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Apr 04, 2008

MTN raises capex to R30bn to close capacity, quality gaps

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Following a solid set of results for the 2007 financial year, the MTN group board approved a capital expenditure (capex) of over R30-billion for 2008, as it hoped to boost infrastructure roll-out, which would go some way to alleviating network congestion, particularly in the South African and Nigerian markets.

The company noted the extensive increase in the traffic density in the telecommunications system and said it would enhance its already aggressive infrastructure roll-out, in order to ensure capacity and quality. MTN was confident that revenue would, accordingly, increase following the capex increase.

The rand:dollar exchange rate that the capex going forward was budgeted on was R7,22.

“We are dealing with a fairly significant growth in demand, and that demand is outstripping the capacity that we have, and because of that, we have resolved to make 2008 quite a very large capex year, to try to ensure that we fully exploit the demand and don’t find ourselves losing out on this growth,” stated MTN group president and CEO Phuthuma Nhleko.

“The two key operations to mention there are Nigeria and South Africa. I think that, if you look at the quality of the South African network at the moment, it’s not what it needs to be, and it’s not what it was. Obviously, there is also the infrastructure roll-out from the fibre perspective that comes through and then there’s also additional 3G capacity roll-out that comes through there,” reiterated MTN group financial director Rob Nisbet.

Commenting further on the South African market, Nhleko added that laying fibre cable was a key priority. He said that the company was planning on laying almost 5 000 km of cable by the end of 2008.

The roll-out of infrastructure also remained a key issue in Nigeria, as the group experienced “an explosion of subscribers” in 2007, but Nhleko stated that in the second half of 2007, MTN rolled out the most number of sites that it had ever rolled out in Nigeria, and expected to continue that pace in 2008. “We are going to put enough capex out there to cover that demand.”

MTN also started the roll-out of 3G in Nigeria on a pilot basis.

In 2007, MTN approved about R18-billion for capex, but it only spent about R15-billion, said Nisbet. However, considering exchange rates and the stronger rand in 2007, he added, “We probably put about R16,5-billion in the ground, and I think we said we would end up putting R17-billion in the ground – so we weren’t actually that far off from what we said we would put in the ground.”

Nhleko also indicated that he was aware of the scepticism with regard to the company’s ability to implement the roll-out and put that infrastructure into the ground in time, but was confident that the pace had increased, and noted the examples of Nigeria and Iran, as the latter currently had over 2 000 live sites.

“It was the first time that we went on a complete turnkey basis with three very big international vendors, and we believe that helped us a great deal with the coverage,” he said about the increased pace of roll-outs.

Huge infrastructure roll-outs were not only expected in Nigeria and South Africa, and the group stated that, in Ghana, it planned to lay 1 660 km of fibre in 2008, which would improve transmission capa-city, and increase the groups market share there.

Iran showed substantial growth over the period, and the group’s market share went from 12% in June 2007, to 25% by December 2007. By December 2008, the group expected the Iranian market to be the size of the South African market – which took 14 years to build. The infrastructure step change in network capacity in Iran included over 2 000 live sites, 1 500 km of road coverage, and the coverage of 339 cities.

Also in the Middle East, in Syria, the group enhanced the quality of its network in 2007, and rolled out 317 base stations, although the group has to use the regulator’s infrastructure in the country.

In Sudan, MTN experienced difficulties rolling out sites in southern Sudan, and rolled out less than 40 sites in Darfur, although the technical challenges from the first quarter were resolved.

Convergence also remained an important theme for the company, and although it’s ‘talks’ with Telkom “couldn’t proceed to a conclusive stage”, MTN had continued in other countries like Nigeria, Côte d’ Ivoire and Cameroon, to acquire ISP’s with a view of having a far more integrated solution and value proposition for its clients, particularly the corporate clients. “This will continue to be a big feature of 2008,” Nhleko said.

The company was in a mobile banking joint venture (JV) with Standard Bank, and a mobile television JV with Multichoice.

By the end of 2007, the group had increased its subscribers by 53% to 61,4-million subscribers. By the end of 2008, the company hoped to further increase the number of subscribers to over 80-million. It also hoped to significantly lower congestion levels.

Owing to the difficulties in being granted new licences, the group said that much of its expansion going forward was likely to be in the form of mergers and acquisitions.

Edited by: Martin Zhuwakinyu
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