MTN's Nigerian tax holiday

MTN's subscriber growth in South Africa is slowing down, but it's going strong in Nigeria. Yet MTN's tax holiday in the country came to an end this year, which has impacted on its results.

Bruce Whitfield:
Early signs today that MTN’s acquisition of Investcom last year is beginning to pay off. The group reporting that it has a 69 percent increase in revenues to R34.2-billion, while it highlighted Ebitda was up 75 percent, its headline earnings per share though up just five percent.

MTN now boasts 48 million customers give or take and what is interesting in these results is the fact that it now has more users in Nigeria than it does in South Africa. Phutuma Nhleko the chief executive is with us now and I suppose that was coming Phutuma, wasn’t it, more users in Nigeria than in South Africa, even though the South African business is a lot more profitable?

Phutuma Nhleko:
Yes, I think that is true, well let’s put it this way, the South African business has got a higher revenue, but the Nigerian business has got a higher margin contribution. And yes, it is not unexpected in the sense that the growth in Nigeria is faster.

Bruce Whitfield:
13.4 million users in South Africa, 14 million in Nigeria. Is there any sign that these markets are beginning to reach some kind of saturation? I noticed the growth number in South Africa was not that impressive.

Phutuma Nhleko:
Yes, I think South Africa is not ex-growth, but it certainly has slowed down. So the worst Africa region, Nigeria been the largest is still the biggest contributor now of Ebitda to the group. But of course as far as growth and granted, that coming off a very low base, the Middle East and North Africa region is really the fastest region at the moment.

Bruce Whitfield:
We will talk about those in a moment. What is the status now of the Nigerian tax holiday? I noticed you paid a lot more tax this time around.

Phutuma Nhleko:
Well the tax holiday came to an end on 1 April this year and that is why, notwithstanding a huge growth and turnover in the Ebitda line, the patch is not as rosy that is because we had to take the hit from the end of the tax holiday as well as the finance cost associated with the loans we had to raise to make the Investcom acquisitions.

Bruce Whitfield:
But certainly the tax issue in Nigeria has been a big boost to that business in recent years with the relief you have had there. Do you anticipate though that not having that holiday in place anymore will actually impede your growth prospects in that country?

Phutuma Nhleko:
Not at all, because as I said, we have still got very strong demand. In fact, we are trying to catch up with that demand as far as the network rollout is concerned. We are still managing a very tight ship there in terms of the margins and cost efficiencies and of course we have revised the addressable market in Nigeria now to 52 million by 2011 that is for obviously 100 percent of the market. So the track issue is really below Ebitda and that is just a reality.

Bruce Whitfield:
One analyst report today saying you make more from interconnect fees in South Africa than you do from actual calls themselves. I found that interesting, but also, the likes of the Icasa hearings into the dispute around interconnection fees. Where about are we in this particular process? Do you anticipate that there could be a ruling that could actually harm your profitability in the South African market over the longer term?

Phutuma Nhleko:
We don’t believe so. I think as we indicated during my presentation to investors this morning, we believe that we have a very constructive engagement with Icasa at the moment because the South African industry has got quite a lot of anomaly, so you cannot just take one aspect of it and change that without affecting the whole industry. The fact that we have got over 85 percent penetration in the country is precisely because the model as a whole does work.

Bruce Whitfield:
In other words, just to try and translate that for people like myself who are trying to follow that interconnect model, if you are a Vodacom user sitting in an area, at Keetmanshoop and you want to phone someone in Port Elizabeth, you can access one of the networks whether it be via Telkom, whether it be by Vodacom, MTN or Cell C, and through utilising the network, that interconnect makes it possible to do that.

Phutuma Nhleko:
That is true, that is exactly what I am saying. And of course, it has enabled us to have an attraction to investing in those sorts of areas. And once you start fiddling with that interconnect, the incentive for us to roll out a network in certain arts of the country becomes significantly reduced.

So, all I am saying is, the whole thing is like an eco-system and you cannot just change one parameter, you need to look at that, you need to look at the other huge industries that has emerged out of what we have got, whether it is a distributor, whether it is the independent service provider like Nashua and Autopage and so on, there is a whole chain associated with this. So that is really what we are saying, but we are not incorrigible to different views either.

Bruce Whitfield:
Quick question on the fibre optic network, the South Africa rollout of that. When do you anticipate been able to offer fixed line services and actually go head to head in the fixed line market with the likes of Neotel and Telkom?

Phutuma Nhleko:
Well it is a bit early for us to say, suffice to indicate that we are looking at it very seriously. We have got a plant that we are working on, we do expect MTN South Africa that is, will go out to tender on the plan that we have got and then we will take a considered view.

Bruce Whitfield:
Phutuma Nhleko thanks very much indeed, the Chief Executive Officer of MTN, the company with 48 million subscribers, South Africa, West Africa, other parts, regions across the continent as well as in the Middle East and making a fine contribution to group profits now as well. The Chief Executive of MTH Phutuma Nhleko.