MTN spends billions of rands to escape the pain of blackouts

14 Aug 2023

MTN South Africa, a division of MTN Group, is prepared to spend between R4bn and R5bn in the next six to 12 months to make its network more efficient and resilient during Eskom blackouts. This expenditure is a drag on MTN’s earnings.

MTN is pouring billions of rands to make its telecommunications network resilient against the impact of Eskom blackouts — an expense that is gnawing at its earnings.

MTN is prepared to spend between R4-billion and R5-billion in the next six to 12 months to make its network more efficient and resilient.

But doing so is starting to knock MTN’s earnings because more money is being directed towards backup electricity measures to keep its network operational (especially during higher stages of blackouts), instead of growth-inducing measures.

Pressures can be seen in MTN South Africa operations: service revenue (money MTN makes from things such as airtime usage and monthly access charges to its network) rose by 1.9% to R20.4-billion during the six months ending 30 June. Historically, MTN South Africa’s service has grown in double digits.

The South African operations also recorded a 6.8% decline in earnings before interest, tax, depreciation and amortisation (Ebitda), which is a measure of operating profitability. And the Ebitda margin — another measure of profits against generated revenue — fell by nearly four percentage points to reach 36.1%. In other words, earnings and profits at the South African business are under pressure, with the situation mainly exacerbated by the electricity crisis. But this was largely expected and communicated by the company to investors.

MTN and other telecommunications operators have to spend billions of rands on solar power, generators and lithium batteries to keep their cellphone towers running during Eskom blackouts.

The cellphone towers, which are critical infrastructure for mobile and internet connectivity, depend on a stable electricity supply to function efficiently. In the 16 years that South Africa has been energy insecure, telecommunications operators have spent huge sums of money fitting cellphone towers with backup electricity measures, funds that could have been used on measures to expand their operations and, in turn, improve earnings.

Earnings ‘set to recover’

MTN Group CEO Ralph Mupita said the decline in its South African business was temporary, and earnings were set to recover and improve soon.

“We are confident that the investment in the resilience [of MTN’s network] will get us back to the level of growing service revenue during the second half of the financial year,” Mupita said in a briefing on Monday with journalists after the release of MTN’s results.

As MTN’s operations become resilient against the effects of blackouts, Mupita sees service revenue growing by between 4% and 6%, and Ebitda improving by up to 39%.

Surviving Eskom blackouts seems to be a priority for MTN South Africa operations. It has even pulled back on rolling out a 5G service to direct money towards electricity backup solutions. The 5G service is a new technology that brings the promise of faster internet connectivity, easier access to information and the ability to transfer large amounts of data across wireless networks.

“We have pulled back on the 5G roll-out to ensure that the network is well above the 91% availability rate [how much of the network is available and reliable during blackouts]. As we get closer to 99% [of network availability], then we will turn our focus to expanding the 5G network,” Mupita said.

On the upside, MTN’s investment to strengthen its network helped it to report a 3.9% increase in the number of subscribers in South Africa to 36.7 million by end-June. This was bolstered by a 6.4% increase in post-paid subscribers to 3.9 million (excluding telemetry users). Prepaid customers increased by 2% to 28.1 million.

Beyond the South African market, MTN is making progress with exiting the Middle East. MTN has announced that it has received conditional approval from authorities in Kabul to sell its Afghanistan unit. The sale is expected to conclude by the end of 2023. The sale is part of MTN’s stated plan of leaving Middle East regions, including Syria, Yemen and Iran, to focus more on the rest of Africa.

MTN has also cemented a partnership with Mastercard to roll out investments and build scale in the financial technology sector. This partnership will enable Mastercard to help in expanding the payments and remittance services offered by MTN.

Mastercard and MTN are hoping to take advantage of Africa’s young and tech-savvy population, which is increasingly using mobile phones to transact and also bridge the gap in services offered by traditional banks. DM

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Earnings ‘set to recover’