Strong customer growth boosts MTN profit

FIFI PETERS: Telecommunication inflation has been one of the slowest rising items in South Africa’s consumer inflation baskets. In fact, there’s been deflation in some areas.

Today MTN released its first-half results. The company said that data costs across its market had fallen over 22% in the six months to June

We have the group CFO of MTN, Tsholofelo Molefe, on the Market Update  for more on the numbers. Tsholo, thanks very much for your time. Good to speak with you again. I guess for many people it may not feel like the cost of communicating is coming down, given that we are in this cost-of-living crisis because of everything else going up. But your numbers do show that data [prices are] falling and have fallen. What’s driving [those costs] lower?

TSHOLOFELO MOLEFE: Thanks very much, Fifi. We have been over the years trying to make sure that we can make the cost to communicate a lot more affordable to customers in South Africa. Already in May we looked at our pricing and we obviously are overall doing pricing reviews across the markets that we operate in. But we have taken down our pricing, particularly on data. If you recall, there was a data service market review by Icasa in the Competition Commission a few years ago. So we did obviously reduce our pricing as well at the time, in line with the competition.

FIFI PETERS: We also recently had the spectrum auction happening, which was regarded as a great thing by the industry, because we were told that the reason data and communication costs couldn’t fall lower at the time was because the auction hadn’t happened, and it was preventing prices from falling. So, now that it has, where to from here in terms of communication costs?

TSHOLOFELO MOLEFE: You need to look at it within the context of what has happened historically, as I’ve indicated to you. It’s really more about are we able to provide the services that our customers want, and therefore what do we need to do to be able to do that? I think, as we say in this industry, we do have to invest a significant amount of capital expenditure to be able to improve coverage and increase capacity so that we can improve the quality of service to our customers.

So that needs to be, the carrot……2:57 needs to be read within that context as well. We obviously do make sure that, as we do it, we also look at the pricing …….3:08 as well. And alongside the macroeconomic challenges that we are seeing with inflation going up as, as we say, we have not been able to pass through the rising inflation to our customers. That is why we’ve actually had to do a lot more in cost reduction so that we don’t pass through all of those costs to the customers, while at the same time making sure that  we can improve returns for shareholders as well.

FIFI PETERS: A tough balancing act, because then the question becomes how long can you protect your customers without compromising your own margin? I suppose the question more specifically is how inflation is affecting MTN right now, and what are you trying to do to offset the blow of rising prices?

TSHOLOFELO MOLEFE: Yes, we’ve seen across our markets of course, with the global crisis, the macroeconomic challenges, the high energy cost and rising inflation, that has obviously affected mostly our network operating expenses. But, as I think we said, one of the dynamics in South Africa in particular is the ongoing power outages which do put a strain on our network. Therefore we’ve obviously had to spend to put in batteries so that we can at least continue to give the customers the service that they require.

So it’s all those factors that one has to take into account to understand how long we can sustain this. I think what we’ve done from an MTN perspective is we’ve been very proactive in 2020 with an expensive efficiency programme that is yielding very good results, and we’ve been able to take out over R5 billion since 2020. We haven’t been able to pass through the inflation cost to our customers because we’ve been very consistent in cost reduction overall.

FIFI PETERS: All right. So MTN, yours was the best-performing stock on the JSE in today’s session, up almost 8%, closely followed by Telkom. But it looks like there has been a new addition to the narrative of MTN and Telkom, and a potential tie-up that you two are talking about, as you announced, because we heard this afternoon, according to a story from Bloomberg, that now someone else has its eye on Telkom – Rain. Rain is  part of the African Rainbow Capital Group, backed by billionaire Patrice Motsepe. Do you have a comment on that?

TSHOLOFELO MOLEFE: I cannot comment on that at all. Suffice it to say we are under cautionary in terms our potential measure……5:12 with Telkom that is still at early days, and we’ll obviously have to go through quite rigorous reviews by regulators. So in terms of what Telkom and Rain are doing or exploring to do, it’s not something that I can comment on.

FIFI PETERS: We have seen a period of consolidation happening across all sectors of the economy, from retail to mining – in fact mining where we are seeing a bidding war currently taking place for the assets of Royal Bafokeng Platinum, with Impala and Northam the two contenders. So I guess my question is, I know it’s early days, but would you be prepared to take it all the way for Telkom? Is a bidding war on the cards here? Can you share anything on that?

TSHOLOFELO MOLEFE: No, I’m not in a position to share anything at all, as I indicated. I’m not privy to the discussions between Rain and Telkom. I think all I can say is that if you look at the South African market, probably consolidation at some point is required. And it’s really, as I indicated, informed by what is required to make the industry sustainable over the long term, and we’re seeing it happening globally as well. So that’s all I can comment on, Fifi, at this point.

FIFI PETERS: A last question. You operate in a number of markets, around 19 or so I believe – you can correct me there if I’m wrong – so, going forward, which markets are you most excited about, and which ones are you most concerned about, given the current economic climate?

TSHOLOFELO MOLEFE: Africa is obviously quite an exciting market. I think whether it’s Nigeria, Ghana, or some of the francophone markets we operate in – Cameroon, Côte d’Ivoire, including the southeast Africa region of Uganda, and Zambia – they all have different challenges. We obviously are faced with regulatory pressures in those markets as we do business there, and we respect the regulatory requirements of the markets we operate in. But I think all of them for us present an opportunity for growth. There’s still a lot of data penetration, smartphone penetration, that is required in those markets. That’s what makes it so exciting.

You’ve quite a lot of customers who do not have access to financial services, and that’s what makes our financial services proposition so compelling, as well as exciting. We think that those markets, such as Cameroon, Uganda, Côte d’Ivoire, Benin, Nigeria, even Ghana, to name a few, including Zambia in the southeast region, really present a great opportunity. We believe that for us it’s really about financial inclusion of all the customers that that we have across all markets.

FIFI PETERS: Tsholo, thanks so much for your time this evening. We’ll leave there. Tsholofelo Molefe is the Group CFO of MTN.