MTN’s Strengths And Weaknesses In Nigeria

MTN Nigeria is a subsidiary of MTN Group, a South African multinational corporation, with operations in key strategic markets in Africa and beyond. MTN Nigeria is the most recognizable telecom brand in Nigeria, enjoying the benefits of the first to market. Its geographical spread is huge and it enjoys the benefits of economics of scale, being ahead of the the second operator, Glo, by subscriber base, in excess of 20 million users. At the end of last quarter, Q1 2017, MTN Nigeria had about 60 million subscribers, according to the Nigerian Communication Commission, NCC, an industry regulator. MTN Nigeria, with local market share in excess of 35%, delivers about one-third of the Group’s revenues.

Technically, MTN Nigeria is owned by MTN Group and a South African holding company, Shanduka Group, which acquired a minority stake in MTN Group’s Nigeria business for $335 million in November 2012.

In this piece, I will explain the strengths and weaknesses of MTN Nigeria. But first the key products offered by this company.

MTN Nigeria Products

• MTN Cloud: Though it may not be known to average users, MTN Nigeria runs lucrative cloud services. These services are geared for all the key industrial sectors in Nigeria. MTN competes with RackCenter and MainOne is this product line.
• Voice and Broadband Services: Modern mobile telephony is Nigeria cannot be discussed without MTN. MTN is a leader in both voice and broadband services. It is the most profitable company in the sector, taking home more than 60% of the total profits, except 2016 when it declared loss, due to compliance related fines.
• Small Business Broadband Service: Besides the business to customer broadband service by MTN, it sells modems to small businesses which use them to connect to the web. This product is available in many key cities in Nigeria.
• Devices: MTN sells devices through different partner relationships.It sells for Garmin, Samsung and other leading global brands. The size of this business is low. Largely, MTN uses this to on-board customers into its network. Etisalat Nigeria which enjoys the highest ARPU (average revenue per user) is considered one of the best telcos that knows how to deliver services in selling hardware and devices to customers.
• Investments: MTN (the Group) has made investments in Jumia, a leading e-commerce company with principal operations in Nigeria. Because Jumia is Nigeria, MTN Nigeria has a strategic affinity to this company. MTN Group had also invested in Travelstart, Snapp and in Iranian Net. Co. It also bought Visafone (Nigeria), Smart Village, Afrihost and Investcom. No data is available to see how these investments have turned out.
• Value-Added-Services (VAS): There are many levels of VAS in MTN Nigeria network. Customers download music, motivational contents, games, comedy, etc and MTN takes commissions from the creators. The regulatory requirement that limit marketing to subscribers has affected this business.
• Others: MTN Nigeria had tried in the past, but failed, in selling different services and solutions. It brought security camera which flopped. It also worked to build app ecosystem which did not pick up. At different levels, it has also tried to work on mobile money through partnerships. That has not been stellar. Some of those solutions are still offered, though muted,

Largely, MTN Nigeria is a company that does two things: voice and broadband services to customers and enterprises, and web/cloud services to enterprises. It generates, in our estimate, more than 90% of its revenue from these two solutions.

Strength: Defaults

As the dominant voice and broadband service operator, MTN Nigeria wins and this success is by default. MTN used the profits it made at inception to fund growth. and that gave it strength. You can determine the age of an average Nigerian through his/her cell phone number. 0803 remains the premium number in Nigeria. It is the original number.

Weakness: Customer Service

Despite being the first to market, at scale, among all the present operators, MTN Nigeria lost focus on service and quality. Etisalat Nigeria tops MTN Nigeria as the most premium brand and a brand most upper middle class Nigerians choose for their broadband services. Etisalat NG is simply better on the experience part of making customers feel better especially in their Geek Shops.

Strength: Coverage

No other network operator in Nigeria comes close to MTN in coverage. Any village or community where you cannot find MTN means that the village or community has potentially no coverage. There has been debate on the inability of some communities to enjoy services most Nigerians enjoy. Realistically, most expect MTN to be the one to solve that challenge.

Weakness: Regulatory Compliance

MTN Nigeria is a lousy company in terms of regulatory compliance. It was fined $5.2 billion which was later reduced to $1.7 billion. The company has paid dearly for that as investors punished its parent company in Johannesburg Stock Exchange. But it does not seem to be only Nigeria where this systemic problem is happening in the MTN Group. MTN Group may have a culture that allows it not to cross the “ts” and dot the “is”.

MTN Group stock performance (source: Bloomberg)

Strength: Brand

For most Nigerians, MTN is a better place to work in the telecom sector. Its strength provides confidence. Despite the recent mass sack, if things are bad in MTN, in others, it is already worst, goes the thinking. MTN is a premium brand and it is a respected one in Nigeria and beyond.

Weakness: Innovation

MTN Nigeria as the industry leader would not have been expected to destroy established norms which helped it to make huge profits in Nigeria. If not for Glo, it is possible that Nigeria will still be on per-minute billing where the cost of making a 2-second call (yes, those dropped calls) is the same as 59 seconds.Increasingly, MTN plays catch up but quickly uses its scale to dominate others. Its key innovation engine is its scale and size.

Strength: African Brand

Everyone is proud of MTN  because it is an African brand. While Glo is also an African brand, it is mainly region-centric in West Africa. Airtel and Etisalat are foreign. So, largely, MTN wins that balance of being global and also being local. It is the ultimate glocal company! From Harvard Business School African students to their counterparts in Oxford and Cambridge, MTN is a brand that meets everyone metric. You can say it is African ( operating in at least 20 countries) and it is big. The benefit is huge for partnerships with value-added-services providers.

Weakness: Poor Ecosystem

It is extremely unfortunate that MTN did not build an ecosystem in Nigeria considering its position. When we know that Verizon, a U.S. telecom company, owns now AOL, Yahoo and other media brands, one could note that MTN missed a huge opportunity in its app ecosystem failed project. MTN remains vulnerable, just as other telecom operators, as OTT services like Whatsapp and Skype eat into margins.

Strength and Weakness: Business Model

MTN Nigeria is a cautious industry player being the key beneficiary of any status quo. Keeping things the way they are, provided it enjoys its dominant position, is wisdom. However, that strategy has exposed it to the inability to build a platform which can maintain further growth. As OTT services take root, and deepen, and NCC decision not to regulate them, that business model has failed. It is not likely that MTN can do  much now that fragmentation is huge in the market. In the strength area, MTN Group management can be seen as being bold. MTN invested in Nigeria upon the deregulation of the mobile phone market with the introduction of Global System for Mobile Communication (GSM), operating on the 900/1800 MHz spectrum. That is a winning business model as they raked revenue like Father Christmas with excess luggage from Ajegunle to Victoria Island knowing that VI has better gifts.

Y’ELLOW

The future of MTN Nigeria is not assured, just as every telecom operator in the world. MTN Nigeria has to invest in alternative assets which will protect it from the disruptive competition we expect from OTT services. Market has already noticed that as MTN Group has lost more than 50% of its peak value within the last five years. Sure, the compliance related fee is a big part of this stock problems, but do not overlook the fact that telecom has lost its shine.

For Etisalat Nigeria promoters in UAE to allow it to go the path it took shows that markets are not so confident it makes so much sense investing in the sector, at least in the short-term. This will be a low-margin business and is already becoming like utilities where margin is low but reliable (we must always need our telecoms to run the OTT, so they will be here!)

The biggest threat will come from satellite companies like ConnectAfrica which will reach communities at cost model that can keep the terrestrial players looking for cover. Elon Musk, not Glo or Airtel or Etisalat, may be the biggest competitor to all telecom operators in Africa in 5-10 years, with satellite broadband. He can crash broadband cost by 90% and suddenly GSM will be recorded only in museums. But that will happen if MTN Nigeria and others do not take action today.

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