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Sluggish economy, Cell C retard MTN SA growth ambitions

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 31 Oct 2019
Rob Shuter, MTN group president and CEO.
Rob Shuter, MTN group president and CEO.

The stagnant South African economy and liquidity challenges at Cell C have hit MTN SA hard, with the carrier’s subscriber base falling by 300 000 in the past quarter, declining to 28.9 million.

The second largest South African mobile operator has laid the blame for its depressed performance on sluggish economic growth, “the implementation of lower out-of-bundle data prices, new data usage rules and unrecognised roaming revenue from Cell C”.

Struggling Cell C began using MTN’s network last year in May, in areas where it doesn’t have its own coverage.

Cell C has been bleeding money in the recent past. At present, its debt-burden is sitting on R8.24 billion. It reportedly failed to pay MTN its dues, burdening the Pan-African telco with an unpaid bill of R393 million.

MTN was reported to have written off R211 million of the amount.

Cell C, however, denied this.

Last month, Zaf Mahomed, chief financial officer of Cell C, told ITWeb the reports that the third largest mobile operator owed MTN SA some money from the roaming deal, weren’t true.

“We are completely up to date with our payments. You can confirm with MTN,” Mahomed said.

Now, MTN Group president and CEO Rob Shuter says: “MTN SA continues to account for Cell C roaming revenue on a cash basis, and payments received since June 2019 have remained on schedule. A change in the accounting treatment back to recognising revenue on an accrual accounting methodology will occur upon adequate resolution of Cell C’s liquidity challenges.”

MTN says in its 2019 interim results announcement: “MTN reported we had reassessed the revenue recognition criteria relating to the network roaming agreement with Cell C following delayed payments and, as a result, did not recognise revenue amounting to R393 million.

“In addition, we recognised an impairment of Cell C receivables amounting to R211 million after taking into account cash received subsequent to the 30 June 2019 reporting period.”

However, MTN says it has received R451 million from Cell C during the third quarter, which represents all amounts due from Cell C in accordance with the agreed payment plan.

“These receipts were not recognised as revenue but applied against the outstanding debtor’s balance and this resulted in a reversal of the R211 million impairment loss recorded at 30 June 2019.”

The carrier says subsequent to the end of the third quarter, the group received a further R291 million from Cell C, “which will first be applied to the outstanding debtor’s balance, with the remainder recognised as revenue in Q4 based on the consideration received”.

MTN says the unrecognised revenue amounted to R817 million as at 30 September 2019.

Revenue growth

The carrier also announced its service revenue growth for the quarter was 0.4% and “if an accrual basis of accounting was applied to Cell C roaming revenue, MTN South Africa would have recorded service revenue growth of 3.5%”.

MTN says its service revenue growth was negatively affected by a 4.6% year-on-year decline in consumer prepaid service revenue for the nine months to September 2019.

“This was impacted by out-of-bundle data tariff reductions and ICASA’s end-user subscriber service charter regulations (which came into effect on 1 March 2019) against the backdrop of a challenging economic environment.

“The trend in consumer prepaid revenue in the September 2019 quarter was encouraging, with the decline in the three months moderating to 2.7% year-on-year, compared to a 5.1% year-on-year decline in the three months to June 2019. We remain focused on returning to growth, supported by stabilising trends in voice and improvements in data.”

MTN notes that in the third quarter, “data revenue showed encouraging year-on-year momentum, with a return to positive growth recorded compared to a year-on-year decline in the second quarter ended June 2019.

“We discontinued the 1GB acquisition promotion in prepaid, targeting distribution efficiencies, and this resulted in a 0.4 million quarter-on-quarter reduction in subscribers in the quarter, to a closing base of around 23 million. We anticipate a normalisation of the base and customer profile by the first half of 2020.”

The company is more upbeat regarding its consumer postpaid business, which it says delivered service revenue growth of 5.8% year-on-year in a highly competitive market.

“Net subscriber additions of 80 620 quarter-on-quarter were relatively muted, reflecting the tough trading environment and lower acquisition volumes as we continued to implement stricter vetting rules aimed at reducing credit risk and enhancing subscriber quality.

“We recorded positive momentum in postpaid data traffic, which increased by nearly 31% year-on-year in the nine months to September 2019.”

Group numbers

Turning to group performance, MTN informed shareholders its subscribers increased quarter-on-quarter by 3.5 million to 243.7 million. Active data subscribers also increased quarter-on-quarter by 4.7 million to 87 million.

MTN mobile money customers have ballooned by 2.2 million to 31.7 million.

Shuter says: “Across the group, we are on track with delivering our strategy. This is reflected in ongoing voice, data and fintech revenue growth of 4.4%, 21.5% and 30.9% respectively. Digital revenue declined by 46.4% as we continued to optimise our legacy value-added services (VAS) business.

“In Nigeria, we have achieved a return to positive quarter-on-quarter digital revenue growth following completion of the VAS optimisation in that market.

“MTN remains committed to delivering on our asset realisation programme, which aims to simplify our portfolio, reduce risk, improve returns and realise capital of at least R15 billion over a three-year period.”

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