Maketa Lutete

MTN entry Strategy in Nigeria
Case study research report presented to
The Graduate School of Business
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University Of Cape Town
In partial fulfillment of the requirements for
The Master in Business Administration Degree
By
Maketa Lutete Thomas
Supervisor: Dr. Mills Soko
December 2009
MTN entry strategy in Nigeria

Case study research report
TABLE OF CONTENTS
ABSTRACT ...4
DISCLAIMER 4
ACKNOWLEDGEMENT .................................................................................................. 5
LIST OF ACRONYMS ...................................................................................................... 6
CHAPTER 1: INTRODUCTION..................................................................................... 7
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1.1 CASE STRUCTURE ............................................................................................................... 7
1.2 CENTRAL HYPOTHESIS ...................................................................................................... 7
1.3 RESEARCH QUESTIONS...................................................................................................... 8
1.4 CASE STUDY METHODOLOGY ......................................................................................... 8
1.5 STUDY SCOPE AND LIMITATION ..................................................................................... 9
CHAPTER 2: LITERATURE REVIEW AND DISCUSSION ON AFRICA TELECOM

SECTOR .10
2.1 INTRODUCTION TO AFRICA ............................................................................................ 10

2.2 INVESTMENTS AND BUSINESS PERFORMANCES ...................................................... 12
2.3 AFRICA INFORMAL ECONOMY: INABILITY TO ASSESS PERFORMANCES FROM
THE OFFICIAL STATISTICS .............................................................................................. 13
2.4 FDI IN AFRICA: IMPORTANCE AND EFFECTIVENESS................................................ 13
2.5 SOUTH AFRICAS POSITION IN AFRICA ........................................................................ 15
2.6 CONTRIBUTION OF SOUTH AFRICAN MULTINATIONALS TO AFRICA FDI
OUTFLOW ............................................................................................................................ 15
2.7 AFRICAS TELECOM SECTOR ......................................................................................... 17
2.8 AFRICA TELECOM AND THE FINANCIAL CRISIS OF 2008 ......................................... 17
2.9 PROBLEMS OF OPERATING IN AFRICA......................................................................... 18
2.9.1 POLITICS .................................................................................................................. 18
2.9.2 ECONOMICAL SLOW DOWN ............................................................................... 19
2.9.3 LACK OF INFRASTRUCTURE............................................................................... 20
2.9.4 SECURITY ................................................................................................................ 20
2.9.5 MANAGEMENT ....................................................................................................... 20
2.9.6 CURRENT SUBSRIBERS MARKET ..................................................................... 21 2
2.9.7 THE FLUCTUATING EXCHANGE RATE ............................................................. 21
2.9.8 LACK OF LOCAL CONTRACTORS ...................................................................... 22
2.10 THE WAY FORWARD FOR AFRICA TELECOM ............................................................. 22
2.10.1 COST MANAGEMENT AND INNOVATION .................................................... 22
2.10.2 INFRASTRUCTURE SHARING.......................................................................... 23
2.10.3 BROADBAND INTERNET AND MOBILE BANKING ..................................... 23
CHAPTER 3: THE CASE STUDY .............................................................................. 24
3.1 INTRODUCTION ................................................................................................................. 24

3.1.1 MTN........................................................................................................................... 24
3.1.2 MTN SOUTH AFRICA IN 1990S ............................................................................ 26
3.2 THINKING AFRICA............................................................................................................. 27
3.2.1 INVESTING IN AFRICA .......................................................................................... 27
3.2.2 MTN AFRICA STRATEGY...................................................................................... 29
3.2.3 MTN ENTRY INTO NIGERIA ................................................................................. 30
3.2.4 PARTNER SELECTION ........................................................................................... 33
3.3 MTN NIGERIA ..................................................................................................................... 34
3.3.1 NIGERIA ROLLOUT CHALLENGES ..................................................................... 34
3.3.2 OPERATIONAL CHALLENGES............................................................................. 35
3.3.3 HUMAN RESOURCES ............................................................................................ 36
3.3.4 NIGERIAN FACTOR - SHAKE DOWN .................................................................. 37
3.3.5 REGULATORY CHALLENGES ............................................................................. 38
3.3.6 POLITICAL CHALLENGES .................................................................................... 39
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3.4 NEXT STEPS......................................................................................................................... 40
CHAPTER 4: INSTRUCTOR GUIDE ........................................................................ 41
CHAPTER 5: CASE APPENDIX ................................................................................ 44
5.1 MTN GROUP STRUCTURE ....................................................................................................... 44

5.2 MTN REGIONS CONTRIBUTION TO MTN GROUP TOTAL REVENUE ......................................... 45
5.3 MTN GROUP RISK MATRIX ..................................................................................................... 47
5.4 AFRICA MOBILE PENETRATION RATE 2007 ............................................................................. 48
5.5 BIGGEST CHALLENGE FACING TELECOMMUNICATION OPERATORS IN AFRICA, IN TERM OF % OF
OPERATOR WHO LISTED IT AS CHALLENGE .............................................................................. 50
5.6 THE BIGGEST CHALLENGES FACING TELECOMMUNICATIONS OPERATORS IN AFRICA IN TERM OF
% OF OPERATORS WHO LISTED IT AS CHALLENGE .................................................................... 51
5.7 TOTAL TAXES AS A SHARE OF TOTAL REVENUE BY MOBILE OPERATORS 2006 AS % ............. 51
CHAPTER 6: REFERENCES AND BIBLIOGRAPHY ........................................... 52
LIST OF TABLES
Exhibit1: World Population growth in 2050..5

Exhibit 2: World Most populous ...6
Exhibit 3: Global net FDI 1995 2005 .8
Exhibit 4: South Africa investment in SADC .. . 12
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ABSTRACT
This case documents MTNs strategy for entering the Nigerian Telecommunication market. It
explores the rational behind the decision to enter the market and it examines the implementation of
this decision. This study will investigate all aspects of the investment process, from the strategic
investment decisions to the operational results after successful implementation, through all the steps
and measures taken to identify and mitigate risks.
DISCLAIMER
During the course of the research, the University of Cape Town Graduate School of Business
(GSB) research guidelines were followed. To avoid a lack of informed consent, each interviewee
has been thoroughly briefed on the research nature and the manner in which the information he/she
provided will be used and interpreted.
To keep the accuracy of testimonies and interviews, a voice recorder or notes might have been
used. Participants approvals have been given for their name to appear in the final research
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document.
Because of the public nature of this MBA research, it has been made explicit to participants that
information they provide will be used to write a public research thesis accessible to anyone having
access to GSB physically or via online library.
I declare that report is my own and all references used are correctly reported at the best of my
knowledge.
4
ACKNOWLEDGEMENT
I want to first thank my God who has given me the means and placed on my way the right people at
the right time.
My special thanks go to my supervisor, Dr. Mills Soko, who has guided me all along this research
and who has introduced me to people without whom this thesis would have not been possible.
I am indebted to Ms Felleng Sekha, who despite her busy schedule, accepted to spare time for me.
Without her this work would have not been credible.
Special thank to the individuals who did not want to be cited and who have shared with me precious
insight on the African telecom sector, they will recognize themselves on these lines.
I owe a great deal to Leconie Archer. Thank you for having reviewed my thesis so many times that
you knew it by heart. I will not forget your support, advises and fruitful comments. You have been
there in a particularly difficult moment and your smile and laughs have rekindled me more than
once.
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To my family who has always been there for me, who has made sacrifices for making me what I am
today. I am immensely grateful. This thesis is dedicated to you.
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LIST OF ACRONYMS
ARPU Average Revenue per User is a key performance indicator representing the monthly
total revenue of an operator divided by the weighted average number of customers.
CEO Chief Executive Officer, usually person in charge of the operation within company.
CNUCED Confrence des Nations Unies sur le Commerce et le Dveloppement is the United
Nations body in charge of monitoring commerce and its impact on development. It is
the French acronym of UNCTAD,
C&W Cable and Wireless is UK Telecom firm.
DRC Democratic Republic of Congo is a country of Central Africa.
EIU Lagos Business School, Economic Intelligence Unit.
FDI Foreign Development Investment is a term used for Investment from outside
a country for development project
FWO Fixed Wireless Operator is an operator using wireless technology to provide fixed
telephony service.
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GDP Gross domestic Product is the total annual value of the production of a country.
GSM Global system for Mobile communication is an open digital cellular technology
used for transmitting mobile voice and data services. It is the most widely used 2G
mobile technology standard in Africa and worldwide.
NCC Nigeria Communication Commission is the Nigerian authority which regulates the
Nigerian telecommunication sector.
NGO Non-Governmental Organization, usually non profit organization.
PTO Private Telecommunications Operators, small telecom operators.
UN Organization of the United Nation, supranational organization including all the
sovereign states of the world.
UNCTAD United Nations Conference on Trade and Development, see CNUCED.
USD United States of America Dollar is the USA currency.
SADC Southern Africa Development Community, community comprising all the countries
of Southern Africa.
SBC US subsidiary of AT and T, it is a US telecom company.
SSA Sub Saharan Africa, all the countries of Africa except the Magrehb
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CHAPTER 1: INTRODUCTION
1.1 CASE STRUCTURE
This document has 4 sections:
Introduction: This section introduces the case rational and scope, and it explains the process
undertaken to build the case.
Literature review and discussion on Africa and its telecom sector: This section reviews key
theoretical concepts related to the case as seen from diverse authors, and they are discussed in the
perspective of the reality seen on the ground during the research.
The case: This section details MTNs entry into in Nigeria.
Instructor guide: The instructor guide concludes the document by recommending how the case
can be used. Additionally, the section proposes questions to be posed during the discussion of the
case.
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1.2 CENTRAL HYPOTHESIS
The central hypothesis of this research asserts that South African companies, for the most part,
are still hesitant, despite being willing, to expand in Africa and that they should be aware of
realities associated to doing business in other parts of Africa if they want to succeed in their
African expansion.
South African firms are increasingly willing to invest in Africa, but they still perceive Africa as an
inhospitable place where logistical problems, poor income populations, high investment risk, and
differences in terms of culture, language and mindset constitute what many firms consider an
insurmountable barrier of entry.
This hypothesis comes from discussions and interviews held with investors, government officials
and analysis of book and articles related to South African firms operating in Africa.
I posit that hesitation to go into Africa is mainly due to a lack of knowledge of the exact reality of
Africa. This lack of knowledge is partly due to lack of publicity and available documentation on
successful South African multinationals launching ventures and operating in Africa.
Many South African managers do not know how to react when faced with the uncertainty
associated with doing business in Africa. Adding to the usual problems of trading in other cultures 7
and languages, they have the apprehension that the decaying infrastructure, the corruption of
administration, and the lack of law all of these perceived characteristic of Africa - will heighten
the investment risk to an unbearable level.
South African managers must be able to turn the uncertainty of dong business in Africa into
manageable risks. In order to achieve that, they must understand the multiple realities of Africa and
build on the knowledge of their peers which have succeeded. These will allow them to refine their
plan and to prepare adequately.
We have the strong belief that South African companies can provide to Africa their expertise and
beneficial FDI, but only if that they understand Africa better. It is the aim of this research to
contribute to the body of knowledge through a case study of the MTN experiences in investing in
Nigeria via a scheme that was mutually beneficial for the company and the Nigerian population.
This case seeks to convey the message that the risks associated with investing in Africa can be
mitigated and that while these risks do exist, the potential rewards are considerable, provided that
the investor do his home work and he is ready to think differently.
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1.3 RESEARCH QUESTIONS
The questions this case study attempts to answer are: What strategy to adopt to expand in Africa
within the telecom market?
What are some of the unexpected challenges that a firm may face when investing in Africa?
How does one design a strategy that is consistent with the firm vision, but has tactical
implementation elements that are adaptable to the environment?
1.4 CASE STUDY METHODOLOGY
The goal of the research is to highlight the key characteristics of a successful company operating in
Africa. The research looks at the correlation between these characteristics and the economical
success of the firm. This case could be defined as a revelatory case (Bryman and Bell, 2008),
attempting to reveal the unique strategy applied to successfully set up a company in Africa.
For this research, a qualitative approach has been used. According to Bryman et all, case studies
should use a qualitative approach when they portray situations or events having to deal with
managerial sciences (Bryman and Bell, 2008). A qualitative approach is also the most insightful in
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terms of elucidating the narrative of events. Additionally, a quantitative approach would have not
been able to give the document a natural narrative tone and to emphasize the ambiguities linked to
humane behaviour.
To collect data this research used:
Desktop research: - Primary sources: MTN official reports, MTN annual report - Secondary
sources: newspapers, web sites, blogs, African business magazines.
Field studies: Field studies were conducted in Cameroon, Republic of Congo, Democratic
Republic of Congo (DRC) and South Africa.
Open-ended, semi-structured Interviews: Interviews were conducted with:
Present and past, MTN executives, managers and employees at Johannesburg (South
Africa), Brazzaville (Republic of Congo), Yaound and Douala (Cameroon).
Employees of Vodacom, Zain and Tigo at Kinshasa, DRC.
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South African embassy economic section in Yaound, Cameroon.
Official of the South African department of Trade and Industry in Cape Town, South
Africa.
1.5 STUDY SCOPE AND LIMITATION
The literature review and discussion section of this document focuses on the telecom technology
which is predominantly used in Africa called GSM. It does not review the alternative CDMA
technology which is marginally used across the continent.
The case study explores only the investment process of MTN into Nigeria during the period 1996-
2005. It does not intend to explore in detail MTNs expansion strategy in other African countries.
However, the insights gained from the case can inspire decisions for others telecommunication
firms, or firms from others sectors, operating in, or willing to operate in similar environments.
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CHAPTER 2: LITERATURE REVIEW AND DISCUSSION ON AFRICA TELECOM
SECTOR
2.1 INTRODUCTION TO AFRICA
This research is geographically located in Africa, specifically in Nigeria, West Africa within Sub
Saharan Africa (SSA). According to the Population Reference Bureau world population data sheet,
Africa has a population of 999 millions people. Among them 836 millions live in Sub-Saharan
Africa. Nigerias population amounts to 153 millions, a fifth of SSAs population, and Nigeria is
the most populous country of Africa, the 8th of the world (Population Reference Bureau, 2009, 16-
17)
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Exhibit1. World Population in 2050
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Source Population Reference Bureau, World data sheet 2009
Exhibit 2: World Most populous country 2050
Africa is the market of the future. By 2050, Africas population will grow by 900 million people,
whereas Europe, North America and Japan societies will be aging (Mahajan, 2009, p38). This
population will be young and will make the African consumer market one of the biggest and most
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attractive of the planet.
Although its full population is a seventh of the world, from 1976 to 2000, Africa's share of global
trade dropped from a negligible 3% to an even lower 1% (Farzad, 2009). The United Nations' (UN)
scale of human development which considers health, education, and economic well-being, ranks 34
African nations among the world's 40 lowest (Farzad, 2009).
The Foreign Policy magazine and the NGO fund for peace annually publish the failed state index.
A failed stated is defined as a country where the government is unable, or unwilling, to protect its
citizens and incapable of maintaining the security of its border and civil unrest is endemic. The
2009 failed state index lists 7 African countries on its top 10 list (Fund for peace & Foreign policy,
2009)1, making it the most represented continent on the top ten list.
Globally Africa is gaining increasing strategic importance because of its resources. The western
countries desire to lessen their dependence from Middle East oil is stimulating investment in
countries like Angola, Nigeria and Sao Tome whose oil exportation to Europe and North America
is rising.
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http://www.fundforpeace.org/web/index.php?option=com_content&task=view&id=391&Itemid=549
China and Indias economy need for mineral resources is driving African mining investment. China
has signed mining protocol with DRC and Guinea based on barter of mineral for infrastructure.
African projects related to energy like the German project of a solar power plant in the Sahara
desert which could, if successful, supply Europe with sustainable low cost energy 2 or the hydro
power plant project of Inga in DRC which has the potentiality to supply all Africa and part of
Europe with electricity, are all translating hope that the natural resources of Africa in sustainable
ecological power sources would benefit others parts of the world.
This interest in Africa resources greatly shape the type of investment that it receives and the
functional position it has on the global trade. Africa is a world provider of commodities and net
importer of finished goods and services (UNCTAD, 2008). This trend will be often seen along this
document, materializing under many different forms.
2.2 INVESTMENTS AND BUSINESS PERFORMANCES
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Interestingly, albeit having a negligible share of the global trade, Africa in general and Nigeria in
particular, enjoy significant Return on Investment (ROI). According to the emerging markets
private association cited by Mahajan (Mahajan, 2009, p39), investments in Nigeria sustain an
average 20 % ROI.
In 2006, top quartile South African funds have returns exceeding 40%. For the same year, the South
African firm Blue Financial3 returned a nine fold gain to its early private equity backers thanks to
the 385% rise in its stock (Farzad, 2009). Emerging Capital Partners4, a USA investment fund
specialising in Africa has bought all or part of 42 African companies since 1998 and cashed out of
18, with gains on their investments averaging 300%. "The money we can make is matchless," says
Emerging Capital Partners CEO Thomas R. Gibian, a former Goldman Sachs banker (Farzad,
2009).
2
http://www.guardian.co.uk/business/2009/nov/01/solar-power-sahara-europe-desertec
3
Blue financial is a micro credit financial company specialised in micro using monthly salary as collateral. http://www.blue.co.za/
4
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Emerging Capital Partners (ECP) is a US based private equity group, the first to raise more than $1.6 billion for investment in companies across the
African continent. http://www.ecpinvestments.com/
2.3 AFRICA INFORMAL ECONOMY: INABILITY TO ASSESS PERFORMANCES
FROM THE OFFICIAL STATISTICS
Informal economies account for approximately 72% of the Sub- Saharan economy. This percentage
reduces to 42% for North Africa, according to the International Labour Organisation cited by
Mahajan (Mahajan, 2009, p43).
The impact the informal economy has on financial statistics related to Africa is both real and
significant. This is illustrated by an Example in Egypt where 30% of its economy is informal. When
the Egyptian government lowered of tax imposition rate from 40% to 20%, there was an increase in
tax revenue by 50% (Mahajan, 2009, p44). The tax rebate incentivized pans of informal economy to
become incorporated into the formal economic sector.
This example illustrates why statistics of World Bank, International Monetary Fund (IMF) and
others international agencies do not translate the real economical potential of Africa and
consequentially, must be taken cautiously while devising investment strategy. As it will be seen
during, the case this point particularly applies to Nigeria.
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2.4 FDI IN AFRICA: IMPORTANCE AND EFFECTIVENESS
Exhibit 3 Global net FDI 1995 - 2005
It is widely accepted that significant inflows of foreign direct investment (FDI) precede economic
growth and development, making this question even more important in the developing world,
where countries are still struggling to overcome enormous socioeconomic challenges and 13
ultimately achieve economic prosperity. But FDI is in scarce supply. Countries around the world
are competing for the same pool of investment. (White, 2007)
According to the United Nations Conference on Trade and Development (UNCTAD), FDI consists
on equity capital, reinvested earnings and other capital (mainly intra-company loans)5.
Yash Tandon, Director of the Southern and Eastern African Trade Information and Negotiations
Initiative (SEATINI)6, states that the definition of the UNCTAD is misleading, because FDI is
made up of bundles comprised of financing, management control, and dividend repatriation policy
and it is extremely difficult for a country to unbundle them and to accept only a part.
For instance, it is difficult, if not impossible for an FDI recipient to accept the management section
of an investment and to dismiss the dividend repatriation policy section.
Ttheoretically, FDI should be beneficial to Africa because it should stimulate the creation of
companies giving people salaries, contributing to taxes, producing goods and services, and
bettering the life of the Africans. Tandon, however, disagrees with this view. For him the causal
relationship between FDI growth and the recipient nations economys growth and development is
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weak. FDI, specifically Western FDI, has not brought growth and development to Africa (Tandon,
2003). For instance, for a typical mining African country where FDI focuses on mining production
facilities, the mining production will increase driving the GDP upward. But this mining production
will totally be exported and transformed overseas, resulting in finished goods being re-imported
back into the country. In this case, the increase of GDP due to the FDI has little impact on the
development of the country. This FDI maintained a system where Africa does not create value
because Africa is a net exporter of raw material and net consumer of manufactured product.
Very few African FDI target the service, the manufacture or the agriculture sectors, according to
UNCTAD, outside South Africa, African FDI focus essentially in mining project. Tandon continues
by stating that currently Africa does not have a problem of capital inflow, but it has a problem of
capital outflow in the form of debt servicing, dividends, payments for needed imports, pensions for
former colonial servants, holiday allowances for the elite class, etc(Tandon, 2003).
Contradicting that stance, the Confrence des Nations Unies sur le Commerce et le Dveloppement
(CNUCED), United nation conference on trade and development, reports that in 2003, only Gabon
5
http://www.unctad.org/Templates/Page.asp?intItemID=3147&lang=1
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http://www.twnside.org.sg/title/twe275h.htm
has capital repatriations exceeding investments (CNUCED, 2003).7 In the same direction, Page et
all identified that in 2004, Liberia and Gabon were the only African countries with a net capital
outflow (Page, and Velde, 2004, p17). However these statistics take into account only formal flow,
they do not take into account informal or illegal flows which might, if considered, sensibly increase
the number of countries having net capital outflow.
The FDI debate highlights the point that FDI can be important for Africa but on the condition that
they benefit both the investors and the recipient countries. For that, African governments and elites
have the ultimate responsibility to set up rules preserving the interest of their communities.
2.5 SOUTH AFRICAS POSITION IN AFRICA
Within Africa, South Africa is an economical powerhouse. It contributed for 30% of Africas 2007
GDP. South Africa has the most diversified economy and its multinationals compete with the best
multinational corporations of the developed world (UNCTAD, 2008).
The African National Congress government of South Africa has seen African development as a
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priority for pursuing its agenda of African Renaissance and it encourages South African
multinationals to invest in Africa. In November 2002, the South African Reserve Bank eased
capital controls on local companies wishing to invest or to expand ventures in Africa. It raised the
investment limit from USD 79 millions to USD 216 millions. This limit was further raised to Rand
2 billion, approximately USD 286 millions8, in 2003 for investment project in Africa and to Rand 1
billion for investment project outside Africa (Games, 2004, p14).
2.6 CONTRIBUTION OF SOUTH AFRICAN MULTINATIONALS TO AFRICA FDI

OUTFLOW
In 2007, African FDI outflows into Africa amounted to USD 6 Billion with South African
multinationals the main contributors followed by firms from Egypt, Morocco, Liberia, Angola,
Algeria, Nigeria, Mauritius, Gabon and Botswana in that order (UNCTAD, 2008).
Some of the most famous South African multinationals are: SAB Miller, Standard Bank, Pick n
Pay, MTN, Vodacom, Shoprite, ABSA and Anglo American.
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Gabon benefited Euros 87.7Millions in FDI for Euros 526 Millions repatriated abroad (CNUCED, 2003)
8
At the exchange rate of USD 1 = Rand 7
Exhibit 4: South Africa investment in SADC cited by (Page and Velde, 2004, p22)
South Africa invests only 7% of its FDI outflow into Africa, however South Africa has become the
principal investor in several African countries. Due to regional and cultural similarities, South
African multinationals expanded first in Southern Africa Development Community (SADC) region
where, in 2004, 90% of their investments were concentrated (Page and Velde, 2004, p22).
After 1994, the liberation of Mandela and the drop of South African ban from African Union, South
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African multinationals envisaged a leap to East Africa eyeing its biggest market, Kenya (Games,
2004, p17). Unfortunately, South African companies were not able to succeed. SAB Millers failed
its entry9 into the country and the South African multinationals find it difficult to operate in because
Kenya appeared to be a corrupted environment. The civil unrest that followed the 2008 presidential
election was yet another signal for South African companies to leave.
After Kenyas failed attempt, South African multinationals looking for outlets in Africa decided to
consider West Africa. They used Ghana as port of entry and from there they entered Ivory Coast.
Most of the South African multinationals decided to leave Ivory Coast after the beginning of the
2002 civil war, leaving MTN as the only big South African company in the country.
Eventually South African multinational entered the biggest market of the region, Nigeria, which is
now their main investment destination in Africa.
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SAB entered a commercial war with a local Kenya brewery, which based all its commercial campaign on the theme that it was the real Kenyans
beer, made by Kenyans for Kenyans. Increasingly SAB started to be perceived as arrogant foreign company. That campaign succeed and SABs 16
product were largely boycotted by the Kenyan population,
2.7 AFRICAS TELECOM SECTOR
Africas overall mobile subscribers penetration is 27%, but the situation varies within regions.
South Africa has a penetration rate of 87% compared to 18% of the remaining SSA (UNCTAD,
2008).
The African telecom market is dominated by six companies servicing 52% of the African
population: MTN, ZAIN, ORANGE, VODACOM, Etisalat Moov and MILICOM Tigo (The
African Report, 2009). MTN, ORANGE and ZAIN are the biggest players each represented in 16
African countries. Sub-Saharan African countries (SSA), South Africa put aside, are very similar.
They are all developing countries and low average revenue per user. Despite this low average
revenue per user, SSA is increasingly coveted by Middle East telecommunications firms, like Zain,
Etisalat and recently, December 2009, Indian Essar Group has acquired Emirate Warrids operation
in Ouganda and Congo Brazzaville.
This interest in Africa is explained by Africas low GSM penetration compared to the size of its
market nearing 1 billion inhabitants; opportunities to grow business are tempting. Operating in
Africa has nevertheless some problems, among them one can name: the lack of electricity, poor
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transport infrastructure, unequal distribution of populations, large geographical size of countries
and the lack of access of the fibber broadband which necessitates the use of expensive satellite
connections to gain access to the Internet.
According to the GSM Association and Deloitte, cited by Ernst & Young, telecommunications has
a direct influence on the performance of an economy. It is estimated that a 10% increase in
telephone penetration results in a 1.2% increase in GDP in emerging markets, and a 0.6% increase
in developed markets (Ernst & Young, 2009). This statistics explains why telecommunications is
taking a so much importance in Africa; it has a driving effect on business and it is seen a
prerequisite by many investors.
According to Ernst & Young, the external factors inhibiting Information and Communication
Technology growth in Africa are under-prioritized open access in backbone environment, lack of
skilled staff and management policies, lack of public sector resources and private sector investment,
and lastly, lack of regional regulatory coordination (Ernst & Young, 2009).
2.8 AFRICA TELECOM AND THE FINANCIAL CRISIS OF 2008
By November 2009, the financial crisis changed the overall euphoria of the 2000s by instilling
doubt amongst operators who started having difficulties to make profits in slowed African
economies. Early 2009, Zain considered selling its African operations and focusing on its more17
profitable Middle Eastern businesses. It started discussions with the French firm Vivendi. These
discussions eventually failed because Zain was requesting a price judged too high by Vivendi.10
Vivendi not only backed away from that acquisition, but also apparently switched its focus from
Africa to Latin America where in November 2009, it bought the Brazilian operator GVT. Portugals
Telecom and Telefonica also recently released their shareholdings in Moroccos Meditel. (Reed,
2009). Zain eventually decided to open 49% of its capital to a conglomerate of Asian investors
instead of entirely selling off its African operations.
Zains motives to sell its African operation elucidate the realities of operating in Africa. During the
late 90s, at the eve of GSM technology, adventurous venture capitalists bought GSM licences at
low price from African government who did not understand their value and who were having
difficulties to finding acquirers. After those ventures displayed high profitability, early 2000
witnessed an investment rush in Africa telecom infrastructure, translating into a raise in mobile
penetration. But now, at the end 2009, operators are having a hard time earning returns proportional
to the level of their initial investment. Talking about the lessons learnt from Zain, Reed writes:
Falling ARPUs, rising competition and Africas recession have forced investors to reappraise
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African markets, and some have decided that it is time to head for the exit. In Zains case, the
companys soaring ambition and presentational verve has not yet been matched by the performance
of its operations in sub-Saharan Africa, where many of its units are loss-making. (Reed, 2009)
2.9 PROBLEMS OF OPERATING IN AFRICA.
2.9.1 POLITICS
MTNs transaction with Barthy Airtel, the largest Indian GSM carrier, failed because of regulation
issues which were in fact nationalism interferences from investors such as the South African public
pension fund PIC, and its owner the South African Government. The South African Government
was afraid to see MTN fall into foreign ownership.
In Egypt in 2009, France Telecom (FT) was blocked by the stock market regulation authority from
raising its shareholding in Mobilinil. This funding would have still left FT with minority
participation. Hassan Heikal, joint CEO of investment bank EFG-Hermes, which is advising
Mobilinil owner Orascom, cited by Reuters, stated that telecoms operators should generally have a
strong, local flavour for national security as well as business reasons(Reed, 2009). Ethiopia and
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Zain valued its African operation to USD 13 billions, price that Vivendi saw as too expensive.
Eritrea remain the most notable holdouts in Africa against foreign investment in the telecoms
sector. State-controlled operators are the only operators in both countries. This might explain why
Ethiopia and Eritrea have the lowest levels of mobile penetration in Africa, (Reed, 2009).
These examples illustrate how nationalism and politics can derail economically sound deals.
Telecom operators from emerging countries like MTN of South Africa, Orascom of Egypt or
Etisalat for UAE, are seen by their home countries as a subject of utmost pride and any deal
touching them raises serious nationalistic sentiments from their home authorities. These sentiments
are not to be neglected while devising a deal.
National sentiment also means that there is unlikely to be consolidation among the major Gulf
operators, despite that sound economic reason militate for that option. All of the major Gulf
operators are partially state owned and are regarded as national champions.
National African regulators are increasingly taking their consumer protection role seriously and
command operators to address their networks weaknesses or incur the risk of being barred from
advertising their products and services (Ernst & Young, 2009). In 2008 MTN was fined twice,
USD 21 million in Nigeria and USD 127,000 in Rwanda. In Zambia, MTN has already been
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threatened for its poor quality standards (ITNEWS AFRICA, 2008).
According to Ernst & Young, across the continent taxation is a key concern for operators who face
an average taxation on profits of 30%. This high tax imposition expected to bring cash to
governments has the pernicious effect to increase the cost of access to telecommunication for
population, research demonstrate that excise duties on handsets is a roadblock to getting the lower
end of the market on the network (Ernst & Young, 2009).
2.9.2 ECONOMICAL SLOW DOWN
The economic slow down has impacted operators in diverse ways. Commodities dependent Africa
has been hardly hit by global demand diminution. In 2009, in DRC, Vodacom Congos revenue
failed drastically after mining companies massively withdrew from the mining region of Katanga.
The situation made Vodacom considers at one point paying its employees 25% of their salaries with
air time. Tigo Millicom, also a DRC firm, was forced to shut down its network in provinces where
the traffic was not justifying the maintenance cost. Zain DRC has undergone a downsizing as well,
with layoffs in and outsourcing of the technical operations.
The Financial crisis also made access to financing for capital expenditure expansion difficult.
Operators need finance to expand and very few of them can raise funds locally. This exposes
19
them to international finance market which, since the international crisis, is very risk averse and
that is not inclined to fund project in instable Africa.
Some operators have been able secure funds in their country of operation. For them, this source of
financing is easier because local banks understand their needs better and might assess their risks in
more objective ways than an international remote finance institution. Recently MTN Uganda and
MTN Ivory Coast secured syndicate loans from their local banks and Safaricom Kenya launched a
successful Initial Public Offering on the Kenyan stock Exchange. These examples are steps in the
right direction. However, they are still the exception. At this stage the vast majority of African
operators rely on foreign loans. The difficulties to access funding foreshadow a consolidation of the
sector; weak operators will have difficulties expanding their networks and might end up being
acquired by bigger player (Ernst and young, 2009).
2.9.3 LACK OF INFRASTRUCTURE
African countrys lack of basic infrastructure in all key sectors like telecommunication, transport
and energy is an aspect hindering its development. The big geographical size of most African
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countries and their lack of transport infrastructure and road, require the use of bad reputed airplanes
further increasing risk. The lack of fibber link backbone that could unify the country and avoid
usage of costly micro wave backbone and expensive satellite links to access international gateway
is an additional cost for operators and that cost cascades down to the consumer who is obliged to
pay a higher service. The lack of electricity obliges operators to invest in power generation
facilities. All of these are deterrents for investors.
2.9.4 SECURITY
Some regions in Africa are very volatile. Securing investments and personal integrity of employees,
mostly expatriate, in these regions is a concern that must be factored while devising the investment
strategy. The case will illustrate this point further by giving real examples of situations where
security can jeopardize the overall investment.
2.9.5 MANAGEMENT
Congolese subsidiaries of Zain and Vodacom have both been tarnished by embezzlement. There
was so much investment money pouring in and so much revenue generated during the 2000s boom
that internal control and good governance have been somewhat overlooked. Besides, to avoid
bad publicity some of these embezzlements have not been reported to court or have been20
reported too late. Mostly incriminated were supply chains and finance departments which are
widely known, in all industries, to be a place of easy fraud. During profitable years, losses from this
lax governance were overly compensated by the high revenue and increasing profit. Now that
economy is slowing down their effects are starting to be felt more acutely.
2.9.6 CURRENT SUBSRIBERS MARKET
African subscribers generate low average revenue per user for the operators, and they have very
little loyalty toward them. African subscribers have multiples sims and multiples phones and they
switch networks following the cheapest tariff and promotions. They are very price elastic. That
does not mean that the market is not profitable. In 2007, operators in African realised an average
earning before interest tax and amortization of 40% compared the 36% realised by European
Operators (Jeune Afrique, 2009).
Still, further market expansion is hindered by a practical saturation of the market. Although the
low mobile penetration statistic shows that the mobile African market is not saturated, one can say
that for the actual level of economy the market is practically saturated. All individuals capable of
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affording a phone already have one or more. To increase the GSM usage further, either the cost of
acquiring and using a cell phone must go down or a new usage must be found for cell phones in
addition to phone calls and text messages or whether an overall economic increase must happen
bringing former low revenue users to the economical class able to afford communication.
Operators constrained by operating cost can not bring their cost down indefinitely; operators can
not change the overall economical climate. Therefore they are obliged to aggressively use
promotion and corporate responsibility to retain their subscribers. Beside the moral aspect of
redistributing part of the profit to the community, corporate responsibility speaks to the customers
emotions, sending the message that the network is there to stay and help the community and that
using the network is helping the community.
2.9.7 THE FLUCTUATING EXCHANGE RATE
Operators collect money in the local currencies and exchange it in the domestic market to get
foreign currencies. Foreign currency is used to re-pay international loans or international suppliers
and to repatriate dividends. When the local currency depreciates, operators may end up losing a
considerable portion of their revenue. Beside this exchange rate volatility, there might be time when
getting foreign currencies at the quantity desired in the official market appears to be difficult. That
might oblige operators to revert to the parallel market, exposing them to legal risks.
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2.9.8 LACK OF LOCAL CONTRACTORS
GSM operators need contractors to support their operations. These contractors vary from the tax
auditing, to mobile content designer to tower builder and maintenance. African countries have few
local companies operating in these sectors. GSM operators contract global companies which for
some set up local subsidiaries or for others operate with remote secure Internet access and help line.
That is often not taken agreeably by local authorities who interpret it as operators unwillingness to
foster local economy.
2.10 THE WAY FORWARD FOR AFRICA TELECOM
Now it is time for cost management, consolidation and monetizing value added services.
2.10.1 COST MANAGEMENT AND INNOVATION
Good governance is essential in Telecom market, what is concerning is that when there is an
economical slow down and cost management measures are envisaged, the operators first response
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is typically layoffs and outsourcing, similar to Zains African strategy (ITNEWS AFRICA, 2009).
Laying off and outsourcing alone seldom provide a competitive advantage in the current telecom
market. Most of the time they end up with increased cost, and lowered productivity. The Indian
model objects that stance. Indian operators business model rely heavily on outsourcing for IT,
network operations and customer care service, in order to reduce their cost and this seems to be one
of the reason of their low operational cost (The African Report, 2009). Still, a great care must be
taken to export this model into Africa, where the technical expertise has not the same level of
proficiency.
Outsourcing is usually an illusory benefit with increased risks. It seemingly shifts operations
accountability to the outsourcing company which bears risk of penalties should it not deliver
according to the contract. However, in actuality, the operator has less control on its network,
usually pays more and at the end of the day, he is still liable for major failure of the outsourcing
company, which can in the worst case scenario go bankrupt and leave operator to recover damages.
Areas companies should focus on are: innovating their process, developing control & reward
mechanisms to make them match their operational and financial realities. They should raise their
standards in term of cost management, good governance practices, and human force management
and enforce them.
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2.10.2 INFRASTRUCTURE SHARING
African operators have a higher cost to operate compared to Indian operators who also have a low
average revenue per user (The African Report, 2009). Infrastructure sharing could be the path to
explore to reduce capital and operational expenditure expenses. The shared infrastructure could be
towers or for instance, a common mobile banking platforms, on the model of the visas corporation11
( McCormick, 2009).
In Africa, operators might be reluctant to share towers because the cost of deploying towers and
they achieve the large coverage is considered as a key competitive advantage that small competitors
can not afford. Tower sharing would dilute that advantage in enabling the weakest or new entrants
to profit from, difficult to build, existing infrastructure. In Zambia, Zain has an advantage over
MTN because it is deployed on all the districts of the country whereas Zain is only on the
economically viable districts. In DRC, Vodacom and Zain have a strong advantage against
Millicom Tigo because they have a larger coverage and can maintain it, while Tigo has been
obliged to shut some of its cites because of economic slowdown. With coverage come subscribers
and revenue.
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When the country reach a mature phase, with all GSM operators present on all the regions, then
operators might considerate tower sharing, because coverage is no more an advantage, and sharing
towers, generators, cost of maintenance and securities tremendously reduce operational expenses.
2.10.3 BROADBAND INTERNET AND MOBILE BANKING
Operators are putting a lot of hope in value added services to compensate declining call revenue.
Already data is increasingly contributing to African operators revenue. Text messages represent
10% of Zain revenue for 2008 (African report, 2009), and with smart phone and broadband widely
available the share of data is expected to increase. To prepare for this, operators like MTN and
Etisalat are investing in the development of undersea fibber cables linking Africa to European
Internet backbone. That increases their data capacity and will allow them to offer their African
subscribers reduced internet prices.
Nonetheless politics could hinder that development. Countries like Ethiopia have internet access
rigidly regulated, the only Internet service provider is state owned and the government filter for
political content, social content, conflict and security and internet tools (Giles, 2009).
11
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Visas corporation was created by association of American bank to facilitate money transfer between themselves
Another promising revenue added service is mobile banking. Encouraged by the success of Kenyan
Safaricom Mpesa mobile banking service, Zain and MTN in partnership with local banks, are all
launching their mobile transactions platforms. In DRC Celpay, a subsidiary of First Merchant Bank,
launched a similar mobile service that went bankrupt. This shows that operators have to carefully
analyze their market before launching their offer
CHAPTER 3: THE CASE STUDY
3.1 INTRODUCTION
In November of 2009, in his office at the second floor of the MTN stadium in Fairland,
Johannesburg, MTN CEO Phutuma Nleko considers the failed merger between Bharti and MTN.
Rumours of the South African government blocking the merger due to its fear of MTN losing its
South African character have spread throughout the South African media. Some South African
government officials stated that MTNs South African character was of prime importance to the
government which was one of MTN biggest investor through the public fund PIC.
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Reading the morning newspapers, Nhleko replays history of MTN in his mind: how a South
African cellular company dominated by a formidable opponent, Vodacom, in its domestic market,
became the 11th GSM company of the world, first African cellular company spanning from Africa
to Asia with operations in 21 countries, and became a South Africa iconic image, the light house of
South African pride.
Everything really began developing with Nigeria he remembered
Until 1994, the state owned Telkom benefited from a monopoly in the South African Telecom
market. At that time, the South African government launched a revamp of its telecom regulation
and decided to issue two GSM licences; one to Vodacom, which would be a shared venture
between Vodafone and Telkom and the other to MTN. Vodacom started operations in the same year
followed by MTN nine months later. Since then, in South Africa, Vodacoms first mover advantage
has been difficult to overcome by MTN. In fact, this unfortunate event has turned out to be MTNs
bliss; it is this resented second place in the South African market that stimulated MTNs drive for
dominance within other national borders.
3.1.1 MTN
MTN incorporated in South Africa in 1994 as a 100% subsidiary of M-Cell and started its
Operation in 1995. 24
M-Cell Limited (M-Cell) is a holding company that carries on the business of investing
in the telecommunications industry. It operates through two wholly-owned subsidiaries,
Mobile Telephone Networks Holdings (Proprietary) Limited (MTN) and Orbicom
(Proprietary)Limited (Orbicom). Johnnic Holdings Limited (Johnnic) is the ultimate
controlling shareholder of M-Cell. (MCell limited annual report 2001, p1)
British telecom operator Cable & Wireless (C&W), wanting to expand in Africa, partnered with
South Africans to create M-Cell, which incorporated on the 23rd of November 1994. At its
incorporation time, the shareholding was constituted by C&W (25%), South African M-Net (25%),
Nail (20%), parastatal Transnet (20%), Fabcos (5%) and SA Clothing and Textile Workers Union
(SACTWU) (5%)(Blaque magazine) 1.
In 2000, C&W decided to divest from MTN, which was its only operation in Africa, and focus its
expansion to the former British colonies of Caribbean and Hong Kong. M-Cell needed a technical
partner with expertise in running a mobile telecom network, expertise that in that time was rare in
South Africa. SBC, subsidiary of US telecom giant AT&T took over that role, unfortunately when
MTN was rolling its network and was in the most serious need of cash, SBC was obliged to divest
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in order to avoid a conflict of interest. SBC had bid for, and was awarded, operation of the Telkom
fixed line infrastructure, and as Telkom was a major shareholder of MTNs competitor Vodacom,
SBC had to withdraw from MTN. Timing for this disinvestment was unfortunate, competition was
raging in South Africa and Vodacom was aggressively expanding its network and capturing market
share. By this time, MTN had acquired enough technical expertise and was in dire need of financial
backing to survive and to compete against Vodacoms expansion.
It was at that time that the Black empowered media company Jhonnic, owning the biggest South
African daily newspaper, the Daily Sun, entered in M-Cell capital. The 25% shares formerly owned
by C&W were split between Johnnic 22.5%, and the parastatal Transnet, making Johninc the single
largest and ultimate controlling shareholder of MTN group.
With that operation, the South African governments indirect holding in MTN Group grew to
approximately 30%, via Transnet and Eskom, South African power generator, which owned 8% of
M-Net.
Realising that indirectly through its relationship with Eskom and Transnet, it was the main
shareholder of MTN, the South African government began thinking about the best manner to
consolidate its interests in MTN. Certain JSE analysts, looking to anticipate the governments next
steps, believed that the Transnet stake in MTN would be bundled together with Eskom's MTN
ownership and sold to a foreign investor with fixed-line operational experience that could rival
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Telkom. This would allow Transnet to get cash to alleviate its debt, Eskom to rationalize its
portfolio and focus on activities close to its core competencies, and the government to create
competition on the fixed-line market. Eventually, the government decided to cede, only, Transnets
MTN shares to MTN management via a management buyout. This management buyout would
involve the 18.7% of MTN shares detained by Ice Finance, the Dutch vehicle that was warehousing
MTN shares for Transnet.
At the same time MTN decided to rationalize and to increase the awareness of its brand in Africa,
M-Cell changed its name to the MTN Group Limited, (MTN web site) and M-Cell and MTN's
management structures were merged to form a single team.
In October 2002, the new CEO Phuthuma Nhleko, who took the helm of the company during the
same year after serving as chairman of the MTN Group board, engineered the management buyout
securing funding from the public pension fund PIC. The financial structure used for the buyout
consisted of establishing a trust looking after the interest of the staff, Nhleko being one of the
trustees. The trust would own a newly created company, Newshelf 664 (Pty) Ltd, which would hold
the shares in the MTN Group, making it the largest shareholder of MTN.
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Furthermore, the directors of Newshelf 664 (Pty) Ltd, at that time, were the top five executives of
MTN who held 25,8% of its share, thus giving them effective control of 14.62% of total voting
rights of the MTN Group and making them a powerful voice in the telecommunication sector in
Africa and, increasingly, in the Middle East.(Blaque Magazine, 2009)
3.1.2 MTN SOUTH AFRICA IN 1990s
In 1997, MTN had less than 25% market share of the South African telecom market and according
to a report of Global Capital Securities, by 2000, MTN achieved a 44% control of the total cellular
subscriber market. Still, that second place did not satisfy the ambitious MTN management, which
was strategizing the best way to overcome Vodacoms main advantage, which was its financially
strong shareholders, Vodafone and Telkom, pumping cash for its aggressive network deployment.
This provided Vodacom a substantial first mover advantage. Responding to that menace was much
more difficult for MTN in the light of the financial difficulties it was going through when its main
investors, and technical advisors UK C&W and afterward US SBC all abandoned the company.
After reading the market share reports, it was clear that Vodacoms South African leading position
would be extremely difficult to overcome, a strategic realignment was necessary and new revenues
streams were required. Getting those in the maturing South African market would be difficult, new
markets were needed. But identifying the new markets would be a challenge. The question was
now about which markets to enter. 26
By 2000s, the GSM telecom world was dominated by European big players12 who have been able
to master the GSM technology and who had profitable home markets generating the cash that
fuelled their global expansion. It would have been suicidal to compete with these; MTN was a
baby in that league (Felleng, 2009). The only place neglected by these multinationals, leaving
opportunity for growth, was war torn Africa, and that is where MTN decided to invest.
3.2 THINKING AFRICA
3.2.1 INVESTING IN AFRICA
Sub-Saharan Africa was the only place where there were still license Greenfield Opportunities13.
Volatile Sub-Saharan Africa was largely deserted by multinational telecom groups. Many of these
nations were war torn areas and had serious difficulties in luring investors to come and build GSM
infrastructure. Licensing fees were also cheaper in Sub-Saharan African than they were in the more
stable Northern Africa. For example, in 2002, an Africa 2nd generation GSM Licence in Morocco
cost USD 1.08 billion versus the USD 285 million it cost in Nigeria (Jeune Afrique, 2009).
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MTN Group had the goal of deriving most of its revenue from its non-South African operations.
The geographic proximity between its South African head quarter (HQ) and Africa was seen as a
boon to focus in Africa. This geographical proximity would also facilitate interactions between
MTN HQ and its local African subsidiaries (MTN, 1999).
MTN Africa expansion strategy was focused on developing regional hubs around which clusters
of business will be developed (MTN, 1999).
The entry strategy was to acquire existing companies when possible and if not, to bid for a new
license and to start from scratch. MTN had a due diligence process to assess the opportunity to
enter a market, this process tended to establish if the considered country had weak GSM
incumbents with poor coverage and service quality. The process also tried to estimate the revenue
MTN could realise based on GDP and other macro and micro economics data. The overall goal of
this process was to determine if entering into a specific country would enable MTN to become its
market leader.
12
Deutch Telecom investing in UK and USA through its brand T-mobile, France Telecom investing in East Europe and Africa through its brand
Orange, the Spanish Telefonica aggressively investing in Latin America and Vodafone investing worldwide.
13
Greenfield Opportunity conveys the idea to be the first to develop and sell a product, a virtually non-competitive landscape, infinite opportunities to
patent technology, and a wide open field with lots of room to grow in multiple directions. Greenfield Opportunities offer potentially huge financial
rewards but along with those rewards come gigantic risks and major investments of energy, capital (money), time, and personal sacrifice. (Bahlmann, 27
2005)
Securing financing for investment in Africa was not easy; there was scepticism about Africas
economical potential. When M-Cell, MTNs previous holding company, acquired a licence in
Nigeria, its share price fell to Rand 8.00 - a far cry from todays Rand 125.00 (Felleng, 2009).
MTN executives had the total backing of their shareholders but they had to convince analysts of the
potential of investing in Nigeria, MTN did that in arranging trips to Nigeria for analysts and
shareholders so they could assess by themselves the Nigerian market potential (Felleng, 2009).
In 1995, MTN started its African expansion. The first networks were launched in Lesotho, Rwanda
and Congo Brazzaville, but none had the potential to drastically change MTN revenue stream
structure and efface South Africas revenue dominance. That was different with the coveted
Nigerian economy, 153 Million inhabitants, versus 40 Million in South Africa.
In 2000 MTN acquired a license to operate in Cameroon and in 2001 MTN acquired licenses in
Nigeria with operation starting in August 2002. The success of MTN Nigeria, which today has
more subscribers than MTN South Africa, gave MTN the confidence to pursue its expansion
beyond the shores of Africa and into Middle Eastern territories.
MTN exploration of African opportunities was first led, from 1993 to 2001, by Group Executive for
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International Business Development Norman Ross MacDonald, who negotiated all early licenses
and started negotiating the Nigerian transaction, but he was unsuccessful in his attempt. He was
replaced by Felleng Sekha.
Felleng Sekha born in Soweto, went to Lesotho's university in Roma. From Lesotho she went to the
University of Cape Town to obtain an LLB. She afterward worked for Old Mutual's corporate law
division, studying insurance and investment law and high finance. Having been offered a
scholarship she left for a post-graduate diploma at Melbourne University in telecoms and
broadcasting law and information technology. At her return she worked for a nongovernmental
organisation specialising in telecoms and broadcasting policy which grouped all the regulators of
Africa, organization that she ended co-presiding. At 27, Sekha moved to Telkom, preparing it for
the planned new regulatory environment which was expected to start competition. Then, in 1996,
her name was put forward to fill one of the vacant positions of councillor at the Independent
Broadcasting Association. To her surprise, she got the job; she was still only 28. She finally headed
the IBA one year later (Financial Mail).
At that time Cyril Ramaphosa, an influential member of MTN board, approached Felleng and asked
her to use her experience of Africa telecom environment for MTNs expansion. She accepted and
was given the head of International Business Development Unit of MTN. Felleng inherited the
Nigerian project and successfully led the implementation of MTN in Nigeria. Thereafter due to
28
the importance of the Nigeria project, which had the potential to be bigger than MTN SA, she
was seconded to Nigeria as a board director and executive Legal and Regulatory with the duty to
interact and manage relationship with the Nigerian authorities and stakeholders.
3.2.2 MTN AFRICA STRATEGY
According to its hub and cluster strategy, to minimize its deployment cost and to leverage its
geographical spread, MTN decided to divide Africa into 3 clusters: West Africa ECOWAS,
Southern Africa SADC, and East Africa EAC. Within each cluster, big operation provided
operational support and share resources with the smaller divisions. For instance in 2004 within
WECA, 12 millions strong subscribers MTN Nigeria provided support for the 100 000 subscribers
MTN Liberia with line functions of Liberia directly managed from Lagos.
After acquisition of Investcom and its Middle East operations, the MTN Group decided to stop
expansion and consolidate its stretched operation into an organizational structure that could
maintain MTN unity while still nurturing proximity with each geographical area. MTN dissolved
MTN Africa and created three Vice-president positions, each heading a region. By end 2009 these
regions were South and East Africa (SEA), West and Central Africa (WECA) and Middle East and
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North Africa (MENA).
Finding human resources to deploy in Africa was challenging. The only available expertise for
MTN was within its South Africa operation. When its African expansion accelerated, an ongoing
battle to secure skilled technical resources started between MTN SA and MTN Africa. To avoid
further strain on SA resources, MTN created the Expat Pool. Seated in standby mode at MTN
Africa office at Johannesburg, that team was ready to go anywhere and deploy a full functioning
network in the least possible time. Some of this expat team came from African operation, outside
South Africa, where MTN was identifying its best talent, moving them to the expat team and
deploying them to build networks.
The Expat Pool rapid deployment capacity was a big strength for MTN, no other operator was able
to launch so many ventures in so many countries in a so short time. The fact that in certain
countries like Congo Brazzaville, Ghana or Ivory coast MTNs entry strategy was acquisition had
an influence on the deployment time, but still the pace at which this new acquisitions were digested,
re branded and fully functional at MTN standard was amazing.
MTN also had to address issues around cultural sensitivity; South African companies expanding
into Africa were perceived as new colonialists. The attitude of some MTN South African staff
created concerns and soon MTN realized that cultural sensitivity could have the most devastating
effect. For instance in Cameroon, the head of corporate affairs received complaints about MTN
29
call centres service from a Cameroonian official who was unable to get support in French, soon the
head of corporate affair realized that the call centre manager hired mostly English speaking call
centre agents who were able to communicate with him but who were useless to 90% of the French
speaking population.
Some racial incidents involving white South Africans expatriate were also reported in Nigeria.
MTN feared that the press would start publishing headlines like South African bringing apartheid
to Nigeria. In certain cases MTN had to send people back to South Africa. MTN decided to give
its expatriate staff training to raise their awareness to diversity. For MTN that training would not
change a person. If a person is disrespectful to others, racist or lacking people skills, he will not
change by the virtue of the training. But at least it will send a message that for the company these
values are paramount and transgressing them will expose the individual to consequences.
MTN put a special emphasis to sending black expatriates to Africa. MTN noticed that local
populations were relating more easily to the company when they see fellow black expatriates
instead of only white ones. MTN also had a program to groom local talents and move them around
its operations. The Expatriates mandate was to build skills and transfer operation to the local
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workforce. In Cameroon, for instance, by July 2009, MTN had only 3 expatriate staff, compared to
its competitor the French financed Orange Telecom, which had 5 times more expatriates. This
should explain why MTN, which launched its network later was able to overcome Oranges first
mover advantage and impose itself has the Cameroonian Network, capturing the number one
position in market share.
3.2.3 MTN ENTRY INTO NIGERIA
Nigeria has experienced a troubled history during its post independence year, with military regimes
succeeding to a civilians one, in addition religious conflicts between the Muslim north and
Christians south often fuelled riots which left thousands of people dead. In 1998 the general Sony
Abacha, succeeded a coup and imposed a military regime which was replaced in 1999 by a
democratically elected civil government led by the President Olesegun Obansanjo.
Rich in oil, by 2009, Nigeria lost its first African oil producer place to Angola because of civil
unrest in the Niger delta, its oil producing area, where rebel fighting the central government and the
oil companies, that they associate as governments accomplice, demanded better redistribution of
oil resources. Niger Delta rebels were making a business of kidnapping oil worker for ransom and
of sabotaging oil pipelines to pressure the central government. All these events made the Niger
Delta one of the most dangerous places to operate.
30
The Nigerian economy is very dynamic and diversified. Two of its banks are listed amongst the top
ten African banks (African report, 2009). Nigerian products such as spare auto parts, beauty
lotions, and tissues are exported all over Africa, where they do not possess the best reputation of
longevity but their cheap prices make them appreciated by the public.
Nigeria possesses a stock exchange, although not comparable to the Johannesburg Stock exchange,
it stimulates the economic life of the country and is a vibrant place.
Thinking about Nigeria, an MTN executive recall:
Nigeria had a large informal sector not captured in any documented reports, huge pent-up
demand for telecomms services. Nigeria continuously defied all forecasts with an annual
growth of 150% and 10 million subscribers in 3 years. Nigerian population is highly
educated population, highly driven, industrious, enterprising, warm welcoming and they
have no issues with foreigners (MTN Executive, 2009)
MTN attempted to enter Nigeria three times, the first unsuccessful attempt was when it was
contacted by CDAM operator Intercellular to acquire its CDMA licence. MTN eventually back-
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pedalled, preferring to stay focus on GSM technology, and called off the transaction.
The second attempt was during the military government, when Ross Mac Donald negotiated a
partnership with the politically connected Integrated Mobil Services (IMS) to create MTN Nigeria,
MTN having a 55% stake and IMS 45%. The joint venture was awarded a national and
international telecommunication license in the 1800 MHz and 900 MHz for a price close to Rand 3
million (approximately USD 300 000 at that time exchange rate). That license was one of the 36
GSM Licences the government awarded, when usually there are no more than 4 licences for any
country because of radio frequency scarcity.
Once the licence was acquired, MTN mobilized its Expat Pool and sent it roll out operations, the
horizon was looking bright, and finally MTN got its master piece that could change its Africa
position. However, in 1999, while MTN was deploying its network and preparing to launch the
commercial operations, the new civil government decided to suspend all licences issued during the
former regime of military dictatorship. The past political alliance of MTN also came to haunt it,
Financial Mail Marina Bidoli reporting on MTN Nigeria in July 1999 wrote:
"MTN has been playing all sides of the fiddle," says consultant Shola Ajay, who heads a
private US/SA group called TeleAfrica. Ajay formerly partnered MTN and its founding
shareholder, MultiChoice, in African investments. "MTN has burnt many bridges. In
Nigeria it is associated with the discredited former regime," says Ajay.
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MTN's Nigerian partner, Integrated Mobil Services (IMS), is headed by Sani Bello, a former
military colonel and son-in-law of the former president.
Macdonald admits that MTN had considered forming partnerships with other operators, but
none has got off the ground. "Ericsson (the infrastructure supplier) put us in touch with IMS
and we made a new submission," he says. The licence was awarded in May. (Financial
Mail, 1999)
MTN was obliged to write off the investment it has done so far and to wait for another opportunity.
In 2000, Felleng took over MacDonald position and inherited the Nigeria project. Despite the
setbacks it has just faced, it was clear that MTN could not afford to not enter Nigeria, its market
was so big and potentiality large enough that to achieve its goal to become African number one,
MTN had to succeed Nigeria.
Some time after revoking all GSM licences, the newly democratically elected Nigerian president
addressed the population and promised that as a dividend of democracy they will soon have a
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first class cellular telephony network to ease their communication problems. For MTN it was a sign
that very soon, GSM licences would be issued. Felleng knew she would have to be ready for that
opportunity and she knew that a new approach to Nigeria was necessary.
First she decided to stop the back and forth between Johannesburg and Lagos and set up her office
at Lagos. She moved there with a small team, to acclimate herself with the market, the Nigerian
mentality and to understand what went wrong on the previous attempt and how to fix it. She lived
in Lagos for 6 months, meeting with potential partners, studying the market mingling with the
Nigerian psyche and preparing the start of Nigeria operation that she knew was a certainty. She had
no doubt about it, her only question was when.
In 2001, the government of Nigeria, pressured by International Monetary found to repay its debt
and wanting to show to the world that it has taken its distances with corrupted practices of former
military regime, decided to auction GSM licenses. MTN prepared the bid and got a license that it
paid USD 285 million. Others firms who received licenses were Zimbabwean Econnet, which
became later Zain Nigeria and a year later a third licence was awarded to the Nigerian home grown
Glomobile. The transparency of Nigeria auction limited interaction with government official. Still
MTN visited Ministry to explain its project and the benefits it proposes. After starting operation,
MTN was invited to the presidency, with all the others GSM operators, to discuss their plans for
Nigeria.
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3.2.4 PARTNER SELECTION
Once the license was acquired, MTN decided to share the risk in inviting Nigerian partners to enter
the capital of the company. Learning from the past, Felleng, who was in charge of the process,
decided to choose MTN partner using crystal clear criterions:
Partners should have access to capital to invest into the company, partners should have
access to infrastructure and property that they could make available to MTN, partner
should possess political influence but, they should not be politicians, MTN does not want to
be associated with a particular regime, partners should represent the federal character of
the country and most importantly partners must have an excellent reputation amongst their
peers.(Felleng, 2009)
From a potential list of 28 partners meeting these criterions, the number was reduced to 8 after the
28 went through a further vetting process conducted by control risk Group, a reputable international
risk management consultancy firm. This vetting process was to ensure that local partners were
really what they asserted to be and would not be future embarrassment. These partnerships resulted
in MTN Nigeria now being owned by 75% by MTN group and 25 % by locals.
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Partner selection was of utmost importance for MTN, which needed partner it could rely on and
who could intervene for it in case of serious problem. In addition the fact that MTN was associated
to highly respected businessman, gave a strong message to Nigeria community: MTN was coming
to Nigeria for doing good and to be trusted.
A side effect, of this high image of integrity that MTN tried to enforce was that never MTN has
been approached by any official for bribe.
I was the face of MTN in Nigeria, I had meeting with ministers, officials and different kind
of persons, but never, and I said never, I have been approached by any Nigerian official for
bribe (Felleng, 2009)
That does not mean that there is no corruption in Nigeria, but it means that in behaving with
humility, high integrity and surrounding itself with highly respected individuals, authorities
officials treated MTN with respect. They acknowledge the image of dignity MTN sent back to them
and they appreciate its genuine effort of doing your work with quality and honesty. That does not
mean that the Government did not try to take advantage during negotiation or that it did not take
hurting decisions.
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The only practice MTN was doing, that, it does not associate to corruption but instead promotion,
was to giving cell phones and scratch cards to police and government officials:
We were giving phones to officials, police and others but it was a practice which is done
everywhere by everyone, even here in South Africa. We offer officials phones and scratch
cards. For MTN it is a promotion of the network, it is beneficial to MTN to attract these
high profile customers who will spend credits in the networks and encourage others to join
them (MTN official, 2009)
3.3 MTN NIGERIA
3.3.1 NIGERIA ROLLOUT CHALLENGES
A big problem MTN had to face was the rollout of its operation in Nigeria. According to documents
provided to MTN while planning its Nigerian network, Nitel the state owned fix telecom incumbent
operated a state of the art SIEMENS optic fibber backbone spanning across the whole country.
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The deployment team arriving on the ground faced a totally different reality. Nitel Transmission
network was inexistent, purchase orders were signed, money was paid, but equipments were
nowhere to be seen. MTN had to rollout in emergency a costly VSAT Network which increased
capital expenditure budget and compromised quality of service. To solve this problem, in 2002,
MTN Nigeria started construction of YhelloBahn, its own 3 400 kilometres-long countrywide
microwave radio transmission backbone. (MTN, 2009).
MTN expected intermittent power outage on its network, but it was alarmed to notice that the state
owned Power Holding Company of Nigeria (PHCN) supplies just about 16.87 percent of the
country energy needs (Ilori, 2005). Therefore, the population and GSM operators have to generate
the remaining 84 percent. The cost of maintaining generators, buying and storing the enormous
amount of diesel needed to operate generator 24/7 was increasing expenses further. It was gathered
that in 2003 for instance, there were more than 5,600 generators at work in the various sites of
GSM operators across Nigeria and these generators consumed about 84 million litres of diesel
(Ilori, 2005). Diesel vandalism became an issue needing stronger security and increasing operating
costs.
MTN had to change its deployment plan and adapt to Nigeria reality. But that was at the cost, the
unplanned money needed to build and operate the unplanned additional infrastructure did not allow
MTN to assure the quality of service it expected. Making the situation even more difficult, was
that Nigerians enthusiastically responded to MTN value proposition and the subscriber growth 34
rate became higher than all the most optimistic previsions on which were based the capacity of the
network. Responding on MTN Nigeria network congestion and quality problems, MTN's Nigeria
first CEO Karel Pienaar agreed that part of the problem was the poor state of the existing network.
We initially aimed to have 30 base stations a month, we have upped that now to 60 a
month, which is very aggressive. Half of those are going to existing coverage to provide
more capacity, the other half is going to coverage expansion," (BBC's World Business
Report ).
That situation was shared by all the operators, Mohammed Jameel, Chief Operating Officer of
Glomobile revealed that a typical base station has a minimum of two generating sets which
consume 5000 litres of diesel per day. The huge expenses on generators is not only a drain on the
revenue, it is also partly the reason why operators are finding it difficult to reduce tariffs as:
"millions of Naira that would have gone to subscribers as low tariffs are spent on base stations"
(Ilori, 2005).
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3.3.2 OPERATIONAL CHALLENGES
In devising its marketing campaign and forecasts, MTN Nigeria had difficulties finding reliable
Market Information. Additionally, the large informal Sector not factored into published data made
accurate forecasting impossible. To get the missing market data, MTN partnered with the Lagos
Business School, Economic Intelligence Unit (EIU). MTN encouraged EIU to have a strong focus
on telecommunication sector. MTN connected EIU to LINK, Wits telecom regulatory Centre, this
was to ensure that EIU was exposed to the quality standard MTN expected. That allowed MTN the
opportunity to order market research report.
The unclear process of clearing goods from ports and customs (95 percent of equipment used in roll
out of telecom networks imported) caused equipment to take weeks before getting cleared from the
ports. This resulted in avoidable delays in network rollout and consequent loss of revenue by
operators (Ilori, 2005).
Higher sphere of the country were not stranger to the anxiety that MTN executives felt, for instance
one day the President of Nigeria decided to ban the importation of the scratch cards sold in Nigeria.
This decision took MTN Nigeria and competitors by storm because the measure had never been
discussed with them and it had a large quantity of Scratch Card ordered and paid for, waiting to be
delivered. However, the upside to this event was that it obliged South African scratch/sim
manufacturer, Namitech, to install production facilities in Nigeria.
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3.3.3 HUMAN RESOURCES
MTN entered Nigeria with its ethical code of conduct and was morally obliged to operate within its
realm. MTN wanted to create a strong workplace philosophy in which the diverse MTN employees
background could identify and feel proud to belong. These core values were known by the acronym
PASSION, standing for Professionalism, Action-oriented, Sincerity, Stick to the strategy,
Innovation, Organisation and Never give-up.
MTN Nigeria was in Nigeria for a long term investment and the success of it was largely dependent
on the quality of its employees. This is why MTN looked over recruitment as soon as it started a
permanent presence in Nigeria, when Felleng moved to Lagos, well before the licence was
awarded. MTN enrolled the help of Phillips Consulting, Accenture and KPMG to find the best
talents to assist with the Nigerian operations. When the license was awarded, MTN had employees
ready to start work immediately.
When, MTN started its deployment in Nigeria, it employed locals of the region to reflect the
diverse federal character of the country and to not be associated with any tribe, political clan or
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region. Still it was difficult for MTN to find skilled resources from certain regions like the North
and Niger Delta regions when it needed to deploy there. All these efforts were made because
MTN needed to be recognized by the Nigerian population as one of them. Early on it started
corporate responsibilities, and engaged with the Nigerian society. This was important because
customers feel a greater satisfaction when they know that part of the money they spent on the
network is redistributed back to their communities. MTN funded schools, participated in
vaccination campaigns, and wanted to be associated to any event having an impact on the well
being of Nigerians. For MTN, corporate responsibility is critical and is part of the company core
foundation. It sets the tone and creates a psychological contract between MTN and its subscribers:
We are together and we will build each other together. We are not vultures.
According to the localization doctrine of grooming local talents, the South African expatriate
numbers was managed down. MTN was preparing talented Nigeria nationals to take over. MTN
also offered them the possibility to become expatriate themselves. It was a very strong signal to the
staff that MTN was an international company where their skills would be recognized, and that if
they excelled, they would be offered international careers. These opportunities were not there only
for South Africans, they were there for everyone.
Expatriates, in Nigeria were a financial weight for the company. Their contracts provided
housing, total medical coverage, and weekend allowances etc. MTN had to supply them with 36
bottled water and ensured them a decent quality of life in the highly expensive Nigeria where basic
goods were five times more than South Africa. On average, each expatriate cost MTN Nigeria
approximately USD 40 000 per month of total cost to company. Furthermore expatriate security
was a major concern. Felleng remembers the anxiety she felt when white South African expatriates
were kidnapped in Niger Delta. When she negotiated their release and proposed rebels to take her
instead of her colleagues because she was most senior. Felleng with a smile on her face recalled
their reactions,
They refused to exchange me to the white South African, arguing that in their mind white
are more seniors than black and that MTN would never pay for a female black
employee.(Felleng, 2009)
Serious safety concerns were also raised in term of employees travel. The Nigerian airline industry
was reputed for its lax safety standards, lax security and high incidence of air disasters. MTN
engaged an airline audit industry expert to redact a list of safe airline companies that MTN
employees were mandated to take when in business travel.
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3.3.4 NIGERIAN FACTOR - SHAKE DOWN
Despite the fact that MTN never faced corruption problem with authorities and government
officials, who probably seeing the big picture understood MTNs positive influence on Nigeria,
MTN was not immune to daily low level corruption when its employees interacted with the
Nigerian population. From the policeman at the road block asking if there was nothing for the
boys to the employee of the custom office who would ask for some coffee, this low level
corruption was not specific to MTN, it applied to all the Nigerian people, and it was so entrenched
that fighting it head on, would have been in vain. However, MTN drew some red lines for its
employees, it made it explicit that they should never distribute money. However at their discretion,
they could at most offer cell phones, sim or scratch cards.
Personally when I was stopped at road block, like any other Nigerian, and asked if I had
nothing for the boys, I would give 10 or 20 Naira that was nothing or say that I had nothing
but they will get the next time. (MTN Nigerian employee)
MTNs high visibility placed huge demands and unreasonable expectations from communities.
Nigerians coined the expression Dividends of Democracy, in memory of their presidents former
promises, for ironically expressing their need of cheap communication. Everything related to
GSM, which was a dividend of democracy, should be free. For them there should be free
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phone and free airtime. Felleng remembers an encounter with a student delegation coming to ask
for phone and airtime after having heard that MTN sponsored the inter university games for one of
the states. During the meeting where Felleng summoned the student delegation, the delegation
adopted a menacing tone starting a loose talk about how MTN was indebted to people and students
of Nigeria that MTN was reaping of. If MTN did not satisfy their request they threatened to bring it
down. Felleng listened to them quietly then adopted her typical Nigerian tone to answer them. She
told them that she was from Soweto and it was not them who were going to scare her. Felleng told
them to stop their nonsense and get back to school. The student delegation was astonished, it was
clearly not what they expected. They realised that they had no chance and quietly returned after
asking Felleng if she was really a South African because she looked too much Nigerian to them
.(Felleng, 2009)
This episode shows how important it is to mingle with the local psyche, and it could explain why
black expatriate coming from similar background were more at their ease to deal with situation than
white expatriates from totally different backgrounds would have seen as stressful and dangerous.
Some time people take chance to strangers and looking, talking like local diffuse problems.
In the same group of individuals trying to take advantage of MTN were street thugs known as "area
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boys", demanding money from operators as "settlement" for not vandalising operators towers and
shops. MTN infrastructures roll out appeared to them as a sustainable future
source of income. To maintain the integrity of its infrastructure MTN had to maintain security
guards at its various sites (Ilori, 2005).
Another aspect of the endemic low level corruption was cheque book journalism which was raging
in Nigeria, with journalist not hesitating to inaccurately report events if they had not received
retribution. This bad press had a negative effect on share price back on Johannesburg because
investors and analysts appreciation of MTN Nigeria was influenced by what they were reading and
hearing.
Intellectual Property Protection in Nigeria was weak, at that time MTN slogan was MTN pay as
you go. At the same time on the road of Lagos huge banners started to cross street with the advert
Ministry of The Nations, MTN pray as you go at least Nigerian people had creativity.
3.3.5 REGULATORY CHALLENGES
In order to adapt to Nigerian laws, the regulatory/legislative legal system of MTN had to travel
along a steep learning curve. Because it was a new industry, the Nigerian telecom regulatory
environment suffered from an absence of a clear regulatory framework, clear policies, and clear38
processes with appropriate regulations. It had no liberalisation timelines that favoured the
proliferation of licences. With no market analysis, the Nigeria Communication Commission (NCC),
authority in charge of regulating the telecom sector had already issued 19 Fixed Wireless Licences.
NCC used the European Union regulation as model. Unfortunately, it was an inappropriate model
for a young market like Nigeria. For instance, the NCC enacted directives on interconnection of the
GSM operators with the Private Telecommunications Operators (PTO) and Fixed Wireless
Operators (FWO). These propositions were unnecessary economic burden on GSM operators
because Nigerian PTO and FWO were providing only internet access contrary to their European
counterparts who were also active in the phone service. Implementing the directive would have
created costly capacity that would have never been used.
In charge of the regulatory division of MTN division, Felleng realised that it was in MTNs interest
to associate with other operators when transacting with the NCC and other government bodies. She
actively lobbied to create the GSM association of Nigeria, grouping all the GSM operators together.
The associations objective was to protect the interest of the operators and to use a unified voice
when communicating with the NCC and Nigerian authorities.
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MTN suggested EIU that this lack of knowledge about telecom regulation could be a good
opportunity. EIU could launch a telecom training service that would organize educational business
trips providing access to the best telecom professional trainings available in the market. MTN
through the newly created GSM association of Nigeria would help to fund this project.
As an MTN executive explained, it was in the GSM associations interest to have interlocutors
understanding the telecom sector who could then be able to have sensible discussions. Additionally,
because this program would be organised by the EUI of Lagos Business School, MTN and the
GSM association would be able to avoid any suspicion of corruption. In SA EIU worked with
LINK Centre from Wits and BMI Tech.
MTN helped EIU to organise learning trip for MPs, regulation officials and telecom professionals
in South Africa and Europe, so they can see themselves how their counterparts dealt with telecom
issues. MTN also connected EIU with all its consulting agencies which could advise EIU on
research, help EIU to stay up to date with telecom trends and remain informed on the best
professional training courses offered.
3.3.6 POLITICAL CHALLENGES
MTN faced a great deal of pressure to reduce its tariffs. A member of the parliament, Tony
Anyawu, was among the most vocal on that matter. He promised his constituency that as 39
dividend of democracy they would have access to cheap communication. He summoned GSM
operators in Abuja for hearings and in one week he had a bill proposing that tariffs be reduced by a
fifth. However, thorough tariff investigation would have taken months and the bill was developed
over a much shorter time frame. The Nigerian parliament system allowed any Member of
Parliament (MP) to propose bills, and MPs were not shy to use this right. When MTN started
operation in Nigeria there were 4 different proposed Telecommunications bills being reviewed by
the parliament. Each bill pushing a different agenda and the 4 agendas were inconsistent with each
other
To deal with that MTN decided to take the 4 propositions and hand them over to Pyramid
Consulting, which specialized in telecom regulation. Pyramid would have to meld them into a
single act that will ensure above everything the interest of Nigeria people is preserved.
Explaining MTN stance, Felleng says that having a stable and strong telecommunication act was
the best way to ensure investment stability and security for MTN and the all telecom industry.
Trying to promote a law furthering only operators interest would be short sighted and would
inevitably backfire.
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When Pyramid finished its proposition of law, MTN through the GSM association of Nigeria
engaged the NCC and the parliament to promote this proposition of law. Felleng was among the
GSM associations task force in charge to promote the bill to authorities.
I was explaining that this proposition of law was not written with MTN in mind, but with
Nigeria in mind. I explained to them how all the 4 original propositions were considered to
not leave anybody behind (Felleng, 2009)
The MTN proposition was finally adopted by the parliament and became the Nigerian
Telecommunication Act. For Felleng that law is the best legacy MTN could have left to the
Nigerian telecom sector.
3.4 NEXT STEPS
Thinking of the past and remembering this crazy time, Felleng recalled that according to most of
the specialists and analysts of that time, MTN Nigeria operation was doomed to fail. For all these
analysts, it was rationally impossible to strive in a so corrupted environment. MTN has made the
biggest mistakes of its existence stated one JSE analyst at that time. Vodacom failed attempt to
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acquire Econet Nigeria over disagreement amongst shareholders and suspicions of bribe, was a
confirmation for all these analysts that sane people would never be able to penetrate a so hostile
environment.
But despite all of this negative press, MTN shifted its mindset and its strategy to stare at Nigeria as
a normal, but challenging country where a win-win scenario was possible and it developed its long
term vision. Results of that vision have been so positive that not only did MTN become Nigeria
number one, but Nigeria also served as MTN springboard to Africa and Middle East expansions.
Without Nigeria, MTN would have not been the 11th biggest GSM company of the world and the
number one in Africa and the Middle East.
According to Felleng, Africa is a High Risk/High Reward Market but to succeed you must do your
homework and have an open Mind.
CHAPTER 4: INSTRUCTOR GUIDE
The different themes developed in this case can be grouped in the following:
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Resilience
For this section the question could be: How MTN managed to become Africa number one when
they had a so bad start in South Africa?
This case is about ego; it illustrates how a company, underdog in his home market decided to
dominate the market of the continent by taking calculated risks that bigger players where reluctant
to take. A key ingredient to success of MTN, in general, is that from day one it was the underdog
with the biggest ego in SA.
MTN encountered setbacks with the loss of their technical partners and financial problems.
However, they kept fighting, always trying to figure out what could be the next move. MTNs
strategy was very clear from the beginning: we want to be number one; as we cannot be number
one in South Africa, we will be number one in Africa.
Decision under uncertainty and managing risks
For this section the question could be: What did MTN do to succeed in Nigeria which had a bad
reputation for its perceived corrupted environment?
MTN was not rebuffed by the overall negative tone of the market but decided to handle the
business uncertainty and turn it into manageable risks. MTN organized tours to show
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shareholders and analysts that there was a viable economy in Nigeria. MTN did not stop at the
economic indicators, which were not exhibiting the informal economy of Nigeria and downplayed
its potential. MTN did thorough due diligence enrolling risk consulting groups.
MTN adapted its policy, when it noticed that relationships with politicians were not the right way to
go, it learned and adapted the direction.
MTN took safety concerns seriously, it commissioned audit on the aviation sector, to ensure that its
employees are not incurring unnecessary risk when travelling for the company. MTN spent a large
amount of money to secure its infrastructure. It gave its employees training on the life in Nigeria
and the places to avoid, and before dealing with anyone MTN commissioned a due diligence on
that person. Security can never be guarantied 100%, as the kidnapping of MTN employee in the
Niger Delta shows, but these measures mitigated the most unnecessary ones.
Entering new technology market
For this section the question could be: How did MTN manage its relations with regulatory
authority?
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The MTN case, also, highlights the problems of doing business in Africa within the telecom sector.
The telecom sector in this case was not well understood by Nigerians legislative and regulating
authorities. They were not realizing the consequences of the law and regulation they were passing.
NCC was distributing radio licenses without acknowledging that radio frequencies spectrum is a
limited scarce resource and the parliament was prone to pass business damaging and restricting
laws.
MTN took the decision to associate with others operators to lobby the government, so all operators
talk with a same voice. MTN also decided to engage the MPs and help them sort out the redaction
of the telecom act.
And indirectly, using the EIU, MTN educated telecoms actors of Nigeria.
Cultural sensitivity and human resource management
For this section the question could be: How did MTN managers handled their entry into Nigeria
society?
The cultural sensitivity played a big role in this case, Vodacom has failed in Nigeria and MTN had
failed two times before entering Nigeria. The real reason of the third attempts success was that
Felleng Sekha, in charge of International Business Development at MTN, decided to immerse into
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the Nigeria environment and understand the peoples psyche. She did not want to stop at the
stereotype of the corrupted Nigerian.
From day one, Felleng decided to put integrity and honesty in top of all others consideration and to
pose Nigeria as a win-win scenario. She thoroughly did her due diligence to know the persons she
was dealing with. She wanted well recognized honourable trustworthy partners whose credibility
would be associated to MTN. She took her time to choose the employees, understand the law and
commercial practices.
MTN imported into Nigeria its culture based on respect and excellence and promoted it as a unifier
for all MTN employees, irrespective of their religions, races or culture. It was a good point to create
a corporate identity that transcends religions and races.
Corporate responsibility and Win-Win scenario
For this section the question could be: Why did MTN invest so much in corporate responsibility
and training through the EIU?
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When the Nigerian operation started, with pragmatism, MTN dealt with each problem at the time,
having a long term perspective in mind. True win-win scenarios are based on mutual strong
relationships. MTN needed to have strong interlocutors in front of it and MTN helped the NCC and
telecom professional of Nigeria to build up their skills in partnering with the Economical
Intelligence Unit of the Lagos Business School.
MTN also understood that an instable regulatory environment meant a big risk for its investment
and MTN in collaboration with other operators took the initiative to propose a telecommunication
act that was not furthering any hidden agenda, but clearly laying foundations for a sane
environment. MTN engaged with Nigerian stakeholders to explain the mutual benefit they will have
to implement it.
The face of MTN in Nigeria in its early days, Felleng, genuinely fell in love with the Nigerian
culture and made conscious effort to understand it. She was able to talk Nigerian, to eat Nigerian, to
think Nigerian and in return Nigeria gave her respect. Authorities would listen to her and
understand that they were not in front of a vulture which would fly away at the first problem; they
were together for the long term. This translated to MTNs engagement in corporate responsibility,
that message was a strong and important one for MTN, we are here with you for building a better
future.
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CHAPTER 5: CASE APPENDIX
5.1 MTN Group structure
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Source MTN Group annual report 2008
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5.2 MTN Regions contribution to MTN Group total revenue
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Source MTN Group annual report 2008
5.3 MTN Group risk matrix
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5.4 Africa Mobile penetration rate 2007
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Source Wireless Intelligence cited by Ernest and Young
Internet and Broadband population penetration in Africa in term of % of population,
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Source International Telecommunication Union, Ernst and young analysis
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5.5 Biggest Challenge facing telecommunication operators in Africa, in term of % of
operator who listed it as challenge
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Source: Ernest and Young (Ernest and Young, 2009)
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5.6 The biggest challenges facing telecommunications operators in Africa in term of % of
operators who listed it as challenge
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Source: Ernest and Young (Ernest and Young, 2009)
5.7 Total taxes as a share of total revenue by mobile operators 2006 as %
Source: GSM Association

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CHAPTER 6: REFERENCES AND BIBLIOGRAPHY
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MTN entry Strategy in Nigeria

Case study research report presented to

The Graduate School of Business

In partial fulfillment of the requirements for

The Master in Business Administration Degree

Maketa Lutete Thomas

Supervisor: Dr. Mills Soko

MTN entry strategy in Nigeria

LIST OF ACRONYMS ...................................................................................................... 6

CHAPTER 2: LITERATURE REVIEW AND DISCUSSION ON AFRICA TELECOM

2.1 INTRODUCTION TO AFRICA ............................................................................................ 10

CHAPTER 3: THE CASE STUDY .............................................................................. 24

3.1 INTRODUCTION ................................................................................................................. 24

CHAPTER 4: INSTRUCTOR GUIDE ........................................................................ 41

CHAPTER 5: CASE APPENDIX ................................................................................ 44

5.1 MTN GROUP STRUCTURE ....................................................................................................... 44

CHAPTER 6: REFERENCES AND BIBLIOGRAPHY ........................................... 52

Exhibit1: World Population growth in 2050..5

Maketa Lutete Thomas

1.1 CASE STRUCTURE

This document has 4 sections:

The case: This section details MTNs entry into in Nigeria.

1.4 CASE STUDY METHODOLOGY

To collect data this research used:

Open-ended, semi-structured Interviews: Interviews were conducted with:

Employees of Vodacom, Zain and Tigo at Kinshasa, DRC.

1.5 STUDY SCOPE AND LIMITATION

2.1 INTRODUCTION TO AFRICA

Exhibit1. World Population in 2050

Exhibit 2: World Most populous country 2050

2.2 INVESTMENTS AND BUSINESS PERFORMANCES

Exhibit 3 Global net FDI 1995 - 2005

2.5 SOUTH AFRICAS POSITION IN AFRICA

2.6 CONTRIBUTION OF SOUTH AFRICAN MULTINATIONALS TO AFRICA FDI

2.8 AFRICA TELECOM AND THE FINANCIAL CRISIS OF 2008

2.9 PROBLEMS OF OPERATING IN AFRICA.

2.9.2 ECONOMICAL SLOW DOWN

2.9.3 LACK OF INFRASTRUCTURE

2.9.6 CURRENT SUBSRIBERS MARKET

2.9.7 THE FLUCTUATING EXCHANGE RATE

2.10 THE WAY FORWARD FOR AFRICA TELECOM

2.10.1 COST MANAGEMENT AND INNOVATION

2.10.3 BROADBAND INTERNET AND MOBILE BANKING

CHAPTER 3: THE CASE STUDY

Everything really began developing with Nigeria he remembered

3.1.2 MTN SOUTH AFRICA IN 1990s

3.2 THINKING AFRICA

3.2.1 INVESTING IN AFRICA

3.2.2 MTN AFRICA STRATEGY

3.2.3 MTN ENTRY INTO NIGERIA

Thinking about Nigeria, an MTN executive recall:

3.3 MTN NIGERIA

3.3.1 NIGERIA ROLLOUT CHALLENGES

3.3.5 REGULATORY CHALLENGES

3.3.6 POLITICAL CHALLENGES

3.4 NEXT STEPS

CHAPTER 4: INSTRUCTOR GUIDE

Decision under uncertainty and managing risks

Entering new technology market

Cultural sensitivity and human resource management

Corporate responsibility and Win-Win scenario

5.1 MTN Group structure

Source MTN Group annual report 2008