MTN announced that the Nigerian regulators have agreed to reduce the US$5.2 billion fine against it to US$3.4 billion.
The fine against South African company MTN (which is the largest mobile operator in Nigeria), for failing to disconnect unregistered SIM cards was announced in October and equates to over 20 per cent of MTN’s market value. Since the announcement, MTN’s share price has plummeted and its chief executive has resigned.
However, despite the reduction, MTN has indicated that it is still unhappy with the outcome, with executive chairman Phuthuma Nhleko stating that MTN would “immediately and urgently re-engage with the Nigerian authorities before responding formally”. The Presidents of Nigeria and South Africa are both set to attend the Forum of China-Africa Co-operation in Johannesburg this week and this may offer an opportunity to discuss the fine further.
Time will tell what the wider implications of the fine will be on the market (particularly as the amount of the fine is still under discussion), but we highlight some of the potential consequences below:
The fine may signify an increased attempt by the Nigerian government to enforce regulations which have been largely ignored by previous governments. Such increased enforcement may help to create a clearer, fairer and more transparent market. However, it also amplifies the burden placed on companies looking to operate in the country and may increase the cost of doing business.
Reduction of foreign investment
There have been suggestions that such a large fine might deter foreign businesses from investing in Nigeria for fear that they could face similar large regulatory penalties from inconsistent enforcement of legislation. Against the backdrop of low oil prices and currency restrictions, this risks adding to Nigeria’s economic and political woes.
The severity of the implications will depend on the perception in the market of the Nigerian Government’s motivations for awarding the fine. Given its size and as MTN’s licence is up for renewal next year, there have been suggestions that the fine is an attempt by the Nigerian Government to generate income following the difficulties since the fall in the oil price. Indeed, the fine would represent approximately 15 per cent of the Government’s US$22.6 billion annual budget for 2015. This could certainly raise red flags for foreign operators and investors looking to invest in Nigeria.
However, it is worth noting other potential motivations behind the size of the fine, such as the reported concerns over the threat of terrorists using MTN’s unregistered SIM cards as a way of evading police surveillance. As such the fine may be part of the Nigerian Government’s aim to improve security in the country.
Operators streamlining their businesses
In the longer term, operators will be concerned that the sheer scale of the fine will set a trend across the region. MTN would need to pay the fine off for many years to come, even at the reduced rates. This could force companies to consider streamlining their business to reduce costs. When considered in conjunction with operators’ existing desire to reduce their capital expenditure and operational expenditure to allow continued investment in new technology and development of their networks, operators who have previously been reluctant to divest themselves of their telecoms towers may be forced to do so.