided an opportunity to review the implementation of our policies and procedures. Impact on MTN in 2015 The imposed fine eroded investor confidence in MTN Nigeria and the Group as a whole, and negatively impacted the reputation of MTN across our stakeholder groups. Between 26 October and 31 December 2015, MTN Group’s market capitalisation declined by 20%. The Group CEO, MTN Nigeria’s CEO and MTN Nigeria’s regulatory head left the Group in 2015. MTN Nigeria recorded a R9 287 million provision for the fine at the end of the reporting period, negatively impacting reported EBITDA by 13,6%** and HEPS by 402 cents. Management has applied its judgement in determining the provision in accordance with IFRS.   Action taken by MTN We continue to engage with the Nigerian authorities to ensure an amicable resolution in the best interests of the Company, its stakeholders and the Nigerian authorities. On 24 February 2016, MTN Nigeria made an agreed, without prejudice, good faith payment of 50 billion naira (US$250 million) to the Federal Government of Nigeria on the basis that this will be applied towards a settlement, when one is eventually, hopefully arrived at. MTN also agreed to withdraw the matter from the Federal High Court in Lagos. In early December we announced a change in the Group’s operating structure, recognising the need for stronger Group oversight over the operations. The new structure, effective in 2016, combined with new leadership, endeavours to provide that ( 10). The Group appointed PF Nhleko ( 44) as executive chairman in a temporary capacity upon the resignation of the Group CEO with a mandate to resolve the Nigerian fine issue and appoint a new CEO. In addition the Group has also implemented a new regulatory and compliance structure ( 54). We worked to re-inforce the Group culture and values ( 13) which encompass complete accountability and candour, as well as the escalation of material issues to MTN Group and Group board level.

The Nigerian regulator’s 2013 ruling declaring MTN Nigeria a “dominant operator” continued to impact MTN Nigeria’s commercial success. Impact on MTN in 2015 This continued to limit MTN’s commercial success, hampering our ability to be competitive in Nigeria in 2015 ( 34). In October 2015, the regulator suspended regulatory services to MTN Nigeria. Under this suspension the regulator could use its discretion on services provided to MTN Nigeria until certain tariff plans and promotions were removed from the market. The regulator has subsequently, in March 2016, re-instated services to MTN Nigeri   Action taken by MTN We continued to engage with regulatory authorities to determine the parameters of the “dominant operator” ruling and to ensure that it does not further impact growth of MTN, which has invested significantly in the Nigerian network over the past 15 years.

In some markets, requirements for foreign companies to broaden local ownership of their subsidiaries through listings on local stock exchanges remained a feature. Impact on MTN in 2015 Any listing of a large MTN operation could lead to a dilution of MTN earnings. However, this needs to be weighed up against the benefits that greater local representation could bring.   Action taken by MTN We continued to evaluate opportunities and appropriate mechanisms to ensure broader local ownership, including in key markets such as Nigeria. However, market conditions and the operating environment need to be conducive before any listing is pursued. MTN Ghana must have a minimum of 35% Ghanaian ownership in place by January 2017. This is a requirement of it winning the auction for a 4G/LTE licence. MTN South Africa is committed to supporting transformation in the country by, among others, partnering with black economic empowerment entities in our sourcing activities.

Media reports questioned MTN’s compliance with new international tax rules issued by the Organisation for Economic Co-operation and Development in October. These rules seek to change the tax system that is seen to allow multinationals to reduce their effective tax rate in a jurisdiction without corresponding reduction in value-creating economic activities. Impact on MTN in 2015 This has caused the Group some reputational damage and increased regulatory scrutiny, influenced by media interpretation.   Action taken by MTN We conducted an independent assessment and are confident of our compliance with these tax legislations. In 2015, we made further improvements in our tax disclosure, providing stakeholders with more transparency. A full tax report is available on .

Our values, which define our culture

2} Political and economic developments and their impact on our markets

The global economy remained weak, with slower demand for commodities and an oil surplus hurting the economies and currencies of commodity and oil exporters, including South Africa, Nigeria, Iran, Sudan and Ghana. Currencies across our footprint depreciated in the year. In some markets, authorities introduced more taxes to make up for declining oil and commodity income . (For the economic landscape in key MTN markets see graphic on 15.) Impact on MTN in 2015 The decline in disposable incomes and consumer expenditure impacted growth in MTN revenue and margins. Foreign exchange market volatility made MTN’s US dollar-denominated debt more expensive and had a negative impact on the translation of reported results ( 30). It increased the cost of capital equipment, and also affected our ability to remit dividends to the Group.   Action taken by MTN We continued to prioritise prudent financial management, and to endeavour to repatriate earnings from operations while taking into account their capital structure as well as local regulations. In addition, MTN continued to raise funding in local currency where possible as a natural hedge against moves in the US dollar. We also continued to work hard to shift US-dollar capex and opex into local currency. We endeavoured to persuade authorities that increased taxes are a short-term remedy, and could harm the continued growth of the sector which is a major contributor to the fiscus of many of these countries.

Elections in Nigeria led to the peaceful handover of power to a new president. The sharp fall in oil revenues put pressure on the naira and reduced the availability of hard currency. Impact on MTN in 2015 The peaceful transition was good for the country, and our business, although uncertainty over the extent of the naira’s depreciation, along with currency restrictions, led to difficulties in repatriating funds from Nigeria, and made it hard to make payments on US dollar-denominated debt ( 30).   Action taken by MTN We engaged constructively with Nigerian authorities in support of the new government’s national priorities relating to the telecommunications industry. We continued to engage with the Central Bank of Nigeria regarding the availability of hard currency and explored, and are still exploring, alternatives to solve this issue.

In July, Iran reached a landmark nuclear deal with six world powers, opening the way for a phased lifting of nuclear-related economic and financial sanctions from January 2016. Impact on MTN in 2015 The deal should assist the economy broadly. It increased the potential for MTN Group to repatriate dividends and outstanding loan funding from our operation in Iran, with due consideration to capital and forex requirements. At year end, MTN held cash of R15 860 million in Iran ( 37).   Action taken by MTN We continued to participate in high-level engagements with the relevant authorities regarding sanctions and the repatriation of dividends and outstanding loan funding. We also expanded our offerings, including the establishment of an enterprise business unit in Iran.

In December, the rand depreciated significantly against the US dollar. Impact on MTN in 2015 This impacted MTN’s share price negatively.   Action taken by MTN MTN continued to monitor the fluctuation in the rand and its impact on the economy, with appropriate actions taken to minimise the impact on the Group.

The civil war in Syria escalated and unrest continued in parts of Nigeria, Sudan, Cameroon, Yemen and Afghanistan, among others. Impact on MTN in 2015 This continued to impact MTN’s financial and operating metrics in these markets.   Action taken by MTN Without compromising the safety of our employees, we continued to offer telecoms services in challenging environments, even amid conflict, with careful contingency planning and business continuity management ( 57).

3} Increased competition and changes in the telecoms landscape

With increased pressure on consumer spending and the non-conventional players competing for a greater share of the consumer wallet, traditional telecommunications players continued to cut their tariffs in an effort to increase their market share. In many markets competitors cut their tariffs to below cost. Impact on MTN in 2015 Voice tariffs declined by 25% across MTN’s operations in the year (average price per minute in US dollar terms). The Group’s effective data tariff (in US dollar terms) declined by 45%. This put pressure on growth in revenue and profitability in many markets.   Action taken by MTN To remain relevant to customers, as well as competitive, we reduced tariffs. We pursued various other revenue-generating opportunities to make up for revenue foregone as a result of this. We continued work to diversify our earnings through developing new opportunities in digital, enterprise and financial services. Dedicated Group Consumer, Group Digital Services and Group Enterprise divisions are now fully functional to ensure that we are well positioned to participate in the rapidly evolving industry and to effectively meet our customers’ needs with regards to digital, financial and enterprise services. We partnered with various content providers and continued to focus on expanding our e-commerce venture. During the year we appointed various new specialists to drive these new initiatives. We invested a total of R29 billion in capex ( 20, 42, 96 and 22).

As the demand for data services increases so too does the need for additional spectrum. The biggest challenge we faced was in the South African market, where additional spectrum is required for the rollout of LTE services. 800MHz and 2,6GHz spectrum is currently not available to telecommunications operators. In the year we secured additional spectrum to drive LTE/4G services in Nigeria and Ghana. Impact on MTN in 2015 Spectrum shortages limit our ability to provide more customers with broadband services and faster data speeds, and so limit profitability. As a short-term solution MTN has embarked on refarming its existing spectrum in South Africa to provide improved LTE services to customers although this is more costly and caused disruptions in the network in the year ( 32).   Action taken by MTN Additional spectrum is crucial to the long-term growth of the operation. In an effort to better utilise available spectrum MTN South Africa entered into a bilateral roaming agreement with Telkom Limited, South Africa’s fixed-line operator. However, this was blocked by the Competition Commission. The regulator ICASA has issued an information memorandum on auctioning 700MHz, 800MHz and 2,6GHz spectrum, which we support. We are also working with relevant authorities to shape South Africa’s broadband policy. In Nigeria, MTN acquired Visafone. This, along with the acquisition of a 4G/LTE licence and digital TV spectrum, will provide us with access to sufficient spectrum to roll out LTE services. In Ghana, in an auction process we bought a 15-year 4G/LTE licence in the 800MHz spectrum band which enables us to offer 4G/LTE services.

4} Operational execution, management changes in key markets and employee engagement

As competition intensified in the year and the business continued to evolve towards more data-related services, MTN faced lower than expected performance in parts of the business, particularly Nigeria. However, actions taken to address poor operational performance in South Africa in 2014 bore fruit. Impact on MTN in 2015 In Nigeria, growth in data revenue was constrained as a result of an uncompetitive data network. MTN Nigeria data revenue increased only 18,8%* in the year, limiting growth in overall MTN Nigeria and MTN Group revenue. MTN South Africa improved its operational performance, with increases in revenue, supported by a number of management changes – some in 2014 – as well as increased capital expenditure with a key focus on improving its 3G and LTE network. In South Africa, data revenue increased 37% as a result of better quality 3G and LTE networks ( 32).   Action taken by MTN To strengthen operational oversight, in December we announced that we would re-implement our previous reporting structure, with vice presidents for each of the three regions, and the re-instatement of the Group chief operating officer ( 10). In Nigeria, MTN made a number of management changes to address the lower than expected performance. This includes the creation of a chief operations officer role. We increased capex in South Africa by 92,9% to R10,9 billion, rolling out 966 2G, 1 593 co-located 3G and 3 148 co-located LTE sites. In July 2015, we appointed a new MTN South Africa CEO. More detail on operational performance can be found on 32.

In the year, members of the Communications Workers Union went on an extended strike in South Africa over bonuses and salary adjustment policies. Impact on MTN in 2015 The functioning of MTN South Africa’s call centres was disrupted, affecting customer service. Employee morale and Group reputation were adversely affected. However, the result of the resolution of the industrial action was ultimately good, with greater staff engagement and recognition of trade unions.   Action taken by MTN We recognised that the prioritisation of the people and culture agenda was required, and that performance management needed to be more effective, and employee development strengthened. Acknowledging the need to ensure that talent management processes evolve to support MTN’s core and new businesses, we embarked on transforming our approach to hiring, developing, leading and managing performance of our people at all levels and cultivating a culture and environment of innovation throughout the business ( 66). The Company has also taken a decision to recognise the Communications Workers Union which will enable MTN South Africa to define a process and to ensure a constructive relationship going forward.

5} Delivering a consistent and distinct customer experience through all MTN touch points

Customer experience was negatively affected by slow data network speeds in MTN Nigeria, and disruptions in the network in South Africa, while upgrades were being made. The increase in the out-of-bundle data tariff by MTN South Africa led to customer complaints of incorrect billing. Customer registration requirements in a number of markets were considered an inconvenience by many subscribers. The subsequent disconnection of unregistered subscribers (in Nigeria and Uganda in particular) also impacted customer experience. Impact on MTN in 2015 Increased customer churn and greater use by customers of multiple SIM cards affected growth in MTN’s revenues and profitability. This also caused some damage to MTN’s reputation.   Action taken by MTN We continued to work at improving the customer experience at all touch points, improving communication with customers through the introduction of notifications and alerts when they incur data costs and once their data bundles are depleted. We implemented an evolved operating structure to harness opportunities in innovation, and to increase our focus to ensure that our business grows and meets the needs of customers. We continued to invest in rolling out infrastructure and improving coverage across our markets, ensuring that we provide quality and capacity to our customers ( 10). In nine opcos, including Nigeria, we outsourced call centres and introduced new systems to improve their performance.

6} Managing stakeholder relationships and the Group’s reputation

In 2015, each of the events detailed in material issues 1 to 5 had an adverse impact on the reputation and the stakeholders of the Company in one way or another. This was seen in various measures, including media commentary, the Group’s share price, customer and employee feedback and action, as well as interactions with governments and regulators. Impact on MTN in 2015 The perception of MTN as a company was impacted by various reports in the media concerning some of the challenges faced by management during the year. This had an adverse effect on the Group’s reputation and share price. MTN’s stakeholder universe includes Group and operations shareholders, governments, regulators, customers, communities and civil societies, suppliers, media, industries and employees. Our key relationships.   Action taken by MTN In the year, we introduced a new quarterly reporting protocol aligned to the AA1000SES Stakeholder Engagement Standard. We grouped our stakeholders into 10 groups, and in each opco the corporate affairs manager implemented greater monitoring and measurement of our stakeholder engagements. However, events later in the year – in particular the Nigerian fine – showed that stakeholder reporting lines did not facilitate enough hands-on guidance to operations, impacting information flow to the Group. Acknowledging the real role that stakeholder management plays in sustaining our business, the Group heightened stakeholder engagement and provided operations with closer supervision through regional reporting and support under three vice presidents ( 10). In addition, reputation and stakeholder management will, from 2016, be included as key performance indicators of these three positions. For details on how we engage with our stakeholders, see Online stakeholder engagement.