MTN: Reaching into the region

It has been a busy year for South African telco MTN. After winning Irans first private sector GSM licence in controversial circumstances in late 2005, it cemented its position in the Middle East with the May purchase of Beirut-based Investcom, in a deal worth more than $5,500 million. Now the focus is on the consolidation of existing operations and the integration of its new acquisition into the MTN stable of operations.

For group president and chief executive officer Phuthuma Nhleko, the Investcom deal was a natural extension of the companys move into the Middle East. 'There was a strong rationale behind the acquisition,' he says. 'First there was no overlap with our existing operations. Second, Investcoms operations are in countries with penetration rates of less than 9 per cent; and third, it has given us a contiguous geographical footprint in West Africa. This is an economy of scale business, so it makes sense to expand.'

The acquisition has added 6 million new subscribers to the MTN group, bringing its total number of customers to more than 30 million, and increasing combined revenues to almost $3,500 million. As a result of its investments, MTN is now the second largest non-Arab mobile operator in the region, with operations in Iran, Yemen and Syria, where it has 1.7 million customers and the second highest average revenue per user (ARPU) outside South Africa.

Populous Iran remains the regions biggest play. Putting the bitter contract dispute between Tehran and original licence winner Turkcell behind it, MTN has set itself the target of 1 million users and coverage in the countrys six largest cities by the end of the year. Country-wide coverage is expected to be rolled out by the end of 2007. 'We are very hopeful for Iran,' says Nhleko. 'We just completed the first test call in August. The Tehran switch is on and other switches are

being built.'

Not everything has gone MTNs way,

however. It missed out on the third Egyptian licence in the summer after the auction asking price went above what it thought was a fair offer the UAEs Emirates Telecommunications Corporation (Etisalat) eventually won the auction and the licence with a huge bid

of $2,900 million.

Was the loss a disappointment for MTN? 'At that price, no,' says Nhleko, conforming to the industry view that Etisalat paid well over the odds for the licence in a country where ARPU rates are low and the two incumbent operators well entrenched. 'We just couldnt afford it.'

While the Egypt opportunity has passed, eyes are still on Saudi Arabia and its imminent licence issue for both mobile and fixed-line licences. MTN came second again behind a consortium led by Etisalat in the race for the second mobile licence in 2004, and is considered one of the favourites for the third licence.

But Nhleko warns that his companys participation in the licence round is by no means certain. The kingdoms regulator, the Communications & Information Technology Commission (CITC), has released few details on the licence conditions, and until it does, MTN is keeping its options open.

'We obviously had an interest the

first time, but we still dont know enough this time round to commit,' says Nhleko. 'Its certainly big enough for us to explore, but again it depends on the

conditions attached.'

There is considerably less interest in other licence possibilities in the region. Circumstances in Iraq are a deterrent, while too little is known about new licence issues in Kuwait and Qatar. Given the telcos rapid growth over the past 18 months, consolidation is higher up the list, unless a major opportunity such as Saudi Arabia or Egypt comes along.

MTN also operates a few fixed-line networks in southern Africa, but the possibility that it may decide to branch out into the sector through several of the fixed-line libe