MTN to Invest $350m in Uganda

Mergers, Acquisitions and Financial Results

MTN Group President and CEO Phuthuma Nhleko visited the country recently. Paul Busharizi talked to him about MTN's challenges in Uganda and their future plans.

What is your impression of your Ugandan operations?

I think the Uganda operation is doing very well.We are talking about an operation that is growing by 35% in terms of subscriber base after nine years in business penetration has increased significantly.

When we came in, it was 0.2% but now it is about 14%. We have seen the highest growth in the past but growth is still very strong. Uganda is nine years old as an operation for us. Iran is achieving growth of 88% but it is coming off a very low base. On the continent, Uganda is still one of our strongest growers.

Nigeria is growing 52% but we have only been there for five years.

Do returns on investment justify more investment into the country?

It is still justifiable to keep injecting capital on condition that regulatory environment is clear and certain, which in our view is the Communications Bill, which has not been promulgated as yet.

That is crucial. but the will to invest more is there. We have invested $50m this financial year and the intention is to invest another $100m and if our five-year plan holds, up we could invest $350m but this is subject to the regulatory environment, which is subject to the Communications Bill being passed.

So you have issues with the new more competitive environment?

What we are saying is that for the Government to bring in more competition is par for the course.

It further stimulates the market but because we have five players now, we need the Bill to be passed. It will take any ad-hoc subjective ruling on competition issues out, level the playing field and give certainty for us as industry players as to what we can expect. That certainty provides confidence to invest without fear of arbitrary rulings that would hurt investment.

How much more growth can be squeezed out of this market?

14% penetration is still relatively low. We think that penetration can be higher; there is no reason why we can't achieve 20-25%. The bottom line is teledensity and increased penetration has always surprised on the upside and we expect tale-density to keep increasing here too.

Do increases in excise duty on airtime concern you?

It is a concern. A recent Deloitte report showed that Uganda is one of the highest taxed mobile sectors in the emerging markets. We agree the telecoms tend to be an easy target for revenue mobilisation, but we do believe it should not be done at the cost of mortgaging the rate of penetration of telecoms which has an effect on the economy.

The more you tax the less investment possible the less the rate of increased penetration.

Recent results have shown a decline in revenues per subscriber, isn't this worrying you?

Average revenue per unit going down is a certainty, as your penetration deepens you are hitting segments of people who can afford less and less, further our tariffs have not stayed the same. In fact, we have lowered them.

What can the Ugandan consumer look forward to?

We have been largely only in mobile voice but there is a whole range of value-added services that we still need to deal with; mobile banking, mobile television.

MTN suffered network problems lately. Is there any truth that you are under-investing here and shifting resources to your more profitable Nigerian operation?

That is just an urban legend. We have a meticulous budgeting process for every operation.

Our recent problems in Uganda have nothing to do with other operations. When we reduced tariffs, demand increased but much faster than we could increase capacity.

In 2008, we plan huge capital expenditure for Uganda. You can't always get it right but rest assured Uganda's problems have nothing to do with Nigeria.

Any possibility of your Ugandan unit selling shares in the stock exchange?

We intend to take it in steps. We have invited some pension funds to invest in us. We can't rule out eventual listing of our shares.

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