FIFI PETERS: Telecommunications inflation was one of the slowest growing items in South Africa’s consumer basket. In fact, there was deflation in some areas.
MTN today released its first half results. The company said the cost of data in its market fell by more than 22% in the six months to June.
We have MTN’s Group CFO, Tsholafela Molefe, on Market Update to learn more about the numbers. Tshola, thank you very much for your time. Nice to talk to you again. I guess a lot of people don’t feel that the cost of communication is going down given that we’re in a cost of living crisis with everything else going up. But your numbers show that data [prices are] fell and fell. What’s behind the wheel [those costs] below?
TSHOLAFELA MOLEFE: Thank you so much, Fifi. Over the years we have tried to ensure that we can make the cost of communication much more affordable for customers in South Africa. We reviewed our pricing as early as May and are obviously generally conducting pricing reviews in the markets we operate in. But we have lowered our prices, especially for data. If you recall, Icasa conducted a competition commission review of the data services market a few years ago. So we obviously also lowered our prices at that time in line with the competition.
FIFI PETERS: We also had a spectrum auction recently, which was seen by the industry as a great thing because we were told that the reason the cost of data and communications couldn’t come down was because there was no auction and that was preventing prices from coming down. So, now that we have that, what’s next in terms of communication costs?
TSHOLAFELA MOLEFE: You have to look at it in the context of what happened historically, as I told you. It’s really more about can we provide the services that our customers want, and therefore what do we need to do to be able to do that? I think as we speak in this industry, we really need to invest a significant amount of capital expenditure to be able to improve our reach and increase our capacity so that we can improve the quality of our customer service.
So the carrot… 2:57 should also be read in this context. Obviously, as we do that, we also make sure to look at the pricing ……3:08. And along with the macroeconomic challenges we’re seeing with rising inflation, because as we say, we haven’t been able to pass the rising inflation to our customers.
That’s why we’ve actually had to do a lot more to reduce costs so that we don’t pass all those costs on to customers, and at the same time make sure that we can improve returns for shareholders.
FIFI PETERS: A tight balance, because then the question becomes, how long can you protect your customers without hurting your own margins? I guess the question is more specifically how is inflation affecting MTN right now and what are you trying to do to offset the impact of price increases?
TSHOLAFELA MOLEFE: Yes, of course, we have seen in our markets the global crisis, macroeconomic challenges, high energy costs and rising inflation, which obviously affected mainly our network operating costs. But as I think we’ve said, one of the dynamics in South Africa in particular is the constant blackouts that put a strain on our grid. So we obviously had to spend the money to install the batteries so that we could at least continue to provide our customers with the service they needed.
So those are all factors that need to be taken into account to see how long we can sustain it. I think from MTN’s point of view, we have been very active in 2020 with an expensive efficiency program that is delivering very good results and we have been able to generate over 5 billion rand since 2020. We haven’t been able to beat the cost of inflation for our customers because we’ve been very consistent in reducing costs across the board.
FIFI PETERS: Good. So your MTN shares were the top performers on the JSE in today’s session, up almost 8%, followed by Telkom. But it looks like there’s a new addition to the MTN-Telkom narrative, as well as the potential tie-up you two have been talking about as you’ve announced, because we heard this afternoon, according to Bloomberg, that someone else has now set their sights on Telkom – Rain. Rain is part of African Rainbow Capital Group, which is backed by billionaire Patrice Motsepe. Do you have a comment on this?
TSHOLAFELA MOLEFE: I can’t comment on it at all. Suffice it to say that we are cautious in terms of our potential action ……5:12 with Telkom, which is still early days and we will obviously have to go through quite a bit of regulatory scrutiny. So, in terms of what Telkom and Rain are doing or planning to do, that’s not something I can comment on.
FIFI PETERS: We have seen a period of consolidation in all sectors of the economy, from retail to mining – in fact in mining where we are seeing a bidding war for Royal Bafokeng Platinum assets, with two contenders for Impala and Northam. So I guess my question is, I know it’s early days, but would you be willing to accept all of this for Telkom? Is there a bidding war? Can you share anything on this?
TSHOLAFELA MOLEFE: No, I am unable to share anything at all, as I indicated. I am not aware of the discussions between Rain and Telkom. I think all I can say is that if you look at the South African market, perhaps at some point there is a need for consolidation. And it’s really, as I pointed out, driven by what it takes to make the industry sustainable in the long term, and we’re seeing that happening around the world as well. So that’s all I can comment on, Fifi, for now.
FIFI PETERS: Last question. You’re in multiple markets, I think around 19 or so — you can correct me there if I’m wrong — so going forward, which markets are you most concerned about and which are you most concerned about given the current economic climate?
TSHOLAFELA MOLEFE: Africa is obviously quite an exciting market. I think whether it’s Nigeria, Ghana or some of the French-speaking markets that we operate in – Cameroon, Cat d’Ivoire, including the southeastern African region of Uganda, and Zambia, all of which have different challenges. Obviously, we face regulatory pressures in these markets as we do business there, and we respect the regulatory requirements of the markets in which we operate. But I think they all represent an opportunity for us to grow. Data penetration, smartphone penetration is still required in these markets. That’s what makes it so exciting.
You have quite a few customers who don’t have access to financial services, and that’s what makes our financial services proposition so compelling and exciting. We believe that markets such as Cameroon, Uganda, Cat d’Ivoire, Benin, Nigeria, even Ghana, to name a few, including Zambia in the South East region, really present a great opportunity. We think that for us it’s really about the financial inclusion of all the customers that we have in all the markets.
FIFI PETERS: Tshola, thank you so much for your time tonight. We will leave from there. Tsolafela Molefe is MTN Group Chief Financial Officer.
