MTN says it is not looking to outsource its cellular network to cover $214 million in offshore debt, although the debt is one of its top concerns.
"The two matters are completely unrelated and we can`t imagine where the idea came from," says MTN corporate affairs group executive Yvonne Muthien, commenting on reports linking the possible sale of infrastructure to the offshore debt.
MTN South Africa is exploring the possibility of outsourcing its existing network and paying for its use or selling some of its radio base stations and leasing them for services. Either option could see an immediate cash injection for the business, but the company says this is not the objective.
"Our entire thrust, almost our number one goal, is to improve operational efficiencies," says Muthien. "In a market where average revenue per user is going down, the only way to maintain profitability is to examine cost-cutting."
MTN says case studies elsewhere in the world have shown that it could save up to 20% of its annual network costs as a result of such a deal.
However, the company stresses that it is simply testing the waters and is nowhere near reaching a formal decision on the move, much less issuing tenders.
"Just because it worked in Europe and the US does not mean it will work here; the same conditions may not hold," Muthien says.
She also confirms that addressing the unhedged debt of more than R2 billion carried by MTN parent company M-Cell is the most important issue facing the group, but says a network outsourcing deal will not solve the problem. Most of the R2 billion is due to costs incurred in setting up cellular network operations in Nigeria.
"We can`t willy-nilly go and service offshore debt with MTN SA cash flow," she says. "It would be excellent if we could have liquidated some of the offshore debt that way."
Yet she says such a scenario would make good business sense and that M-Cell continues to make representations to the Reserve Bank and the National Treasury to seek permission to move funds in excess of the R750 million annual investment allowance offshore. Should such a request be granted, the yields from an outsourcing deal could be ploughed into MTN Nigeria, in which MTN holds a 77% stake.
M-Cell is to decide during August whether it will bid for a stake in the second national operator (SNO) which is to compete with Telkom from 2003. Analysts have remained dubious of the company`s ability to sustain investment in both its Nigerian operations and a local start-up fixed-line player, both of which will require massive capital funding in coming years.
Muthien says the offshore debt definitely limits M-Cell`s investment capacity and that no decision had been made requiring operations to "yield funding" for the SNO.
Analysts remain dubious that an outsourcing deal could work, with one saying today the model would be profitable only if Vodacom and Cell C also sold their networks to a third-party that could eliminate duplication.
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