Africa’s MTN reinvents itself via music

Tiwa Savage is among Nigeria's musicians to sign up to MTN's Music +, a streaming service for local music

Tiwa Savage is among Nigeria’s musicians to sign up to MTN’s Music +, a streaming service for local music

Tiwa Savage, a star of the UK’s X-factor television show; Praiz, an up-and-coming soul musician; and Davido, a popular Afropop artist, are among the most popular performers in Nigeria.

But aside from their shared talents, they have something else in common: the trio are key weapons in the arsenal of MTN, Africa’s largest mobile phone operator, as it battles to ensure its growth.

Founded 20 years ago, MTN is reaching the limits of traditional growth – customers using their phones more. As a result, the company is attempting an ambitious transformation that is seeing it move ever closer to the entertainment business; providing access to music, and in the future, movies.

“You have to find growth in actually selling services or participating in services revenues,” says Sifiso Dabengwa, the group’s chief executive. “It’s going into the services, whether it’s ecommerce or it’s distributing music, or let’s say, entertainment.”

Mr Dabengwa says MTN, which has 215m subscribers, has no alternative but to evolve, targeting non-voice revenues of 50 per cent of the group’s total in five to 10 years, up from 25 per cent at present.

In July, MTN Nigeria launched “Music +”, a streaming service for local music, where it uses partnerships with Savage, Praiz, Davido and other Nigerian artists to enable subscribers to stream their songs from 120 Naira ($0.73).

In the first month of its launch, Music+ attracted 350,000 customers, offering a service similar in concept to Apple’s iTunes, but with a local focus. MTN is looking to roll out similar services in other African markets. The company this year acquired, for an undisclosed amount, a 36 per cent stake in Content Connect Africa, a small South African aggregator music company.

It is a far cry from its roots and illustrates how technology developments are transforming mobile telephony in Africa. When MTN started in South Africa in 1994, its growth model was built on expanding into virgin frontier markets with little competition and huge appetite for its services – fixed-line infrastructure was often non-existent.

It was a high-risk model as the group ventured where others feared to tread. But it was a highly profitable strategy and one that drove rapid growth, with MTN’s reach now stretching across 22 countries and valuing it at $42bn.

However, the rapid take-up of mobile phones in developing nations, combined with increasing competition, threatens to stymie its growth potential.

Penetration rates in most of MTN’s markets have reached about 50 per cent, which, in frontier markets, can equate to most of the population who can afford a mobile device. At the same time, Mr Dabengwa says the average price per minute has dropped to 3-5 US cents from about 15 cents five to seven years ago.

The combination of high mobile phone penetration in Africa, stronger competition and rapidly falling prices is forcing MTN to adapt – and quickly.

The telecoms group is also talking to a “number of different players” to partner in its plans to roll out a service that will enable customers to stream movies.

MTN is also interested in expanding in ecommerce. Last December, it reached a deal with Millicom and Rocket Internet that gave the telecoms group a 33 per cent share in African Internet Holding, which it hopes will help it develop ecommerce services across Africa.

For its Middle East markets, it entered into a joint venture that gives it a 50 per cent stake in Middle East Internet Holding. When both deals were sealed, MTN said it expected to spend €300m on them over the next two to five years.

Mr Dabengwa also says that MTN would consider snapping up a bank to help it develop its mobile banking services, something its rival, Zimbabwe’s Econet Wireless, did last year.

“It’s almost limitless what can be done [via a handset],” Mr Dabengwa says. “Think of any service, if it can be consumed on the internet, either ourselves or somebody else is going to be doing it.”

Among MTN’s more popular digital offerings are religious scripts, both Christian and Muslim, with more than 39m subscribers to the service across 10 countries. They have been particularly successful in Nigeria, Africa’s largest economy and home to a quarter of the company’s subscribers, which is a testing ground for a number of MTN’s plans.

The rapid transformation that Mr Dabengwa is encouraging has its sceptics, however.

Rob Forsyth, an analyst at Investec, says the challenges facing MTN are part of an industry-wide trend as prices are forced lower. In constant currency revenue terms, MTN’s growth has decelerated from 28 per cent about six years ago to 3 per cent, he says.

“The global precedent of telcos being anything more than ‘dumb-pipes’, as they like to call it, is not particularly compelling,” he says. “Would MTN have a better chance than most? Yes, because they are already starting from a strong position, but it’s a long shot.”

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