MTN Group, South African telecom operator, has captured a 50 percent share in Nigeria, a market that is doubling annually.”
One of the fastest growth areas is telecommunications. From 1999 to 2004, cell phone use in Africa grew at an annual rate of 58 percent, whereas in Asia, the region with the next highest growth, cell phone use grew at a much more modest 35 percent.
The opening scene of the movie The Gods Must be Crazy, released in 1980, depicts a rural African man encountering technology for the first time – in the shape of a Coke bottle. Although satirical in nature, The Gods Must be Crazy fails to capture the current realities of most Africans. Today, millions of Africans use mobile phones in their business and daily lives.
Africa is the second largest market after Asia in mobile usage. Over the last decade, Africa has seen a rapid growth in mobile connections. In 2000, Africa had a mobile penetration rate of roughly 2 percent and by 2011, it had grown to around 65 percent. This growth has created millions of direct and indirect jobs. The number of mobile operators across Africa has expanded, and now includes MTN, Vodacom, Globacom, Bharti Airtel, Orange, Millicom and Orascom.
Founded in 1994, MTN Group is the largest mobile operator in Africa, based on turnover and the number of subscribers. The company connects subscribers in 22 countries in Africa and the Middle East. As of December 31, 2012, MTN recorded almost 190 million subscribers across its operations in Afghanistan, Benin, Botswana,Cameroon, Cote d’Ivoire, Cyprus, Ghana, Guinea Bissau,Guinea Republic, Iran, Liberia, Nigeria, Republic of Congo (Congo Brazzaville), Rwanda, South Africa, Sudan, South Sudan, Swaziland, Syria, Uganda, Yemen and Zambia. MTN is an internet service provider in 13 countries, spanning three continents. The company is listed on the JSE Securities Exchange in South Africa under the share code “MTN.”
The group has spent over R102.38 billion (about$10.99 billion U.S.) on capital expenditure since they began their first network operations in 1994. In 2008 alone, MTN spent a record of about $3.04 billion on capital investment. MTN’s revenue for the first quarter of 2012 was up by 17.5 percent to $7.13 billion, and the company made $4.08 billion in the South African and Nigerian markets alone. MTN South Africa currently has 23.5 million subscribers. Nigeria has been the golden boy in terms of subscribers and revenue for the group. Outside of South Africa, Nigeria is the group’s most profitable nation, bringing in over $1.40 billion in the first quarter of 2012. In terms of subscribers, MTN Nigeria saw a 4.8 percent increase in the number of subscribers, bringing their total in Nigeria to over 45 million.
In 1999, the Nigerian government announced its decision to offer 3 GSM licenses for a fixed price of $250 million each. At the time of the offering, Nigeria had the largest population in Africa, 50 percent of its population was below 18 years and 60 percentlived below the poverty line.
Nigeria’s religious and ethnic diversity created fertile ground for internal conflicts and uncertainty. The country also had challenges with high levels of corruption. As a result, no European or American operators bid for the licenses.
MTN Group started operations in Nigeria in 2001, after the company’s shareholders in South Africa took a massive gamble on the Nigerian market when they decided to pay $285 million for one of the four GSM licenses. Nigeria was (and still is today) a challenging environment for foreign companies willing to invest in what represents potentially the second biggest market in Africa, after South Africa.
However, MTN showed a real talent at being able to leverage their strengths and reduced the potentials risks inherent with investing in Nigeria. MTN began by positioning itself as an African group (as supported in its mission statement). This is a key factor to facilitate adoption in a country where the idea that foreign investors just want to make quick gains off the local population is widespread.
MTN’s positioning was further supported through its involvement in the local community and its willingness to procure services and products from local suppliers. On top of that, MTN showed respect and commitment for the markets it entered by bringing in up-to-date technology, whereas Western operators have been known to use Africa as a dump for second-hand equipment.
MTN invested heavily in Nigeria despite the challenges inherent in doing business there. They built infrastructure, introduced per billing system, made telecom services very flexible and widened accessibility to telephone services to break the monopoly enjoyed by the state-owned Nigerian Telecommunications Limited (NITEL), among others. They were armed with ideas, innovations and technology lacking in the industry. Thus they made a grand entry into the Nigerian market.
Between 2001 and 2010, MTN invested $887.577 billion naira (Nigerian dollars)in fixed assets, enabling the company to build the largest network in Nigeria, the largest switch in the world and the largesttransmission network in terms of fiber and microwave in Africa.
In 10 years, MTN grossed a total of $2.988 trillion niara in revenues between March 2001 and December 2010, and posted profits after tax amounting to $857.655 billion niara during the same period. The company also grew its subscriber base to 52 percent of the market share by June 2011.
MTN Nigeria invested billions of naira on infrastructure and has grown its subscriber base substantially, despite increased competition from Globacom,Airtel and Etisalat. With MTN dominating other operators in subscriber numbers over the past ten years, MTN Nigeria, today, has more than 45 million subscribers and has invested 563 billion naira in its infrastructure.
Today, not only is MTN Nigeria the jewel in the MTN Group’s crown, its success story has proven that with the right business strategy and marketing guile, Nigeria can turn out to be an investor’s dream, despite the challenges of operating in the country. Drawing from MTN’s experiences, Khumo Shuenyane (the group’s Director of Strategy, Mergers and Acquisitions) advises that it is extremely important to have local business partners when expanding into an African country. Challenges in doing business in Africa are indeed surmountable with the right level of commitment, professionalism, persistence and investment.