MTN Says Tougher Nigeria Licensing Rules Will Boost Prices

May 06, 2014 5:43 am ET

(Updates with MTN shares in sixth paragraph.)

May 6 (Bloomberg) -- MTN Group Ltd., Africa’s biggest phone operator, said if Nigeria’s government makes its license conditions more stringent costs for customers may rise.

The government of Africa’s largest economy will probably revalue the Johannesburg-based company’s phone spectrum and will push to have improving service and infrastructure written into the contracts, Information and Communication Technology Minister Omobola Johnson said in a February interview.

Nigeria’s telecommunications regulator the same month fined the three biggest mobile operators, including MTN, for the quality of their service and prohibited them from selling new SIM cards in March, the first time the punishment was imposed along with a financial penalty. MTN’s license expires in 2016.

“Tougher rules, tougher regulations, greater demands ultimately will impact price, the more you charge up front or the more you demand over a period of time, well somebody has to pay for it,” the chief financial officer of MTN’s Nigerian unit, Andrew Bing, said in an interview in the commercial capital, Lagos, yesterday. “Ultimately the subscribers are the people who will have to pay.”

Nigeria had 167 million mobile-phone subscriptions as of February 2013, according to the Nigerian Communications Commission. With many subscribers owning more than one phone, user numbers will probably grow to more than 200 million in 2017, London-based research company Informa Telecoms & Media estimates. The population is about 170 million.

Falling Prices

MTN shares rose 1.1 percent to 215.19 rand as of 11:40 a.m. in Johannesburg. They have lost 0.8 percent this year, giving MTN a market value of 403 billion rand ($38 billion).

Prices have fallen in the past three years in Nigeria, MTN Nigeria’s Chief Executive Officer Michael Ikpoki, 44, said in the interview. Over the same period, the company has spent about $5 billion to $6 billion in expanding capacity.

“It’s bigger than the power sector combined, it’s bigger than the cement industry, but they get away with everything,” said Bing, 49, who will go on sabbatical leave from the company at the end of this month. “Yet everybody wants a piece of us.”

Nigeria’s regulators have to allow phone companies to make “decent margins” to avoid hurting investment, said Ikpoki.

“We are already operating under fairly stringent conditions,” Ikpoki said. “I don’t know what can be tougher than this.”

The company struggles with power supply and cuts to its fiber-optic network, making it a challenge to meet the regulators standards.

Road Construction

Hundreds of cuts are made a week to MTN’s cables in the country due to negligence as roads are constructed or dug up, as well as malicious damage, said Bing.

Last year MTN spent about 34 billion naira ($214 million) on diesel to power its base stations across the country due to a lack of regular electricity in Nigeria, said Ikpoki.

The government of President Goodluck Jonathan sold 15 state-owned power generation and distribution companies last year and is spending $3.5 billion to boost transmission capacity this year by 50 percent from 4,000 megawatts, less than a 10th of South Africa’s full capacity.

“We are very concerned and very keen to see that the whole power privatization actually succeeds because it’s going to be really, really critical for our business,” Ikpoki said.

MTN is looking to grow revenue from data as the use of smartphones, tablets and TV’s increases in Africa’s most populous nation to offset a slowdown in the growth in subscription numbers.

While users in Nigeria, MTN’s biggest market, rose only “marginally” to 57.2 million in the quarter ended March 31, data revenue in local currency rose 21 percent. At the end of last year 15 percent of MTN Nigeria’s revenue came from data, said Ikpoki.

“Voice is getting cheaper and people are now using more data,” said Bing. “Will it ever overtake? It probably will, but it’s going to be a long way, because a lot of people in this country still haven’t made a phone call.”

--With assistance from Antony Sguazzin in Lagos and Dulue Mbachu in Abuja.