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OPINIONS & ANALYSIS - Where are MTN and Ghana’s mobile telecommunications industry going?

Apr 30, 10 - Comments

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MTN, Africa’s #1

MTN has always been a market leader in Africa. From when the network, called Spacefon then, became the second company operating in Ghana in 1995 (with Tigo), it always stood out with its wide network coverage and numerous value-added services. Being the first digital cellular network in Ghana, the high quality offered by their GSM technology attracted many people.

 

This is representative of its performance and position on the continent: in less than fifteen years (1996 launch), MTN has become the uncontested leader with over 100 millions subscribers in 21 countries (16 in Africa), a number one position in most markets and is the largest capitalization in the continent (US$ 27,3 billion). With Nigeria (30% of sales, just behind South Africa), Cameroon, Ivory Coast and Ghana are MTN’s leading markets.

 

The amazing four to fivefold growth during the 2003/ 2008 period has been maintained with 2009 sales of US$ 15.4 billion against 13.8 in 2008 and a net profit growth of 20%. A yearly growth obtained in a difficult economic context and under accrued competition. 

 

A leader under pressure

MTN is an African company that knows how to sell to Africans but its leadership, here and in the continent is challenged. MTN is now second in its home market and is not doing well in some others like Sudan and Zambia. In Ghana, it announced investments of US$ 500 million in 2009 but considering the persistent network problems encountered by many MTN users, one can wonder where the money was spent. No wonder Tigo claims being “A network that actually works” and Vodafone ““A network that works”… Most of all, MTN is facing increasing competition in the sizable Ghana market.

 

Tigo

After playing second fiddle to MTN for years, it seems to now play in 4th place since the entry of Zain and Vodafone, but Tigo fights back with a much higher presence on TV and other advertising supports, and promotions that encourage old subscribers to get back on board.

 

Vodafone

After paying US$ 900 million in August 2008 for 70% of Ghana Telecom, the world leading company Vodafone announced pre-launch improvements to the cellular and fixed line networks and investments of US$ 302 million in 2009, including in human resources development. Vodafone has also introduced various services, such as broadband service, mobile broadband Smart phones and a chain of ten good Internet Cafes throughout the country, including four in Accra.

 

Zain

Zain is doing well too, having signed in over 1 million people in the first year of operations. It also did well in the hot new Internet access segment by launching a 3.5G network (the first in Africa outside of South Africa) and MTN still scrambles to catch-up, except in coverage.

Zain and Vodafone’s heavy investments in technology and marketing are paying off after a year and a half of operations. After a thirteen-year free ride during which no operator gave MTN serious competition, it has been very busy reacting to this totally new context and launched, with:

  • a new network code to enable them add more subscribers
  • a 3.5G network
  • “seamless roaming” – a service that allows free roaming into Benin, Nigeria and Cameroon for MTN Ghana subscribers
  • a web recharge service
  • a Mobile TV service in collaboration with DSTV
  • and rolled-out a money transfer service known as MTN MobileMoney in July 2009.


It must have done something right as subscriber growth continued: from 7.4 millions as of September 2009,
MTN stands at 8 millions subscribers as of April 20, 2010 and still holds over 50% of the market.

 

However, the competition from its two major opponents will not fade and MTN will also have to face additional competition with the entry of another important player: GLO Mobile, the leader in Nigeria.

 

GLO

GLO is building a strong pre-launch hype, starting with the unveiling in September 2009 of seventeen personalities as ambassadors to promote their brand, drawn across the music, movie, sports and entertainment sectors, enormous outdoor advertising that none can miss, sponsorship of Ghana’s Football Premier League and CAF Awards and events like the April 2010 reception with the Nigerian Nobel Prize Wole Soyinka and Ghana’s Vice President, John Mahama.

 

Despite their achievement in Nigeria, GLO remains small with only 18 million subscribers, essentially in their home country and operates in only one other country (Benin, since April 2008). On the other hand, one trump card GLO has is their parent company’s submarine cable (Glo-1) that links West Africa to the UK. It promises gigantic Internet bandwidth to Ghana users. Let s see how much trouble it will give to the three international giants that heavily dominate the market.

 

In addition to higher competition, the mobile telecommunications dynamics are slowing down: the problem for operators is to pursue growth at a controlled cost as most of the urban well-to-do customer base has already subscribed. One direct consequence is the decrease of the ARPU (average revenue per user).

 

Will MTN be able to develop the new strategy it needs to face such situation and the new strong competition?

 

A new MTN for Ghana and Africa?

 

The challenge for every leader is to remain at the top. MTN is trying to do so by switching from geographical expansion to vertical consolidation. It has indeed no other choice than penetrating new market segments such as Internet and data transfer. The demand for these services is exploding and networks are saturated.

 

To that effect, MTN has already bought numerous ISP’s (Internet Service Providers) and landline operators across the continent, such as Afnet and Arobase in Ivory Coast, Verizon in its home market, VGC et XS Broad­band in Nigeria and GlobalNet in Cameroon, renamed MTN Networks Solutions. Last acquisition to date: 60 % of UUNET in Kenya.

 

Mergers and acquisitions should continue across all market segments to develop economies of scale but MTN is not playing alone anymore. Many regional operators want to expand and public operators in many African countries remain undercapitalized and attractive. Through acquisitions, Maroc Telecom now operates in four new countries, Moov in six and Tigo in five. Sudatel, Warid Telecom and Lap Green Network, financed by middle-eastern funds, are other African smaller but hungry operators. 

 

Another challenge to MTN comes from India. Zain’s sub Saharan African operations have been bought in March 2010 for US$ 8.3 billion by Barthi Airtel, the leader in India with 122 million subscribers. It had unsuccessfully tried to merge with MTN in 2008. The biggest mutli-bank loan ever made to an Indian company for an acquisition lets Bharti Airtel climb from tenth place in the world to fifth. It enters the African market in a big way by taking over 42 millions subscribers in 15 countries, such as Ghana, Nigeria, Uganda or Chad. Let s see how this champion of low revenue per customer will succeed in adapting his know-how to the multi-faceted African market.

 

Looking further down the road, how will MTN protect itself should Barthi Airtel tries to merge again? Its size and capitalization will be the best deterrent.

 

All these expansion strategies bring a certain unbalance in Africa’s mobile telecommunications industry. There are real opportunities in the last high potential markets, such as Nigeria or DRC Congo but these strategies contribute to the presence of excessive numbers of operators in some smaller countries.  

 

Consolidation will certainly happen in this new decade and the African mobile telecommunications industry is far from settling down.

 


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Disclaimer: the opinions expressed in the Blog are those of the writer only and do not engage the responsibility of the website


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