Failed attempts at major mergers and acquisitions over the past two years may have dissuaded mobile operator MTN from pursuing its aggressive strategy within emerging market telecoms for the time being.
Yesterday, the operator stated that there are very few opportunities left that can add value to MTN's bottom line, because the markets it plays in are maturing. As a consequence, MTN says it will focus on meaningful cash returns to shareholders instead.
To date, MTN has been on an aggressive expansion policy in search of growth beyond the saturated South African voice market; now it appears it may have exhausted the available opportunities.
The operator began talks two years ago with Indian counterpart Bharti Airtel. But government interference led to the fallout of the R184 billion deal.
During talks with Bharti Airtel, MTN began discussions with India-based Reliance Communications Group regarding a “potential business combination”, but nothing came of it.
More recently, a R24 billion merger opportunity with Egyptian telecoms operator Orascom failed.
Now it appears the operator seems to be shelving its ambition to be one of the world's top three cellular network operators, for the time being.
MTN has made very big plays that didn't work out, which certainly may make it more reluctant to continue its current acquisition strategy, says Frost and Sullivan industry analyst Protea Hirschel.
But Chris Gilmore, Absa Investment's analyst, believes this is by no means the end of MTN's growth expansion. “What MTN is saying is that acquisitions that are good and meaningful are few and far between, and that the emerging market is very competitive.”
To this end, he maintains that MTN is not ditching its strategy in its entirety, but simply saying it may be a while before it makes another big play.
Gilmour maintains that MTN can't play it too safe though, if one looks at the operator's other growth areas in Nigeria and Iran.
Nigeria is about two years away from market saturation, and while MTN has been courageous going into Iran, instability and possible sanctions may deter growth in the market.
In the meantime, MTN plans to drive growth aspirations toward ensuring improved short-term returns to shareholders.
“As a consequence of the sector evolution and MTN's anticipated future cash generation, going forward, the board is able to more easily balance its growth aspirations with that of ensuring improved short-term returns to shareholders,” states the operator.
With a less aggressive strategy at play, MTN has committed to focusing on optimising efficiencies, including infrastructure sharing, standardisation of systems and processes, rationalisation of suppliers, cost management and cash optimisation.
“MTN will become much more of a cash cow in the immediate future, with less of the excitement we have come to expect from MTN,” predicts Gilmour.
Related story:
MTN cans Orascom talks
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