Nigeria is the largest market of MTN, the pan-African telco company – it has 68.5 million subscribers, 34.3m active data users, 9.4m fintech subscribers. In an exclusive interview, RALPH MUPITA, Group CEO of MTN, and KARL TORIOLA, CEO, MTN Nigeria, outline their plans to create shared value, as it grows, prospers, strengthens and contributes to the Nigerian economy. The two CEOS spoke to EDITORS of BusinessDay. Excerpts:
The charm offensive in the past two years — another Nigerian, but more visible, CEO, the “We move” media blitz and a public offer on the stock exchange — came across as an effort to portray MTN as a Nigerian company? Is the effort paying off? What would make you call it a success?
Mupita: We’ve embarked on a new strategy which we frame as Ambition 2025. And within the context of that strategy, there are obviously several components. One important part is that we are redefining ourselves as a Pan-African organisation. We want to focus all our efforts and resources on the African continent and take on a Pan African focus on identity.
And the moment we say that, we then have to look at what that means to each nation state. We say we want MTN Nigeria to be seen as an indigenous company. It must be seen as a company run by Nigerians, we have Karl here as the CEO, we have Modupe, a Nigerian as the CFO. The two most senior executives are Nigerian. It’s a very deliberate strategy that says we do need executives to understand the context and how the markets actually operate. And as you said, we’ve had a very deliberate strategy on telling our story, and ensuring that we create an emotional and a real connection with Nigerians stronger than we had before. And the public offer is also a part of that.
MTN came into Nigeria 20 years ago, but the shareholding base has not been broad enough, either at the retail or institutional level. And we took on a decision as the group to say that we want to create shared value, as this company grows and prospers and strengthens and contributes, to the fiscals, to the taxes we pay i important that that company also has a broader Nigeria shareholder base.
We have committed to sell down 14 percent, specifically to Nigerians, of what was originally a 79 percent shareholding. We don’t want that when we do the sell downs, it will go to other foreign investors. The public offer we’ve done is series one. We are waiting for the authorities; we understand it’s imminent, but we can’t communicate the results.
We will follow series one with potentially series two and three, to complete the sell down of the 14 percent. In an ideal world, we’ll try and complete it this year so we meet our commitments to the authorities in Nigeria, because we have said we will do it. We understand obviously, that current FX challenges made that also quite difficult but we ultimately want MTN Nigeria, to have millions and millions of Nigerians owning the stock, benefiting from the growth and the company’s prospects, and the dividends of course that come with a company that is growing strongly.
You’ve been meeting with regulators, the government, the public. Do you feel the message that MTN is Nigerian resonating?
Toriola: First of all, I think I have to say that in taking over the company, I was standing on the shoulders of giants. This journey started with the previous CEO, but of course, as a Nigerian, it’s easier for me to communicate and build on that platform. I think we’ve had a really, really successful 2021.
Our identity, our brand, our contribution to society, shared value, we’ve really made that transparent to the public. And yes, of course, there are nuances like the “We move” campaign that associates with the daily hustle of Nigerians. I just want to emphasise one point. Ralph referred to the sell down to 65 percent. To avoid any doubt, MTN is here to stay. We’re not going anywhere, it is a genuine intention to share the wealth with more Nigerians, but MTN itself is going nowhere. And we’re continuously investing more and more to anchor ourselves on a permanent basis to this country.
Read also: MTN Nigeria grows full year profit by 45.5% to N298.7bn
As a full year season kicks off, investors are expecting numbers from corporations like you. Most of them have enjoyed impressive returns in terms of dividend and share price appreciation. So what’s the message ahead of that?
Toriola: So we are probably going to be the first of the largest companies to release our results within a month of the financial year. That’s a testament to the discipline and effectiveness of our finance team, of the entire organisation. Quarter three is a strong indication of where the year is going to go. By the time you have three quarters; you get a sense of where the year is going to end. And we are very pleased with the operational performance, stakeholder engagements that you refer to and the dividend returns.
Look, historically at what we’ve done with our interim dividend. We think that as a result of our very strong governance, capital allocation discipline, the stare of a very seasoned board of directors, and really what I’ll call a leaning in slightly aggressive posture towards opportunities that the Nigerian economy presents. An example is the 5G spectrum, we have a very good outlook ahead of us.
The shareholders who took advantage of the opportunity in the recent public offering are expecting a lot. When are they likely to have those allotments?
Toriola: We’ve done everything we can, we have to allow the regulatory authorities, the Securities and Exchange Commission to go through their very disciplined processes to make sure that offer is crystal clear, and the processes are crystal clear via balance, transparency, etc. And we think the announcement on that is very close.
Mupita: In addition, without going through the numbers, I think there are a couple of drivers for performance both in Nigeria and more broadly at the group that are important. One is we’ve seen sustained growth in data traffic. Through the COVID pandemic we’ve seen, obviously, the demand for data services grow very robustly and very strongly and of course if you take the trends up to quarter three, we have detailed disclosures. What we can say is that, that level has sustained the demand for data traffic, and then it will obviously translate into the financial results.
We think this is a structural change and not COVID induced, because in most of our markets, including here in Nigeria, there haven’t been any material lockdowns. We believe that the patterns that we see in data growth in particular, are structural, and will remain with us beyond the move to a new normal, whatever the new normal will be, the pandemic moving to the endemic.
We invest in capex appropriately to meet that demand and to ensure that our networks are ready for 5G, where available, like in Nigeria. We’ve made sure that we are accelerating our network rollout. And part of our network rollouts, to the point that Karl made about shared value, is that the pandemic has shown us that we are living in two worlds: those who have access to data services and those who don’t. The rich were able to continue in their lives, or those who have resources, were able to continue their lives in some sort of way, because of the access to their services. Their children got online and carried on with the school activities but in the rural areas, basically life came to a standstill for a lot of students.
We’ve been focusing on investing in rural broadband coverage. Karl and I have targets; we’ve got to make sure that no one gets left uncovered without digital connectivity. Growth and demand are sustained, and we think it’s going to be higher. We invest in the capex aligned to the growth that we see, and then obviously, we continue to drive efficiencies across our business, and then the rest falls down to the bottom line.
Are you engaging with state governors on the right of way, to ensure that you don’t have issues as you accelerate and deploy your fibre cables?
Toriola: We have to give a lot of credit to the honourable minister for being extremely progressive in accelerating the pace of advancement in the telecoms industry. Right of way, for example, is one of them. The second is the broadband penetration targets and the National Broadband policy. The third is that we are actually one of the first countries in Africa to have gone through a clear transparent 5G process on a scale that makes sense. There’s 5G that’s really no different to 4G. With 100 megahertz of spectrum, this is world class 5G. And you will see that through the experience.
Some states have leaned into the right away pricing as requested by the minister, and we’re investing aggressively in those states. For other states, it’s within the jurisdiction and right of the state governors to decide how they want to manage that policy. I think over time, as we see the ICT progress of the states that have opened up to fibre infrastructure and the right of way, a lot more states will come into the fold. We, without a doubt, need fiber capacity to provide the backhaul for 5G, and if you’re ready for 4G, it helps the quality of service.
We’ve had a very deliberate strategy on telling our story, and ensuring that we create an emotional and a real connection with Nigerians stronger than we had before. And the public offer is also a part of that
We are actually one of the first countries in Africa to have gone through a clear transparent 5G process on a scale that makes sense
A base station for 5G consumes four times the electricity for 4G, how are you going to confront this in your rollout of 5G?
Toriola: Some time ago, I was asked about operational challenges in Nigeria, and I said it’s within our DNA as MTN to go into challenging territories and work through them and provide a quality of service that is world class to consumers. There are challenges in Nigeria, pretty much every territory that we operate in has challenges and we work through those challenges. It can affect our cost structure, occasionally it might affect our uptime, but we have found solutions.
To answer your question, yes, the consumption of 5G base stations in terms of electricity is higher, but there are various tactics that we use to manage that. Again, it depends on the specifications and the capacity of each base station. There are various tactics that we use to manage that but remember, a substantial amount of electricity consumption is provided by the tower companies to whom we have outsourced the infrastructure, which includes power. So it’s their responsibility and obligation to provide power for those base stations at an effective rate.
There’s another added complication that for 5G, as antenna technology progresses, we will need to put in additional antennas, we’re also going to work through that to provide 5G capacity at pretty much the same pricing for 4G. Of course, you will consume a lot more bandwidth because the pipe is a lot bigger but we’re going to do it in a cost effective manner in which Nigerians can afford. Initially we focused on locations where demand exists for 5G but over time, like with 3G and 4G, it is going to be eventually needed nationwide.
In addition, as technology evolves, the power consumption will come down. When you talk to the operators or the OEMs, that point is very instrumental. By the time we have a much more extensive rollout, I think that the power costs will come down. And the likes of IHS, are investing significantly to try and bring down the cost of power and service; we actually incentivise them.
Mupita: In some of the markets where we have new tower agreements, such as South Africa, we’ve actually asked them to align with our emission reductions over the next couple of years. It’s forcing them to innovate and it’s not really our problem, they have to provide the power to us.
Last year, you said MTN Group will be looking to spin off its FinTech and mobile money units to help unlock some extra value trapped in separate entities. The initial guidance was for that to happen in the first quarter of 2022. Is the plan on track and do you think you will get the payment service bank (PSB) license before then?
Mupita: We communicated at the end of quarter one last year, that we’re in the process of separating both our fintech and infraco assets. Our infraco assets are generally fibre and data centres, towers (which we spun off to the likes of IHS). The structural separation that we want to complete by Q1 has basically three elements to it. One is at the operations level, to legally separate the fintech business from the communications business. Two is to have the intercompany agreements between these two businesses. And the three is for fintech at the operations subsidiary level, having its own intercompany agreements at the group level. We are substantially progressing aligned to that commitment.
And, obviously, if we’re successful with the PSB, that may take time and push the timeline, and it’s a good problem to have. If we end up in that way, because when we frame that timeline, there wasn’t a sense that the PSB was possible. Now we have an AIP [approval in principle], we don’t have a PSB license.
The structural separation should not be confused, as many articles have said, with an unbundling bringing in minority strategic investors and ultimately spinning that, that is a process that may well come but will come in time.
Investors can’t see the value attributable to the GSM business and those two businesses carry different multiples. A typical telecommunications business is valued somewhere between three to six times generally, enterprise value multiples on a one year forward basis but fintechs are anywhere between 12 and 21 times. But it’s all kind of buried right now.
Our Ambition 2025 strategy has three elements. One is we believe we can accelerate growth, because we’re seeing sustained data demand and financial inclusion. Number two, at the group level we want to deliver the local balance sheet, we have dollar debt, some Euro ones that we have that we want to accelerate the repayment and potentially pay early. And the third element is a structural separation to reveal value.
What is your outlook for 2022?
Mupita: Looking at 2022, I anticipate that Nigeria will be strong and resilient. In particular, we started to see net additions coming back. When we had the NIN-SIM issues, we started to get a kind of growth coming back so that should add to growth. Ghana should be strong because, the kind of performance they saw in their Q3 is what we expect them to be able to do in 2022. South Africa, I think it will be potentially softer than where they ended up. There’s pressure at the lower end of the market, with the new job losses, 2 million jobs lost in South Africa. Four million more jobs were lost in the last quarter so it’s at the lower end of the level because due to lockdowns, jobs in tourism etc. have been affected.
I think there will be healthy growth in enterprise in South Africa, in postpaid, but we should be in the guidance that we gave. The markets I anticipate will actually start to come through are markets like Cameroon and Cote d’Ivoire. In those markets there has been a turnaround situation for a couple of years. Before Karl took on this job, he was the architect of the turnaround in those markets, so we’re seeing sustained growth.
Data, as I said, should remain sustained. I think fintech should also remain sustained. Digital for us is a very interesting revenue stream, you see dynamics coming through music gaming and video, gaming is coming on quite interesting across some of our markets. In the East, look at Tencents and others; gaming has become a big driver of revenue.
In August 2021, MTN got approval to refurbish the Enugu-Onitsha expressway as part of the Road Infrastructure Tax Credit (RITC) scheme. How far has the road construction gone?
Toriola: We committed to participate in the refurbishment of the dual carriageway, and it was approved by President Muhammed Buhari. We are going through the various stages, which means we have to assess from an engineering point of view the design of that road, which we found to be good and has been done by the Ministry of Works. There are some steps we need to go through, I hope to see the minister of finance next week to go through those steps and unlock some of our core challenges. Also, procurement processes we need to go through and subsequent to that we’ll go through the appointment of contractors, quantity surveyors, etc. working hand in hand with the ministry of works. We’re hopeful that as long as we can unlock some of those procedural steps with the minister of finance that probably in the next three, four months, we will start to work on it. As long as we can unlock those, we are firmly committed to it.
Are projects like this a one-off, or are there plans for more?
Toriola: As Ralph has said, shared value is a critical part of our Ambition 2025 and it’s in our DNA. We are a company that has really contributed to the acceleration of the economies of our society. So we will explore every one of these opportunities, and the expressway is sort of like the pilot scheme. We need to see how that pans out. And it’s going to build a lot of experience between us and the ministry of finance and ministry of works on how to make this project work. Once we unlock that one, I expect overtime progressively we will be doing more as long as that structure of the tax credit exists. But we do need to go through this pilot before we make any further commitments.
Mupita: A modern and progressive business today understands that their responsibilities to stakeholders’ board and shareholders, the shareholder base for sure, is very important. But today, the narrative is a more inclusive capitalism, stakeholder capitalism if you want to have a sustainable economy. It is our business to be part of a sustainable and growing Nigeria. That is our part. We have a role, it’s a small, maybe a humble one. So when I get requests like that, we do respond. Because it provides a tax credit, we can explain that what we’re doing is good for the country, good for shareholders.
I think as an enlightened capitalist approach, we would like to think that’s how we are positioned. The days of a corporate saying, what I do is provide digital infrastructure, please don’t come and ask me for anything. I mean, those days are gone. And I don’t just see it in Nigeria, I see it all over the world, where there’s a big cry for companies to step up and contribute to society’s wellbeing.
What are the plans for your new head office project?
Mupita:- Our group head office still remains in South Africa, Ivory Coast is building a new office for Ivory Coast. We want all our markets to demonstrate even symbolically that we are here to stay. We are not building a head office to say this company is rooted. This is our biggest market and it doesn’t feel right that this isn’t our building, and I hope Karl finishes the plan while we are still on contract.
Toriola: We are progressing on that, we did have a board meeting where this was discussed and we are progressing swiftly. And when we’ve made a commitment on location, design etc, we will communicate that to the press and it will be iconic, green and a landmark.
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