The ongoing pricing competition between local telecommunications operators will be a determinant of the winners and losers in the industry and will culminate in the eventual consolidation of the lagging players, JSE-listed MTN's CEO, Sifiso Dabengwa, said on Wednesday.

He said there was not space for four operators in a country with a large population such as South Africa, citing mobile penetration approaching 100% and increasingly saturated markets.

Further, there was no more “room” for operators to base their strategies on price, as there was “not much room” left for further price decreases.

“The objective is to remain competitive and relevant, but at the end of the day, you still need to invest [in infrastructure] and deliver meaningful returns. There are factors that need to be taken into consideration with regards to pricing,” he said.

In response to the intense competition, Dabengwa said: “… We have to start delivering unique services over and above exceptional connectivity”, with new group CFO Brett Goschen citing music and video downloads and religious portals as some early examples of success.

The “re-engineering” of telecommunications companies was required to fit in with the lower tariffs in industry.

MTN’s admitted “slow response” to the ongoing price wars and mobile termination rate (MTR) cuts in the industry were to blame for lagging half-year results in its South African market, but the company promised a better performance in the final half of the year, as it embarked on a number of cost-cutting and innovation initiatives.

“The level by which the effective rates declined were much higher than expected,” Dabengwa explained, but there had been a structural shift and the group’s tariffs were now comparable.

MTN, to offset the negative impact of the price erosion over the past 12 to 18 months, would examine opportunities in its services sector, shift to managed services for its network, mitigate distribution costs, centralise its procurement and partner with small business and start-ups to develop new products.

The group would also examine options to trim its human capital – local and international – in an effort to cut costs. However, MTN SA CEO Zunaid Bulbulia pointed out that many of the undisclosed number of jobs to be shed would be contractors and outsourced labour, with internal retrenchments a last option.

Goschen said the South African operations recorded a 1.4% contraction in revenue, to R20.1-billion, during the six-month period to June, while the total subscriber base fell to 25-million in the interim period under review, from the 25.4-million reported during the six months to December.

Data revenue increased 14.7% to R4-billion from R3.5-billion in the prior half-year, contributing 19.9% to revenue, despite a pressurised environment and a 25% decline in the average effective price per megabyte since December.

The blended average revenue per user decreased 13.3% to R105.40, compared with R121.52 in June last year.

MTN SA reported a 7.4% decrease in earnings before interest, tax, depreciation and amortisation (Ebitda) to R6.5-billion, while the Ebitda margin narrowed by 2.1 percentage points on the back of the lower revenue growth.

However, since MTN launched a lower-tariff pricing promotion, the group was bouncing back, he added.

“… [MTN] regained some market share in the second quarter due to improved dormancy management and as customers responded positively to lower tariffs and increased promotional activity,” the company said.

The performance had been positive, said Bulbulia, adding that it would sustain the group and enable it to reach its target of 800 000 new subscribers in South Africa by year-end.

GROUP FINANCIALS
Headline earnings a share increased 22% from 536c in the prior corresponding period, to 654c during the first half of the year, driven by the company’s large OpCos, which included Ghana, Côte d’Ivoire, Uganda and Syria, and the rand devaluation.

Group Ebitda, supported by solid growth in Ghana, Uganda, Sudan and Cameroon, increased 7.4% to R28.6-billion – including the R856-million profit on tower sales in Côte d’Ivoire and Cameroon.

Profit after tax increased to R14.5-billion – a 19% rise on the R12.2-billion reported in the prior period.

Nigeria, the telecommunication groups’ biggest market, recorded a 15.8% rise in revenue to R22.3-billion, despite also being impacted negatively by MTR cuts and a challenging operating environment.

The group’s 9.8% rise in revenue to R65-billion was also boosted by a 9.7% and 24.7% increase in revenue from MTN’s large and small OpCo clusters respectively.

Group subscribers increased 6.5%, surpassing the 200-million mark, with the group expecting to report a group-wide subscriber base in excess of 210-million by year-end.

A R12.7-billion investment across MTN’s network enabled the establishment of 2 130 second-generation and 1 800 third-generation sites and drove a key growth area, namely data services.

As the number of group data subscribers rose to 65.4-million and data traffic rose by 55.7%, group data revenue increased 36.9%, contributing 13.9% to total revenue.

Outgoing voice revenue increased 7.9% and accounted for 63.7% of total revenue.

MTN reported that cash inflows from operating activities fell 18.8% to R4.8-billion owing to a 2.7% decline in cash generated from operations and an 8.2% increase in dividends paid during the period under review.

MTN declared a 15% higher interim dividend for the period of 370c a share.