MTN’s $5,2 billion fine and the nasty business of African telecoms

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Every sort of business has its fair share of challenges specific to the environment it operates in and MTN, the African telecoms giant and acclaimedly the largest brand on the continent, has experienced its fair share on our continent.

A week ago a $5,2 billion fine was imposed on MTN by The Nigerian Communications Commission for failing to disconnect up to five million unregistered SIM cards in that country.

As has been the case in other markets, including Zimbabwe, SIM registration took on a regulatory effect as a mobile telecoms KYC (Know Your Customer) avenue that would curb illegal activities through the use of unregistered SIM cards.

The only hiccup in the whole plan was how the registration was left in the hands of the operators. This created a loophole that was vulnerable to exploitation from operators that have millions upon millions of subscribers that would need to be cut off if they weren’t registered properly.

Following news of the fine, MTN’s share price tumbled by 20% a slide which reach its worst with a 25% decline in share price since the fine was announced. This wiped approximately 60 billion rand off its market value.

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Moody’s Investors Service, the credit ratings firm revised MTN’s credit rating to a negative. MTN maintained Moody’s Baa2 rating which translates to two notches above junk status. Standard & Poor’s another ratings firm also negatively revised MTN’s long-term corporate credit rating to BBB- from BBB, which left it at one notch from junk status.

Yesterday, one full week after news of the fine was announced, trade in the telecoms operator was suspended briefly on Johannesburg Stock Exchange following reports that were swirling around mentioning MTN’s compliance with the fine.

This is Africa, this is how we do telecoms

The two sides of the MTN story have been viewed at exhaustively so far and there are points being thrown in for and against MTN.

On the one hand there’s the sentiment that these guys deserved it. MTN failed to comply with regulations that were set back in 2013 and decided to roll the dice on the consequences that were likely to stem from their actions.

Granted, there were costs involved in effectively registering each and every subscriber. However, a company as well heeled as MTN should have made a provision for that.

Then there’s the underlying element behind mandatory SIM Registration – Crime. Beyond the usual cocktail of misdemeanors that come with mobile tech inspired crime, Nigeria also harbors vices like kidnapping and terrorism.

In fact, the kidnapping of a top government official which was coordinated through unlicensed MTN lines is what got MTN here in the first place.

With such activity needing to be monitored, surely the Nigerian regulator had to send the message to every other operator that no matter how valuable you are to the economy or ecosystem, you will get punished severely if you misstep.

However all of this points to the same realistions about the characteristics of African telecoms. Operators are often at the receiving end of harsh regulatory measures.

In its 2015 interim results,  MTN highlighted cases of tax regulation adjustments in Cameroon and Sudan that affected operations as a telecoms entity. Licence fees are another expected challenge for entering any domain, with operators expected by respective regulators to come up with huge figures to access markets.

Other intricacies around product and service pricing, expatriate employment, indigenisation laws and foreign investment regulations also follow any operator with ambitions to establish a presence throughout the continent.

The result is a heavily regulated industry that has left operators bemoaning the investment opportunities they are failing to pursue because of these burdens.

I have no doubt in my mind that MTN is cut from the same cloth as other telecoms and corporate juggernauts. Where regulation is grey, these guys take advantage of the situation and move forward with plays that maximise on revenue and shareholder interest.

Oddly enough it’s the typical case of the aggressive bully who always breaks through the locked gate to the playground. Once the dirty deed is done, everyone else follows these guys and enjoys the spoils of operating in a disrupted environment.

The sad reality though, is that all this always reflects on poor regulatory measures that more often than not are powered by reaction. The case of SIM registration is highlighted by regulators realising well after operators have gained momentum that subscribers have to be accounted for effectively.

The same can be said for pricing models that are brought in to reshape the existing landscape after years of subscriber disadvantage. We also have a similar reactionary issue locally with the buzzword in 2015 Zimbabwean telecoms – infrastructure sharing.

Like all other issues to do with regulation, there’s a lot of pain and love lost when it happens after unknown boundaries are breached. As a the party on the receiving end, it’s the operator that faces an uncomfortable reality. Pay us what you owe us, or we will shut you down.

While the regulators always have the prerogative to act whenever they feel it is necessary to do so, a little foresight could always help prevent some of these nasty cases.

Similar challenges and landmark cases are always going to be an issue in African telecoms, particularly in a world where telecoms marks the entry into financial inclusion and the internet. The mobile phone isn’t just an alternative gateway to the internet for Africa, more often than not, it’s the only one.

There’s an unending list of areas of concern that will be placed on the foot of the mobile operators – Think  of cases that include cybercrime, cybernetic, financial espionage, economic terror, privacy invasion…Unless regulators start acting proactively rather than re-actively, this will always happen in some other form.



2 Comments

  1. macd chip says:

    There is a lot of overkill and lack of foresight when regulations are being made in Africa. I feel the issue of registering sim cards in the name of combating crime is overplayed here.

    This is like asking telecoms to do police work. It takes efficiency to fight crime. Where as this law is becoming popular in most African countries, its not in Europe.
    Most of the Europe countries ask for access data if there is crime and use other means to track criminals. When you read how this law is being enforced in Africa, you are made to believe that it is the ultimate fighting weapon, yet its nothing other than overrated law.

  2. Rr says:

    Mtn will just appeal this for the few years and eventuallystrike a deal that reduces whatever metric was used to charge the fine. Whether cost per unreg line etc

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