On the back of a strong balance sheet and good cash flows, MTN plans to make a play for local telecommunications companies that fall astray over the next year.
Speaking this morning at the company's results presentation for the year ended 31 December 2008, CEO and chairman Phuthuma Nhleko said that, given the large number of competitors entering the local telecoms market, there is expected to be a consolidation drive by the larger telcos.
The company has been resilient in the face of the global economic crisis, which Nhleko attributes to the company's cash-on-hand, reported this morning at R25.5 billion. “There is a saying that cash is king; it now has true meaning,” noted Nhleko, referencing the economic slump.
More for less
MTN feels the coming year will prove to be a difficult one for many businesses in the market, turning a competitive telecoms industry into a hunting ground for the larger players.
He adds that many companies that were unaffordable this time last year could look extremely attractive now. “There are some companies that are aware they are cheaper now, and may hold off as long as they can. However, we see many opportunities to find good deals.”
Nhleko says preparing for these opportunities has kept the company's dividend ratio of five, despite shareholder pressure to reduce it. “We believe there will be excellent opportunities for consolidation this year, and we will follow through with them when we see them. In this respect, it will be prudent to maintain the current dividend ratio,” he notes.
Convergence is telling
MTN's decision to start looking into consolidation has been evident throughout its financial year, with the idea surfacing at its June interim results. While no play has been made on the telecoms front, MTN's earlier acquisitions prove consolidation is a strategic priority.
At the beginning of this year, the company was cleared to purchase Internet service provider Verizon Business, which has been completely integrated into MTN. This move clears the way for MTN in the enterprise data space, with tentacles in SA, Kenya, Botswana and Nigeria.
It is also a competitive step in the race against Vodacom's data unit, Vodacom Business. Analysts feel that in the South African telecoms market, both mobile operators will have to start offering a diversity of products, given the saturation of mobile voice locally.
Sing for your money
MTN's pickings are not limited to data and smaller voice players; indeed the company is making a strong foray into owning its distribution network.
Through its acquisition of Cell Place, in August 2008, and its heated purchase of iTalk Cellular early this year, the company has secured 49% of its distribution channel.
MTN snatched iTalk out from under smaller competitor the Huge Group, enforcing its pre-emptive rights to the remaining shares. Industry was not surprised when MTN went ahead with the purchase, since it had been clear for years that the company wanted iTalk to be wholly integrated.
The operator's latest announcement is its purchase of 17 New Clicks Musica stores, and it will lease space in several others. The new agreement gives MTN larger channel access that it will be able to control.
Nhleko says: “We have the potential to act as consolidator in the current market environment, but will have to tightly control capital expenditure.”
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