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EXCLUSIVE: Record fine leaves SA’s MTN in a quandary in Nigeria

mtn mastsfrom AUGUSTINE OSAYANDE in Lagos and SAVIOUS KWINIKA in Johannesburg
LAGOS, (CAJ News) – MTN, the continent’s largest network operator by market share, finds itself in a lurch in its biggest market after the Nigeria Communications Commission fined it heavily for allegedly undermining efforts by the government to tackle security challenges and the war against terror and allied crimes.

This stems from the failure by the company to disconnect 5,1-million unregistered subscriber identity module (SIM) cards after the NCC deadline to cut of non-compliant subscribers.

Regulatory authorities embarked on an exercise to register SIM cards as part of plans to curb the rampant Boko Haram terror that has claimed the lives of some 15 000 civilians and displaced an estimated three million in the Northeast states of Adamawa, Borno and Yobe amid suggestions it was difficult to track down perpetrators as mobile numbers were used wantonly.

For its troubles, the mobile network operator has been hit with a hefty $5,2 billion.

This is the biggest sanction the trigger-happy regulator of the dog-eat-dog Nigerian mobile network industry has ever meted on an errant operator.

If it stands, the penalty will represent more than two years of MTN’s annual profits.

Amid the setback, which some conspiracy theorists attributed to an agenda the Nigerian regulator has against the South African headquartered firm, MTN appears short of options ranging from legal redress, pulling out or complying, at a cost.

An international technology expert based in Johannesburg, Arthur Goldstuck, exclusively told CAJ News African MTN would not fold or pull out of the lucrative Nigerian market citing its heavy investment in Africa’s biggest economy which also has the largest population.

Based on the MTN Group’s financial results for the first half of the year, MTN Nigeria has some 62,8 million subscribers, having grown by 4,9 percent from the corresponding period in 2014.

This is a considerable chunk in a country that has an official population of more than 173 million people.

The company’s profit for Nigeria in 2014 was around US$4.5-billion, out of total group profit of about US$12.4-billion.

“MTN has invested far too much, and stands to lose too much, simply by pulling out of that market. Nigeria continues to be seen as the mobile market with the greatest potential in Africa, and it is unlikely MTN would walk away from that,” said Goldstuck.

Going forward, Goldstuck suggested if MTN, with some 200 million subscribers across Middle East and Africa, was unable to negotiate for a lower settlement, he argued, it would be disastrous citing since it is equivalent to almost half the group’s revenue and double its profit for 2014.

“Considering the amount amounts to one-and-a-half times the annual revenue of the Nigerian operation, and double its annual it will be a bottom-line setback from which it will take many years to recover. It will also hamper the group’s ability to invest more heavily in infrastructure to improve the quality of its network in Nigeria. That, ultimately, will limit the extent to which it can expand throughout Africa – or at the very least curb how aggressive its expansion can be,” Goldstuck said.

He argued it would “risky” for MTN to take the legal route.

“That would be as big as systematic risk gets,” said Goldstuck.

“It is up to the lawyers depending on what grounds they have. Technically, the regulator is in the right. Morally, it has gone over the top. However, morality seldom wins out in a court of law. MTN is more likely to try to reach a settlement with the regulator,” Goldstuck said.

There have been conspiracy theories bandied about suggesting the regulator had an agenda against the operator, stemming from the sometimes frosty relations between the two countries.

The relations between MTN and NCC have not been that rosy either.

“There may well be a political agenda at work, but the reasons are more likely economic,” Goldstuck opined.

He suggested the Nigerian fiscus was under heavy strain due to the collapse of the oil price, and therefore tax revenues from oil profits.

“The situation is exacerbated by the decline of the currency. That means the government will look to all avenues of potential revenue. Just as it did with the banks, it will push the letter of the regulations to the limits to extract maximum fines from any large organisation that can afford to pay the fines.

“The NCC is likely to be the bully boy of the mobile industry for as long as the financial crisis lasts,” the expert said.

However, he noted NCC had not singled out MTN having previously fined mobile operators for poor services. The NCC had already fined all four major operators, MTN, Globacom, Airtel and Etisalat, a total of N120 million.

“The relationship between MTN and the NCC has been antagonistic at the best of times in recent years. Nigerians complain bitterly about service quality in general, and blame the regulator for its failure to force operators to improve their services,” said Goldstuck in response to emailed questions from CAJ News Africa.

He said the latest development had a domino effect, so that the unhappier the Nigerian mobile subscriber population of 148 million was, the more under pressure the NCC found itself, and the more stringent the action is against the operators, who felt they were doing their best to improve infrastructure in an environment bedeviled by currency volatility, poor electricity supply and poor infrastructure.

“In some ways, it’s a no-win situation for both the regulator and MTN, and this almost appears to be a lashing out by the regulator. Generally, regulators are clamping down in Nigeria to show they do have muscle,” Goldstuck said.

In June the Central Bank of Nigeria, financial regulator, fined four Nigerian banks 576-million Naira for misclassifying public sector deposits.

“That appears to be more of a technical infraction than a major violation of the law, so we can expect to see that kind of non-nonsense approach taken in all sectors that are subject to regulators,” Goldstuck told CAJ News Africa.

An official from NCC, speaking on condition of anonymity as he was not authorized to speak to the media, said the regulator had “run out of patience” arguing it had been tasking MTN on a number of fronts, including poor service delivery.

It imposed a N360 million fine in 2012 and another N90 million in 2013.

Quoted for comment in a telephone interview, MTN Nigeria Chief Executive Officer, Michael Ikpoki, said his company would continue exploring ways of negotiating with the communications regulator for a settlement.

He refused to shed more light referring enquiries to the Group Head Office in Johannesburg where Spokesman, Chris Maroleng, could not respond to questions emailed to him.

He was not taking calls.

However, in a statement released from Johannesburg, the mobile operator confirmed dialogue with the Nigerian regulator.

“MTN Nigeria is currently in discussions with the NCC to resolve the matter in recognition of the circumstances that prevailed with regard to these subscribers. We will continue to update shareholders in this regard.”

Following the hefty fine MTN’s shares took a dive on Monday with R190, and fell further to R167.

On Tuesday the MTN shares dropped further, at one stage going as low as R157 before beginning to recover marginally.

“Should MTN be unable to negotiate a settlement, we may well see a further crash in the share price, but the market seems to be betting on the former (a settlement) for the moment,” Goldstuck said.

Meanwhile, MTN has received support from the industry.

The Chairman of the Association of Licensed telecommunications Operators of Nigeria (ALTON), Gbenga Adebayo, said such a sanction was destructive to profitability.

“I do not know how NCC arrived at the huge amount as a fine. But I think government should urgently intervene because it could affect further investments in the sector. It is disincentive to investors and would have
negative impact on the sector as a whole,” Gbenga said.

Meting out the sanction, NCC said it had fined MTN N200 000 for every unregistered subscriber.

He called for dialogue between the two parties involved.

President of the Association of Telecoms Companies of Nigeria (ATCON), Lanre Ajayi, condemned the ‘outrageous’ sanction.

Ajayi said the sanction was “unacceptable” in a telecommunications industry that was still gasping for foreign investment.

“I believe strongly that there is nothing wrong in a regulator imposing a sanction on erring operator to ensure sanity in the market but when such a regulatory tool is being abused, it calls for alarm. The amount imposed on MTN is just, to say the least, outrageous and monumental.

“By the time you begin to impose a sanction, whose value is worth more than half of the investment of a telecoms company, I am afraid, this does not send good signals to foreign investors and we need to take cautions,” Ajayi said.

CAJ News

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