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November 29, 2005 6:13 pm

MTN gets numbers right in Africa

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In the South African battle for mobile phone business, Johannesburg-listed MTN has just nudged past Vodacom into leading position.

New subscriber figures released by both companies this month show MTN beating its competitor for the first time, reporting 20.6m customers in South Africa and the rest of Africa, compared with Vodacom’s 19.1m.

MTN also announced last week that it had secured Iran’s second cellphone licence, for which it paid €300m ($353m).

MTN already has franchises in eight African countries outside South Africa. Vodacom has four, and both companies’ businesses on the continent continue to grow quickly.

But MTN is hoping that Iran, with a population of 69m and just 10 per cent mobile penetration, could reward it as handsomely as has Nigeria, where MTN last week reported a jump of 38 per cent over six months in its customer numbers.

MTN says its investment in Iran will peak at $1.5bn within two to three years.

Few in the industry doubt that MTN would itself be an attractive takeover target. The company’s share price surged last week on its strong interim results, news of the Iranian licence, and rumours that another company was poised to buy it.

MTN subsequently withdrew a cautionary announcement issued on October 9 suggesting it was in talks, and Phuthuma Nhleko, chief executive officer says: “We were involved in a transaction which we’re no longer involved in.”

MTN would not comment on who had approached it.

MTN, which says it aspires to be the leader in telecommunications in developing markets, has been an earlier and often more successful entrant than Vodacom into the markets to South Africa’s north.

“The company has made the right call in terms of the countries it has gone for, and growth and efficiencies,” Mr Nhleko told the FT in response to its new numerical edge over Vodacom. “We don’t spend our time planning around them, but I think the numbers speak for themselves.”

Despite MTN’s growing edge, Vodacom’s chief executive, Alan Knott-Craig, is also upbeat. His company has consistently claimed more customers in South Africa, sub-Saharan Africa’s largest mobile-phone market.

He estimates the country’s total market could grow to 43m subscribers, more than three times the 16m-plus number at present.

With economic growth strong and more poor people increasing their wealth, customers are upgrading their contracts, on top of the 20.5 per cent subscriber growth over six months Vodacom recently reported.

“There’s no sign of this market maturing,” Mr Knott-Craig told the FT.

Vodafone of the UK, Vodacom’s largest shareholder, showed its confidence in
the South African company earlier this month by offering to increase its stake to 50 per cent from 35 per cent for R15.6bn ($2.4bn).

However, Vodacom’s ability to grow remains hampered by its shareholder agreement with Vodafone, which prohibits it from investing north of the
equator.

“South Africa will give us growth for the next two to three years, [but] we have to ask what comes after that,” says Mr Knott-Craig.

Vodacom did secure permission from its UK parent to invest in Nigeria, where MTN has 7.7m clients.

It has held long-running talks to invest in Vmobile Nigeria, but to date has been thwarted by a legal dispute involving a minority shareholder.

Vodacom was slower than MTN to recognise the potential of Nigeria, Africa’s most populous country. MTN’s share price took a drubbing from nervous investors when it entered the market in 2001, just as Nigeria was moving away from military rule.

The company secured a tax holiday from government officials eager to attract investment, and has since grown rapidly in a country with some 130m people but, according to Mr Nhleko, only about 400,000 fixed lines.

However, MTN faced some sceptical questions from analysts and journalists at its results presentation last week about how successful its new MTN Irancell business would be.

Iranian authorities selec-ted MTN for the licence in June after withdrawing it from Turkcell, which says it is preparing legal action to stop the move.

MTN holds a minority 49 per cent interest in Irancell, with the majority held by Iranian shareholders. The company will invest a sum similar to the total of $3.5bn it put into Nigeria, Mr Nhleko says.

MTN will also pursue “meaningful opportunities” in the Middle East, he says. These might include third mobile licences expected to be issued in Saudi Arabia and Egypt.

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