- Target bigger returns on investment for shareholders
The two leading telecommunications companies in Africa’s largest economy have their shares listed on the floor of the Nigerian Exchange Limited and the prospect for investors to earn good return on investment is high as the both foreign operators drive revenue aggressively through their mobile money operations and data business. FESTUS OKOROMADU reveals.
Rather than despair under the tough operating business environment prevalent in Africa’s most populous country, leading telecommunications firms, MTN Nigeria and Airtel Africa Plc, whose shares are traded on the floor of the Nigerian Stock market; continue to create innovative means to grow revenue and reward shareholders. While revenue growth from voice business thins out, mobile money and data businesses have become the cash cows for the telcos, delivering a double-digit return.
A breakdown of the third quarter financial reports of MTN Nigeria showed that its voice business grew marginally by 4.4 percent from N722 billion in Q3 of 2021 to N753.78 billion in the same period in 2022. The South African firm, however, recorded double-digit growth in revenue from data, mobile money and digital transactions.
“A BREAKDOWN OF THE THIRD QUARTER FINANCIAL REPORTS OF MTN NIGERIA SHOWED THAT ITS VOICE BUSINESS GREW MARGINALLY BY 4.4 PERCENT FROM N722 BILLION IN Q3 OF 2021 TO N753.78 BILLION IN THE SAME PERIOD IN 2022”
According to figures released by MTN, the three business lines grew by 49.1 percent, 21.8 percent and 68.4 percent from N368.62 billion to N549.66 billion; N61.24 billion in nine months of 2021 to N50.24 billion to N61.24 billion and N15.91 billion respectively in 2022. Similarly, Airtel Africa reported marginal revenue growth of 12.7 percent in voice transactions in Q3 ended December 31, 2022 at $1,872 billion as against $1,747 billion in the corresponding period of 2021.
However, data and mobile money transaction revenues increased by 22.3 percent and 26.9 percent to $1,318 billion from $1,127 billion and $515 million from $406 million in the comparable period respectively.
HARVESTING DATA AND MOBILE MONEY SECTOR
Speaking about strategies deployed to expand market shares in this space, MTN Nigeria, CEO, Karl Toriola, affirmed that despite challenges posed by global macroeconomic and geopolitical volatility in the year 2022, his team will invest in network expansion and coverage capacity with a focus on expense efficiencies and disciplined capital allocation. “We became the first mobile network operator to launch a 5G network in Nigeria, providing coverage in key cities in the six geopolitical regions.
Since its commercial launch in September 2022, we have rolled out 588 sites and brought the 5G network to 5G-enabled smartphones, starting with iPhone users,” he noted. MTN, he disclosed, added 7.2 million mobile subscribers to her network in the year 2022, stressing that the performance represents a good recovery from the impact of an increase in churn in Q3 2022.
“Active data subscribers grew by 5.2 million and benefitted from our efforts to drive data conversion in new and existing subscribers. “We accelerated the coverage and capacity of our 4G network in response to the rising data traffic, bringing 4G population coverage to 79.1 percent (up by 8.7pp). 4G traffic now constitutes 79.5 percent (up by 9.7pp) of the total traffic on our network. “We continued to progress in building our fintech ecosystem and executing its growth strategy with the commercial launch of our MoMo PSB in May 2022. Our active fintech users rose by 5.5 million to 14.9 million, of which approximately 2 million are active MoMo wallets,” Toriola added.
Emphasizing the focus on the mobile money market, he said: “As planned, we reopened the Nigerian Interbank Settlement System (NIBSS) interface in Q4 temporarily suspended to enhance control systems, starting with inbound transfers into customer wallets. “We are in the final phase of onboarding deposit money banks.
The outbound phase will be completed in Q1 2023, accelerating full commercial activities and the growth of active wallets. “Our strong commercial momentum, supported by an accelerated investment in our network, enabled growth across all revenue lines,” he said. “Meanwhile, the full year results of MTN Nigeria show a 21.5 percent increase in service revenue. Data revenue rose by 46.9 percent on the sustained growth of our active data users and increased data usage.
The performance is reported to have been supported by 4G network ex pansion drive and enhanced quality and capacity of the network to support the rising data traffic,” he added. MTN reported that its 4G network now covers 79.1 percent of Nigeria’s population, up from 70.3 percent in December 2021. Data traffic rose by 66.6 percent, of which 79.5 percent was carried on the 4G network.
Usage (MB per user) grew by 47.4 percent. “In addition, we added over 5.5 million new smartphones to our network in 2022, bringing smartphone penetration to 52.4 percent. The company added over 500k fixed broadband users, which brought the user base to 1.2 million,” Toriola said.
With the recent commercial launch of 5G networks and deployment of 5G routers, MTN said its growing market share as per delivering of higher speeds and lower latency as well as creating experiences that position MTN as the broadband service provider of choice.
The mobile money portfolio grew its revenues by 19.6 percent in Q4, thanks to contribution from MTN Fintech brand and expansion in driving growth in wallet and super-agent business, up by 218.1 percent. Fintech users rose by 57.5 percent to 14.9 million in 2022 as the lead brand MoMo wallets had two million active users.
Number of registered MoMo wallets since the launch in May 2022 stood at 13.2 million. MTN says plans are at top gear to expand the MoMo agent network by adding over 88,000 active agents, to bring the total number to approximately 224,000. “Digital revenue grew by 64.1% as the adoption of our digital products continues to grow with user journey optimisation and the growth of the active base, up 37.5 percent to 10.3 million,” the MTN CEO added.
OUTLOOK
MTN has assured investors that despite the challenges in the operating environment putting pressure on her customers, it will continue to invest in the resilience of its business, taking advantage of opportunities embedded within the connectivity and platform businesses. “We will continue to ramp up gross connections and implement our NIN recovery initiatives to grow the subscriber base.
This will be supported by an aggressive pursuit of our rural telephony programme to expand broadband access and drive further digital inclusion. “In addition, we will continue accelerating 4G and 5G coverage to accommodate the demand for data while pursuing our home broadband strategy to capture a significant share of market growth.
We plan to achieve 83 percent 4G population coverage in FY 2023 while continuing to roll out additional 5G sites and bring the 5G network experience to more smartphone users. “Accelerating the growth of our MoMo PSB remains a key focus as we execute our fintech strategy,” Toriola further explained.
Consequently, the Telecom giant said its immediate priority is to reopen the NIBSS interface for outbound transfers and scale commercial activities focused on growing active wallets while continuing to enhance its governance framework and control environment.
AIRTEL AFRICA
Airtel Africa on her part reported a rev enue growth of 12.1 percent in Q3 (ninemonth period) ended December 31, 2022.
Revenue growth was said to have been impacted by the effect of some voice customers being barred in Nigeria and the loss of tower sharing revenues following the sale of towers in Tanzania, Madagascar and Malawi in H2 ’22.
Total revenue for mobile services and mobile money services combined grew in Nigeria by 20.9 percent, East Africa by 16.1 percent and Francophone Africa by 12.7 percent over the period. Breakdown of revenue growth showed that voice revenues recorded a double digit revenue growth of 12.7 percent, while data revenues grew 22.3 percent while Mobile money revenue grew by 29.8 percent in constant currency, driven by 32.5 percent growth in East Africa and 21.7 percent growth in Francophone Africa.
GROWTH PURSUIT VIA SPECTRUM ACQUISITION
Airtel Africa seemed very committed to aggressive expansion of the data segment of the market. Confident of Airtel Nigeria contribution is enormous; the company on January 9, 2023 announced the purchase of 100 MHz of spectrum in the 3500MHz band and 2x5MHz of 2600MHz from the Nigerian Communications Commission for a gross consideration of $316.7m, paid in local currency.
The company promised that additional spectrum will be invested in network expansion for both mobile data and fixed wireless home broadband capability, including 5G rollout, providing significant capacity to accommodate strong data growth in the country and exceptional customer experience.
Airtel Nigeria is Airtel Africa’s largest market, with significant growth potential. The company parades itself as leading the industry in providing affordable 4G services across the country following the deployment of a fully modernised network which facilitated a 4-fold increase in data traffic over the last three years.
Airtel is optimistic of the data market saying “The penetration of data customers in Nigeria remains low, providing significant opportunity for future growth. “The acquisition of 5G spectrum will underpin our growth strategy by enabling the launch of higher speed connectivity to enhance customer service and digitalization for consumers, enterprises and the public sector.”
The key benefits of 5G will include higher speed, lower latency, significant network capacity as well as an improved user experience.
Furthermore, the deployment of 5G will accelerate the availability and efficiency of fixed wireless access products across the country, contributing towards Airtel Nigeria’s progress in meeting the National Broadband Plan targets.
Airtel said the acquisition of 2600MHz spectrum will complement its already strong spectrum position in the market to enhance network capacity and futureproof our growth opportunity.
EXPANSION BEYOND BORDERS
In October 2022, Airtel Tanzania Plc purchased 110 MHz spectrum spread across the 2600 MHz (2 blocks of 2x15MHz) and 3500 MHz bands from the Tanzania Communications Regulatory Authority (TCRA) for a gross consideration of $60m. Airtel Zambia purchased 60 MHz of additional spectrum in October 2022 spread across the 800 MHz and 2600 MHz bands from the Zambia Information and Communications Technology Authority (ZCTA), for a gross consideration of $29m, payable in local currency.
It further acquired an additional 40 MHz of spectrum in the 2600 band for $12min November 2022. In July 2022, Airtel Kenya Networks Limited purchased 60MHz of additional spectrum in the 2600MHz band from the Communications Authority of Kenya, for a gross consideration of $40m, for a period of 15 years.
Airtel DRC purchased 58 MHz of additional spectrum, spread across 900, 1800, 2100 and 2600 MHz bands, for a gross consideration of $42min June 2022. The licence for paired spectrum in the 2100 band comes up for renewal in September 2032. All the other licences continue until July 2036.
RETURNS ON INVESTMENT
Obviously the Nigerian market remains the cash cow for the Telecom companies. But the critical question is how this benefits the citizens in terms of ownership and earnings from such relationships. Bearing in mind that both companies are listed on the Nigerian Exchange Limited, the shares of the companies are available in the market for interested persons to purchase.
In this regard, the earnings capacity of the firm becomes paramount. Good enough analysis of the performance of both firms in Q3, 2022 showed that they place a high premium on investor’s satisfaction. For instance, MTN Nigeria, in its full year report for 2022 said it grew profit after tax by 21.1 percent to N361.5 billion.
In terms of returns on investment, the earnings per share rose by 21.3 percent to N17.79 kobo and the board is proposing a final dividend of N10 per 50kobo ordinary share. Similarly, while analysis showed that Airtel Africa’s PAT grew by 1.7 percent in Q3, 2022, EPS rose 6.3 percent to 12.5 cents, from 11.7 cents in corresponding period 2021.
Thus, with a strong showing of EPS growth rate above PAT growth ratio, it is obvious that the concern for ordinary shareholders of both telco companies is high. Therefore, the current drive towards higher earnings via data and mobile money market bearing in mind that the necessary infrastructure for delivery is already in place, the prospect of higher returns appears very positive.
