The fall-out from Cell C’s debt crisis has hit MTN, which, due to its roaming agreement with Cell C, was only able to record marginal gains in revenue growth for the third quarter.
MTN said on Thursday it will only start recognising revenue from Cell C as part of its profit calculations when the struggling mobile operator finalises its roaming agreement and tackles its liquidity challenges.
Cell C, SA’s third-largest mobile operator, has struggled to make consistent profits since 2001, and finds itself with close to R9bn in debt.
Ruhan du Plessis, an analyst at Avior Capital Markets, said the main concern for MTN at this stage was securing a Cell C deal.
On an annualised basis, Cell C contributes about R2.4bn in roaming revenue to MTN, which is "very lucrative" for the group. The revenue is in rand and in SA with no repatriation risk, and pays a big part of the group dividend of about R10bn a year, he said.
Despite having received as much as R750m in cash payments as part of their roaming agreement since June, MTN group CFO Ralph Mupita said: "We will consider reverting to the accrual basis of revenue recognition when we considerit probable, in terms of accounting guidelines, that we will collect all the monies related to services rendered."
As payments from Cell C became irregular, MTN decided to record these as and when they come in, on a cash basis. A payment made in October, for services rendered in July, August and September, would not be recognised for those months.
Using standard accounting practices, MTN would have recorded payments from Cell C for the corresponding period in which it had been using MTN’s services and would have been part of the profit calculation for the quarter.
If MTN were to recognise Cell C revenue on the standard basis, group service revenue would have grown 10.5% and MTN SA would have reported service revenue growth of 3.5%, said Mupita.
MTN SA recorded service revenue growth of 0.4%, the company said. Subscribers in SA declined by 300,000 quarter-on-quarter to 28.9-million.
Mupita said good progress has been made on an expanded roaming agreement with Cell C, but this was yet to be concluded.
On Thursday, the group said it had added 3.5-million subscribers to its base, quarter-on-quarter, to reach 243.7-million for the quarter to end-September 2019.
Group service revenue increased 9.6% year on year, with an earnings before interest, tax, depreciation and amortisation (ebitda) margin of 41.1%.
MTN CEO Rob Shuter said the group benefited from strong performances in Nigeria and Ghana, which generated double-digit service revenue growth and improved earnings before ebitda margins, driving growth in group service revenue.
In SA, service revenue growth was negatively affected by a 4.6% year-on-year decline in consumer prepaid service revenue for the nine months to September 2019.
This was hit by out-of-bundle data tariff reductions and the Independent Communications Authority of SA’s Africa end-user subscriber service charter regulations, which came into effect in March, against the backdrop of a challenging economic environment, he said.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said that slowing growth in SA was largely expected as Telkom had moved its roaming agreement to Vodacom from MTN.
Data price normalisation and data regulations have slowed revenue growth for the big two mobile operators, he said.
"The remainder of the year should remain relatively strong as MTN regains market share in Nigeria after significant investment into its 4G network on lower band spectrum and other West African operations recover," Takaendesa said.
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