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MTN heads for perfect storm

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 26 May 2015
MTN's share price closed 2.3% lower yesterday, and is down 4.62% over the past week.
MTN's share price closed 2.3% lower yesterday, and is down 4.62% over the past week.

Emerging market ructions have hit MTN in two of its biggest three markets, with Iran - its second-largest operation - also facing political uncertainty.

MTN's Nigerian operation, its largest with 59.9 million subscribers as of the end of December, has been going through a crippling fuel crisis. South Africa - 28 million users - has been beset by strike action, while ISIS has a presence in Iran, which is MTN's second-largest unit.

"All we need is for something else to happen in one of their other big markets, like Iran, and that would be a perfect storm," says Ovum analyst Richard Hurst. ICT commentator Adrian Schofield notes three of MTN's biggest markets are "wobbling".

Schofield says this situation reflects the challenges of doing business in emerging markets that are not politically mature. He notes a country's politics can take the foundation out from under companies for reasons that would not have been contemplated in the initial risk case.

Unhappiness all around

The whammies have also hit MTN's share price, with investors becoming jittery over the past few days. The stock closed 2.3% lower yesterday, and is down 4.62% over the past week.

MTN's troubles started locally last week when about 3 000 unhappy call centre agents went on strike, negatively affecting the operator's ability to service its customers. That dispute, around bonuses and salary hikes, is ongoing as yesterday evening MTN said it had reiterated its offer.

In Nigeria, MTN warned on Saturday via Twitter that a diesel scarcity posed a "significant threat to quality of service and the ability to optimally operate the network". This, it explained, is because most base stations and switches are powered by diesel generators. Reuters has since reported the fuel impasse is over and supply should resume in a day.

The wire service quoted MTN Nigeria spokesperson Funmilayo Onajide as saying: "Services are already degraded and some of our customers are already feeling the impact."

Meanwhile, in Iran, the country is trying to keep a lid on ISIS. MTN previously had issues repatriating money out of Iran because the country had sanctions levelled against it in response to its nuclear plans.

Swift recovery needed

Hurst says the decline in MTN's share price shows the market is not confident it can resolve these issues quickly. "It's a series of unfortunate events."

He notes the fuel issue is not of MTN's making, and while it will be trying to resolve the impasse between it and the Communication Workers Union locally, he says there is a sense organised labour has dug its heels in.

If MTN manages to address these issues swiftly, it will make a decent recovery, says Hurst. However, if the problems linger, it would have a negative impact on its results. MTN is next set to report interims within three months of the end of the June period.

In the year to December, its revenue was up 6.4% to R146.2 billion, and headline earnings per share came in at 1 536c, an 8.9% gain. However, stripping out currency fluctuations, revenue only grew 3%.

"It's not easy to start playing a different sort of politics when you've been riding the wave," comments Schofield.

Neither MTN nor the union were available for comment this morning.

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