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Digital services 'increasingly crucial' for MTN

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 06 Mar 2017
MTN says many of its digital businesses are still in the investment phase.
MTN says many of its digital businesses are still in the investment phase.

Digital services have become an increasingly crucial revenue generator for MTN, according to executive chairman Phuthuma Nhleko, as the telco faces lower tariffs and declining voice revenues.

This as MTN saw a spike of over 44% in digital services revenue in the financial year ended 31 December.

"This sector is changing; some of MTN's operations in the next year or two are going to become more data companies than voice companies. That is going to require some internal changes in terms of the skills space and how we approach the market," he says.

MTN launched its transformation initiative, Ignite, which aims to improve the group's revenue growth and accelerate the diversification of revenue streams - including more digital services. Ignite has already been launched for MTN SA and MTN Nigeria, with plans to roll it out to all operations over time.

"Digital services clearly are a pretty important growing element of the business, and there are many facets to this. We are clearly in many respects still at the nascent stage of growing this ? even though it's quite clear how important this is going to become," Nhleko adds.

This as some parts of the digital business struggled financially over the past year and losses from MTN's investments in Africa Internet Holdings, Middle East Internet Holdings and Iran Internet Group (IIG) negatively impacted headline earnings per share (HEPS) for the financial year by 39c. The group reported an overall full-year headline loss per share of 77c, compared to HEPS of 746c a year ago.

"The digital business is still in the investment phase and we will continue to record losses over the medium-term before turning profitable," explains deputy group CFO Gunter Engling.

Money matters

MTN says the 44% digital services revenue growth was supported by its lifestyle and mobile financial services offerings, while MTN Mobile Money accounts for over 20% of total digital revenue.

The number of MTN Mobile Money registered customers grew by 18% to 41 million in 2016, supported by a strong performance from MTN Ghana and MTN Benin. The number of 30-day active customers increased by 55% to 15.4 million across 15 countries and Mobile Money revenue increased by 50.7% to R2.9 billion.

Five operations, compared to two in 2015, had over a million active customers each and MTN sees this as a "critical tipping point for the product".

"Mobile Money is quite a strange product, in the sense that it has to run for a few years before it gets critical mass, but once it gets critical mass then it picks up very fast," says Nhleko.

"We continue to see encouraging progress across our operations ? in Uganda, Mobile Money is almost 20% of total revenue, while in Ghana and Rwanda it is now almost 10%. Cameroon, Ivory Coast and Benin have recorded very strong year-on-year growth but off a lower base and we expect to see continued progress in these markets during the coming year," adds Engling.

MTN also launched MoKash, an extension to the MTN Mobile Money wallet, in Uganda and Zambia, where there are now are over 1.5 million registered customers. Loans are financed by lending partner, the Commercial Bank of Africa, and MTN's role is to market, originate and disburse the loans and collect the loan repayments using MTN Mobile Money. After launching in Uganda in August 2016, over 140 000 loans were disbursed in December and MTN plans further pilots in Rwanda, Ivory Coast and Ghana.

Digital drive

MTN's Nigerian and Iranian businesses saw digital revenues grow to account for almost 13% of total revenue in 2016.

Besides Mobile Money, the group continues to be the leading distributor of digital music in Africa, with its music streaming product recording four million paying subscribers. MTN Games Club grew significantly in the three largest markets and is now active in nine markets, with a total of 5.4 million subscribers.

E-commerce business IIG has become the largest business of its kind in Iran and showed strong growth in 2016 across its portfolio of e-commerce companies. Some examples are restaurant delivery service app Zoodfood, which grew 400% in 2016 to achieve 85% market share, while taxi hailing app Snapp also grew to 85% market share in the country.

Ismail Jaroudi, VP for the Middle East and North Africa, says in one year Snapp grew from providing 10 000 rides per day to more than 100 000 rides a day - and this is only currently in Tehran, with expansions into other cities planned for 2017.

MTN SA CEO Mteto Nyati expects the local digital business to see triple-digit growth in 2017, after revenue from digital jumped about 77% year-on-year for SA in 2016. This despite MTN shutting down the Mobile Money offering in SA in September last year. Digital revenue now contributes 16% to MTN SA's total data revenue and the telco is launching eight new digital services in SA in the coming year.

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