AS WE continue watching MTN [JSE:MTN] trying to clumsily wiggle itself out of a largely self-made quagmire, with its share value struggling to keep what remains of its fat after shedding almost 20% of its value last week and a further 6% on Monday, views abound on how this will all end.
A good friend called me on Sunday, fearing the worst for her shares in the company. I told her that since I’m not a qualified financial adviser, it would be unwise for me to tell her what to do. However, I couldn’t resist venturing the comment that since hers is a long-term investment, it probably makes sense not to make a hasty divestment decision in a panic.
But it’s good to see other shareholders, especially the usually activist Public Investment Corporation (PIC), beginning to ask the right questions.
The situation will be resolved one way or another because there is much at stake for both parties. MTN is highly invested in Africa’s most populous country, and the Nigerian government is desperate for cash.
Since the sands are still shifting or, more correctly, stuck in one place while MTN and the Nigerian Communications Commission (NCC) wait for each other to blink first, anything could come out of this.
The fine has already been issued and a two-week ultimatum given by the regulators. The sands will shift again, no doubt, but it is unclear in which direction as representatives of the mobile giant and regulators are still locked in high-level negotiations which are now said to include political dimensions from both sides.
The hard facts
It is well known that Nigeria has been battling the Islamist terrorist organisation, Boko Haram, for a number of years now. Hundreds of thousands of innocent men, women and children have been murdered; hundreds of young girls have been kidnapped to be used as brides and slaves, and ordinary Nigerians live under the constant threat of terrorist attacks in open markets and other public places.
Despite many attempts and claims to the contrary, the Nigerian government has not managed to bring these terrorists to heel. Each time the government claims to have defeated Boko Haram, the insurgents move quickly to issue a counter-claim.
Frustrated by the unending vicious circle of violence, the government resorted to introducing a law equivalent to what we already have here in South Africa, the Regulation of Interception of Communications and Provision of Communication-Related Information Amendment Act (Rica).
Through its own version of Rica the Nigerian government hoped to identify, corner and arrest collaborators and perpetrators of Islamist violence on its soil. But this cannot be done effectively when literally millions of unregistered and untraceable SIM cards continue to circulate in the market, possibly enabling Boko Haram to continue terrorising the Nigerian public and scaring off investors.
To stop this, the NCC issued a directive requiring all mobile companies to disconnect every single unregistered SIM card in the country. Every single mobile operator is said to have followed the directive except, reportedly, our MTN. It subsequently came to light that this was not the only instance of MTN disregarding Nigerian law. It had 28 other instances of, apparently, brandishing its proverbial middle finger to lawmakers in Nigeria since 2011.
So, what could happen?
MTN could continue playing the victim of an overzealous regulator and win some sympathy, and the NCC could point to other mobile service providers who respected its directive and respected its stipulated deadlines.
It could also show the negative impact of unregistered SIM cards on government efforts to stem the rising tide of deadly terrorist attacks on its soil. Some cynics have already speculated that the Nigerian government could be taking advantage of MTN’s transgressions to raise much-needed funds following the steep drop in the price of oil, its main source of revenue.
Some have suggested that even though MTN might be wrong, its sins do not deserve a hefty fine of $5.2bn. A gentle kick in the butt, they content, would have sufficed to keep MTN in check. Now, tell that to the many victims of Boko Haram’s cowardly violence.
What is at stake?
MTN’s operating licence in Nigeria.
While the NCC has offered to extend its validity to 2021, it still has the power to revoke it if called for by conditions. In a statement, MTN announced that “the sum of US$94 225 152.75 is payable as a spectrum fee for the five-year extension period by no later than 31 December 2015 and [is] conditional upon MTN fulfilling all its regulatory obligations.” This last line is fundamental.
No doubt, the contract extension comes as a relief because MTN would never want to lose its dominant position in Nigeria, a market that delivers a third of its revenue. It has invested billions of dollars in the local mobile infrastructure and would find it very hard to either stop investing or simply walk away.
Shareholder value, if the stalemate over the fine lasts for much longer.
Monday’s suspension of trading in MTN shares by the JSE was also a bad indicator, as it stands to damage whatever confidence regulators and investors might still have in the prospect of a short-term recovery.
As if things couldn’t get worse, the JSE announced its own investigation into MTN’s timing when it waited too long before issuing a SENS announcement regarding the Nigerian fine. The bourse is now sniffing around for possible insider trading prior to the announcement and the PIC is now breathing on MTN’s neck. There are uncomfortable holes all over the place!
Everything happening around MTN spells crisis and should be dealt with as such. The mobile operator should admit its mistake and reassure the Nigerian government, its investors, customers and regulators that it has every intention to clean up its ways and stop conducting itself as if it were above the law.
And since it is clear that someone at the top has been aware of the looming fines and past transgressions, it’s time for heads to roll.