MTN’s new chief executive Rob Shuter has been brought in to boost profits at Africa’s biggest mobile phone group after a $1.7 billion fine in Nigeria, by persuading its 200 million clients to use their handsets to store money and pay bills.
But the hunt for returns by the outsider, the current European head of Vodafone and a former banker, will throw MTN into an unfamiliar world of finance with increasing regulatory risks as authorities step up efforts to combat illicit money transfers.
It will also pit MTN against African rival Safaricom, which is 40 percent owned by Vodafone, and whose mobile money business M-PESA helped offset falling prices for basic telecoms, convincing investors that financial services is the industry’s next growth area.
“It will not be easy for MTN or any other operator to replicate the M-PESA success story because a regulatory loophole in Kenya meant that Safaricom did not need a formal banking partner or license to launch services,” said Ovum telecoms consultancy analyst Richard Hurst.
Shuter will start no later than July 2017 and replaces Sifiso Dabengwa who resigned last November after the fine in Nigeria exposed corporate governance flaws at MTN.
MTN has also struggled to make money at a faster pace as years of price wars and regulation aimed at bringing tariffs down hit profit margins and make it less appealing to spend on new networks.
Operators now entering the financial transactions market face even tougher regulations, which differ according to country and region, as authorities weigh whether to bring standards in line with those that apply to banks, Hurst said.
In MTN’s biggest market Nigeria, fewer than 1 million people used mobile money in 2014, according to an EFInA survey.
This is partly because regulators only allow banks to operate mobile money accounts rather than telecoms companies.
Payments by mobile are predicted to increase rapidly around the world over the next few years, with telecoms groups, retailers and banks all trying to secure a piece of the pie.
Recent research by consultancy McKinsey suggested that by 2025, 360 million people in sub-Saharan Africa will have access to the internet via smartphones making it easier for users to send and receive money across countries.
Investors are hoping Shuter will use his experience as head of investment banking at Standard Bank and managing director at Nedbank retail banking unit division, to shake off MTN’s reputation as a stock with a limited potential for growth.
“It’s a strategically sound appointment because mobile phones are moving from being just a communication tool to distributing content and provide banking services,” said Momentum SP Reid analyst Sibonginkosi Nyanga.
Shuter’s background should help him fit “very well within MTN as it repositions itself as both a telecoms, e-commerce and financial services player,” Anthony Sedgewick, the founder of fund manager Abax Investments, which has an MTN shareholding of just under 0.2 percent, told Reuters by email.
MTN said it had also appointed a yet-to-be-named new head of mergers, acquisitions and strategy, with a “wealth of banking experience”.
“His substantial commercial experience will assist in the formulation of a revised strategy for MTN, particularly in the area of convergence between mobile telephony and financial services,” the company said in a statement.
MTN and its rivals, including Etisalat, the Gulf’s second biggest mobile phone operator, have been waging price wars that have hurt their bottom lines and the share price.
Shares in MTN have slumped about 40 percent from their peak in September 2014, lagging behind a slightly higher blue-chip JSE Top-40 index.
MTN has also made forays in e-commerce as part of the search for fresh revenue streams including a stake in German’s Rocket Internet, a company behind Nigeria-based online retailer Jumia that was established in 2012.
“We are also looking to extend our service offering to customers that include insurance and we are currently piloting a money lending platform in our Cameroon, Uganda, Zambia and South African as a means to expand our mobile money services offering,” MTN head of digital services Herman Singh told Reuters.
But some investors say MTN, founded with the help of the South African government shortly after the end of apartheid in 1994, needs to do more to grow.
“For a while now, it’s been difficult to look at MTN and say: ‘there is a company that growing'” a top ten MTN shareholder said. “Management have done very little to put this company back on growth path except to allow a big regulatory breach happen under their watch in Nigeria.”
MTN said on June 10, after months of talks, that it had agreed to pay a heavily reduced fine of $1.7 billion, or a third of the initial penalty, in a settlement with Nigeria for missing a deadline to deactivate more than 5 million unregistered SIM cards.