MTN Nigeria fine

WTF? Really? Excuse me ... The biggest news by a country mile yesterday was that the Nigerian Communications Commission (NCC) had imposed a fine of 5.2 billion Dollars on MTN. Why? As per the release: "This fine relates to the timing of the disconnection of 5.1 million MTN Nigeria subscribers who were disconnected in August and September 2015 and is based on a fine of N200,000 for each unregistered subscriber."

How much is 200 thousand Naira? At the official rate, (the currency doesn't float, it is managed) it is 1003.92 Dollars per unregistered subscriber. Now, as per the 3rd quarter subscriber update, ARPU's in Nigeria were 4.99 Dollars. For comparisons sake in South Africa it is 7.42 Dollars. Divide the fine by the ARPU and you get to 201 months, or in years 16.76 years. Longer than the company has operated in Nigeria. EBIDTA margins in Nigeria are high, 57,3 percent at the half year stage.

Annual revenue last year was 53.995 billion Rand, or at current exchange rates 3.951 billion Dollars. EBITDA clocked 31.620 Rand (or 2.313 billion Dollars at current exchange rates) for the full year last year. Results from Nigeria are expected to be lower and a lot more muted this year than in years gone by. As such the fine represents 1.31 times last years annual revenue in the country, possibly more this year.

And in case you needed reminding, the total subscriber base in Nigeria as of the last numbers (that included the disconnections) was 62.5 million. I am guessing out loud here, I presume that the disconnections are normally marginal subscribers, i.e. not even close to the ARPU numbers mentioned above here. As the company said in their interim results, the regulator was "being difficult": "While management continues to engage with the regulator, performance continues to be impacted by ongoing regulatory restrictions."

In the release yesterday, the company said that "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." Let us be clear here. If you want to attract capital to your shores where capital has choices, you had better think carefully how you treat businesses that promote the economy. Without the connections and with not much left to communicate across the country. I suspect that whilst it is too premature to dismiss the fine as insane and ludicrous (in the face of budgetary constraints globally, particularly in countries that produce commodities), it is a serious concern.

From my intelligence gathering, the one day drop experienced yesterday in the share price (of over 12 percent) is the biggest since 1998. MTN have only been operating in Nigeria for a relatively short time, having made their first call on the 16th of May 2001. They bought the licence for 285 million Dollars in January 2001, people said they were nuts, I remember. They have spent nearly 2 billion Dollars on infrastructure development. That came from private money, taking a risk (admittedly for higher returns), and again they were entitled to tax breaks for building said infrastructure.

So what do you do now? The shares are lower already. Do nothing. I am sure that there will be many high level calls, the news is already global. I expect the company to pay something, not nothing and it would definitely be a body blow. In all regards, it again is a reminder that doing business in places that are not as friendly to capital as in some others comes with the risks, as well as the high rewards.