MTN Shares halted

Yesterday was another day of drama for MTN shares, the stock was down sharply at the beginning of trade (on rumours that MTN had agreed to pay the full fine), and then just after ten thirty the stock was suspended. In other words, you were no longer able to trade in the stock until the company had revelled some fresh information. The problem being that there was no new information forthcoming. Eventually the company, three hours later put out a release and the stock started trading again.

The release revealed very little: "As per our SENS announcement, the Company reiterates that engagements with the Nigerian authorities are continuing and any material developments in these engagements will be communicated to shareholders through SENS. Shareholders should specifically exercise caution when reacting to information on this matter which has not been released by the Company. Shareholders are therefore advised to continue to exercise caution when dealing in the Company's securities until a further announcement is made."

Some comments that I had given to a journalist did not go down too well, it was a Reuters article which quoted me as saying: "If you want to attract capital to your shores, you had better think carefully how you treat businesses that promote the economy,". That might not be the mainstream view, I agree that if MTN have got it wrong, from a compliance point of view, then yes, they should be subject to a fine. We however do not know the full story, we do not know how long they had, whether or not the "know your customer rules" are too onerous or not.

We are talking about a country where their the infrastructure is not good, and electricity supply is poor at best. The state is supposed to provide that on revenues collected in the economy. The state is supposed to protect their citizens. It is not the responsibility of MTN to provide security in any way to Nigerian citizens, it is their job to provide a working network. If the power grid is compromised due to a lack of investment from government, they make alternate plans, diesel generators.

As per Wikipedia, under Capacity, generation and demand on the main subject List of power stations in Nigeria: "As of December 2014, the total installed capacity of the power plants was 7,445 MW. Available capacity was 4,949 MW (2014 Year In Review, Presidential Task Force on Power, Pg. 53). Actual average generation was less than 3,900 MW. The Presidential Task Force on Power's peak demand forecast is 12,800 MW (April 2015)." This is a place where peak demand is three times higher than the ability to actually generate power. Just making a point about the infrastructure, that is all.

Back to the actual fine. 200 thousand Naira per person not disconnected. ARPU's were 994 Naira at the last quarterly update. That fine, per person not disconnected is 16.75 years worth of revenues. That is just the usage, not the profits. EBIDTA margins in Nigeria are a very impressive 57.3 percent. If the consumer thought that they were getting ripped off, they would use the fixed line option. Wait, there is not any that is widely reliable. There are multiple operators in Nigeria, I am presuming that they did comply with the laws and disconnect their users that were not compliant. If MTN were late and calling the Nigerian Communications Commission's (NCC) bluff, then this has backfired badly. They have done badly then.

I am arguing that the quantum of the fine is unreasonable. If you are experiencing budgetary constraints, then look in the mirror, not at the golden goose. Nearly 17 years of revenue for failing to disconnect your customers, that is my biggest problem with the fine, the size and scale thereof. If MTN have done wrong, they must be subject to a fine. If you are looking to punish the business, make it fair and reasonable, not 20 odd percent of your total country budget.

Charging the group 2.5 years worth of profits (that is across all the territories) is crazy, I am hoping someone can point out the obvious here, MTN has done wrong, yes, they have also spent billions of Dollars investing in an infrastructure over the years. Their inability to maintain infrastructure as a result of a hefty fine would definitely impact on all their users across multiple territories. We watch and will advise, for now we have encouraged clients to do nothing. Doing nothing is doing something.

Good news this morning is that their licence has been renewed in Nigeria, obviously the NCC and MTN separating the two issues is a good thing.