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An expected loss for this financial year due to a whopping regulatory fine in Nigeria. An ongoing investigation in that country into the alleged illegal repatriation of money as well as a planned listing in Lagos. A brewing freedom of expression scandal in Cameroon and an ongoing investigation by the Cameroonian government into unpaid taxes.
The purchase of a major stake in an Iranian internet service provider. Angry black shareholders whose payouts have been delayed. A South African market where it has been shedding subscribers and has faced heavy criticism for its decision to appoint a white CEO to take over from acting CEO and current MTN chairperson, Phuthuma Nhleko.
It seems former Vodafone and Nedbank executive Rob Shuter, who takes the reins as the MTN Group CEO in mid-March, already has a very full inbox.
Speaking to finweek, the telecoms giant says it has learnt profound lessons from the events of the past 18 months, most notably the events around the MTN Nigeria regulatory fine.
“We have since taken an in-depth review of our operations and processes to strengthen our governance structures and embed a robust ethics culture.”
New regional vice presidents
Shuter is taking the helm at a company that currently operates across 22 countries in Africa and the Middle East and has a staff complement of 21 000 and a total subscriber base of 230m.
Mergence Investment Managers’ Peter Takaendesa reckons Shuter is joining MTN at a good time. “Fortunately for Rob, most things that could go wrong have gone wrong,” says Takaendesa. “Most of the disasters are behind them now.”
However, he maintains that developments at the mobile giant over the last few years suggest it needs to address its corporate culture.
Given the size of MTN’s footprint, it really needs to step up its corporate governance so it can’t be used as ammunition against the company by governments that are currently hard-pressed to prevent capital outflows, says Takaendesa.
Nhleko essentially built MTN during his term as CEO and was responsible for initially setting up the regional vice presidents, adds Takaendesa. But, according to him, it was the next CEO, Dabengwa, who again removed the regional vice presidents, opting for a governance structure that was run on a country-by-country basis.
Takaendesa suggests that if the regional vice president structure was still in place, MTN perhaps would have acted sooner in dealing with the crisis in West and Central Africa. It is notable then that with Nhleko back at the helm, even in an acting capacity, MTN has taken the decision to again implement a regional structure headed by three vice presidents.
The three regions are Middle East and North Africa, West and Central, as well as South and East Africa. MTN told finweek that it would provide an additional layer of governance across the 22 countries it operates in.
Fixing corporate culture
Shuter has a big task ahead of him to steady the ship as MTN is still in a “precarious” position following the Nigerian fine, says Goldstuck. According to him, the company is in need of strong leadership and what Shuter needs to do is establish a new corporate culture at MTN.
“Shuter needs to make sure that good governance and ethics become core to the DNA of the company,” Goldstuck explains. “This seems to have been taken too lightly over the last few years.
“MTN needs to become as transparent as possible, it needs to stick to the regulatory and governance frameworks like a religion,” he adds. “It can’t appear to be a bad corporate citizen.”
Lentsoane says the time for introspection from MTN is now. “MTN is facing a lot of challenges, both reputational and governance,” he states. “Phuthuma Nhleko has been acting for over a year to get them through this difficult period.
“There has been a lot of reputational damage and the share price has reacted negatively.”
Lentsoane also points out that Nhleko recently sold a significant stake of his shareholding in MTN. “He is just realising gains on those shares, but it’s not a vote of confidence. It’s a bit disturbing to see and as a potential investor I would be cautious.”
MTN says it has strengthened its corporate governance by appointing Felleng Sekha as its new executive for regulatory affairs and public policy at group level and by setting up a compliance committee, a sub-committee of the MTN Group board, chaired by MTN chief legal counsel Michael Fleischer.
“We have conducted an independent audit of our compliance and risk functions across all our operating companies,” says MTN. “We have enhanced our reporting mechanisms to ensure improved information flow to senior executives and appropriate board members on a timeous basis.”
More trouble in Nigeria
In September 2016 a Nigerian senator made further allegations that MTN illegally moved $13.9bn out of the country between 2006 and 2016.
The allegation was that the telecoms giant had not obtained certificates declaring it had invested foreign currency in Nigeria and so the repatriation of the return on those investments was illegal.
MTN has denied contravening Nigeria’s currency transfer rules, but the new scandal has created further uncertainty for the mobile player in that country. “These allegations are without merit,” said MTN.
When MTN settled its fine related to the registration of sim cards with the Nigerian regulator, it announced that it would list the company in Nigeria in 2017, one of the conditions of the settlement. However, MTN maintained that it had always planned to list the company in Nigeria. It appointed Citigroup and Standard Bank in July last year to advise it on the Nigeria listing.
Delayed Lagos listing
It does appear, however, as if the new Nigerian investigation is one of the issues causing delays to the proposed Lagos listing. In January this year MTN announced that its Lagos listing may only go ahead in 2018.
Acting CEO Nhleko has stated that the process could take 12 to 18 months. Goldstuck says that the Lagos listing is a sign from MTN that it wants to be a “good corporate citizen” in Nigeria. “MTN is clearly willing to prove its credentials to the Nigerian government.”
Takaendesa believes the listing will ultimately be good for MTN. “It’s a good idea, they need to do that,” he says. “It’s the right thing to do.”
He adds that having a firmer footing in Nigeria may help silence some of the criticism coming from Nigerian politicians who may see MTN as an arrogant South
African company.
“If you are just seen as a foreign business, it’s easy to be penalised,” says Takaendesa.
MTN insists that it is committed to list on the Nigerian Stock Exchange as communicated to the market previously. It also said, however, that this is subject to suitable market circumstances and conditions.
“The listing process remains one of our key priorities and, as previously committed, we continue to take comprehensive steps to ensure that the process is completed as soon as commercially and legally possible,” the mobile operator says.
Increased pressure in SA
In its home market, MTN has come under increased pressure.
It has been seen as largely unresponsive to increased competition in the market and has as a result haemorrhaged subscribers, with smaller rival Cell C being the main beneficiary.
Goldstuck says MTN South Africa needs to become a much more market-driven and consumer-focused business, but says of late there have been promising signs under the new CEO, Mteto Nyati.
Takaendesa points out that MTN South Africa has made many mistakes over the last few years. One misstep was the outsourcing of its supply of handsets, which resulted in a huge handset shortage in 2016. It was a move that was eventually reversed.
Goldstuck flags data as the biggest issue for MTN going forward in the South African market. Local telecoms companies are under massive political and public pressure to bring data prices down.
“The data issue is the elephant in the room,” he says, adding that by 2020 South Africa is expected to have an almost exclusive smart phone market, which will cause an explosion in data usage.
“By 2020 the mobile players will be making more revenue from data than voice,” he explains. “This is going to result in pressure to bring data costs down.”
Goldstuck says South African mobile companies are still offering voice products with data added on, when in fact they need to be thinking in reverse.
This is a shortened version of an article that originally appeared in the 2 March edition of finweek. Buy and download the magazine here.
