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NCC’s Fining of MTN Nigeria – Unprecedented, Chilling and Potentially Crippling

In a statement to the Johannesburg Stock Exchange, South Africa’s MTN confirmed that it had been issued a $5.2bn fine by Nigeria’s telecoms regulator, the Nigerian Communications Commission (NCC), for its purported failure to disconnect inactive SIM cards as required by the regulator. is also reporting that MTN Nigeria is facing a probe for “28 accumulated breaches”. Some quick thoughts:

Xalam Blog - Fine to Revenue Ratio

  • $5.2bn. Really?
  • To state the obvious, the fine is enormous. It is larger than MTN’s annual revenue in Nigeria, and equivalent to around 20% of MTN’s market capitalization at the time it was set. By our estimates, it is one of the largest fines ever applied to a single entity outside of the banking industry. In relative terms, this fine is the highest of a sample of fines levied over the past six years.
  • It’s perfectly understandable that MTN would get fined if it didn’t follow established rules. And in fairness, MTN does attract that ambivalent mix of ill-will and envy dominant players typically generate. It is big, (too) profitable in a market were most providers are not, often prone to throw its weight around – and consistently in the NCC’s crosshairs. All the same, fines are supposed to hurt – this one almost looks designed to cripple MTN out of the Nigerian market.
  • This comes at a bad time. As we have noted in a separate analysis, African mobile operators (even dominant ones, like MTN Nigeria) are in a difficult spot as their revenue outlook is darkening, under the combined effect of competition, OTTs, depreciating currencies and rising costs. Revenue at MTN Nigeria, for example, declined by 1% in the first half of this year, and will likely decline further this year, even as costs are rising. There are bigger systemic challenges looming. As Steve Saunders, CEO of Light Reading noted in this analysis, next generation technologies are making the communications industry pivot on its own axis, threatening the fundamental structure of the operator business model. These trends are coming to Nigeria too. Put bluntly, we are concerned African regulators are using a regulatory template appropriate for a market context that is no longer there.
  • One can understand the challenge faced by the NCC – who has likely been frustrated by MTN, and who, like other African regulators, is often considered as another channel of tax revenue generation. But heavy-handed fining of this sort is a blunt instrument with potentially devastating effects. This will get MTN’s attention, to be sure, and may potentially be negotiated downward; but the chill it puts on investor sentiment has to be noted, at a time Nigeria needs more, not less of it.
  • There are subtler, but potentially more effective ways of generating cash out of this industry. Fixing some of the core issues plaguing this market – lack of adequate spectrum, multiple taxation, rationalization of the fiber segment. On a net basis, prioritizing the foundations of a thriving digital ecosystem will bring more cash into government coffers than hitting on MTN Nigeria, satisfying though that may be.
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