Cellular Giants' Scramble for African Users Set to Intensify

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Cellular Giants' Scramble for African Users Set to Intensify
ANALYSIS
November 19, 2004

Information Technology Editor
Johannesburg

Vodacom has more customers but MTN's half-year profit is double that
of main rival

A DECADE of fierce competition between the cellular network operators
could become even more ferocious in the next two years as MTN and
Vodacom battle for dominance of the continent.

MTN issued results yesterday showing that the rivals are neckand-neck
on revenue, yet MTN has managed to double the profit level achieved
by Vodacom.

Vodacom remains Africa's largest player by subscriber numbers, but
MTN aims to match Vodacom in its voracious appetite to sign up the
47% of South Africans yet to own a cellphone.

MTN was also preparing for expansion in Africa and the Middle East,
eyeing potential acquisitions and readying its third-generation (3G)
high-speed data network for long -term revenue growth, said CEO
Phuthuma Nhleko.

MTN's revenue hit R13,7bn for the six months to September 30, up 22%
from R11,2bn a year ago. Aftertax profit jumped 56% to R3,3bn and net
profit soared 60% from R1,8bn to R2,8bn double Vodacom's net profit
of R1,4bn for the same period.

Shareholders hoping that a 34% rise in earnings a share to 165c would
trigger a special dividend were disappointed, however.

Nhleko said the board would review its policy of not paying an
interim dividend only at the end of the financial year, when cash
reserves of R3,3bn may be paid out or used for growth opportunities
or a combination of both.

MTN had already said headline earnings a share would be 30%- 45%
higher than the 123c of a year ago.

Merrill Lynch analyst Meloy Horn had expected earnings of 159c before
the trading update, and has a buy recommendation on MTN with a 12-
month price target of R36. Its shares lost 39c to R33,31 before the
results were issued yesterday.

Horn said the strong performance could be attributed to sustained
subscriber growth in SA and in Nigeria. She had expected an average
revenue a user in Nigeria of 46 a month. MTN managed to exceed that,
with its 2,5-million Nigerian customers spending an average of $48 a
month.

"We certainly need to diversify our risk because our results are
really standing on two pillars SA and Nigeria," Nhleko said.

MTN had recently lost its bids for licences in Iran and Saudi Arabia,
but continued to look for new licences in Africa, the Middle East and
possibly further afield if this made strategic sense, he said.

Acquisitions were also a possibility as consolidation between
cellular operators seemed likely.

For its African operations as a whole, MTN boasts 11-million
subscribers. SA accounts for 6,9-million of those active users,
spending an average of R187 a month.

Vodacom has 11,3-million users in SA, but 20% are inactive as they
have not made or received a call in the past three months.

Nhleko said MTN SA had lifted earnings before interest, tax,
depreciation and amortisation from 30% to 32,6% by cutting its
distribution costs and operating expenses.

Its margins for the group as a whole stand at 40,9%, up from 38,4%,
with a goal of reaching 43% within two years.

Foreign operations now contribute 40% of MTN's revenue, and a
disproportionately high 48% of headline earnings a share.

That profit contribution is likely to rise as more Nigerians join its
network and cellphones reach the less affluent population in SA.

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