MTN Nigeria Fined $5bn for Not Blocking SIMs

Nigeria’s comms regulator, the Nigerian Communications Commission (NCC), has imposed a massive NGN1.04 trillion (USD5.2 billion) fine on MTN Nigeria for failing to disconnect unregistered SIMs. Unless MTN successfully negotiate a reduction, the penalty will be worth roughly the same as the Nigerian opco’s earnings for the next three years.

Since the fine was announced, the share price of South African parent MTN Group has fallen by 20 percent. To put that drop into perspective, the impact on MTN’s valuation is greater than the entire market capitalization of Telkom, a rival African comms group. MTN Nigeria represents about one third of total sales for MTN Group.

According to Techcentral, the Johannesburg Stock Exchange has also questioned why MTN Group was slow to disclose the fine.

Since 2012, the NCC has required Nigerian telcos to disconnect SIMs where the identity of the owner is unknown. The stated purpose of this rule is to assist the work of Nigerian security agencies. MTN Nigeria recently missed a deadline for disconnecting 5.1mn unregistered subscribers. The fine was calculated by imposing a pre-determined penalty of NGN200k (USD1,005) for each of those SIMs. This penalty has been enshrined in Nigeria’s SIM Card Registration Code since 2010. However, the total value of the MTN Nigeria fine is unprecedented.

Whilst MTN Nigeria knew in advance about the scale of possible penalties, they may not have believed such a large fine would be levied in real life. A typical customer is clearly not worth USD1k. The disproportionate scale of the fine has been highlighted by many, including Stuart Lowman, a business reporter for South African website Biznews.com:

The fee is also totally unreasonable and if it did stick, I can’t see how MTN can remain in business. The average revenue per user is around $5 in Nigeria…

Some have speculated that the Nigerian authorities are tempted to use massive fines as a way to close the gap on a budgetary crisis. Government revenues have been badly affected by the slump in global oil prices. If the fine was collected in full, it would cover almost a quarter of the Nigerian government’s annual budget.

There are also suspicions that MTN receives unfavorable treatment because of a rivalry between Nigeria and South Africa as two major economic powers on the African continent. The Guardian quotes the following from Martyn Davies of market consultants Deloitte-Frontier Advisory:

The perception of South African companies in Nigeria is not good, despite the good practices of many South African companies. The general state of relations is not positive, and this certainly can’t be helping things.

James Faircliff, a South African hedge fund manager, argued that fines like these prove that certain kinds of big business are treated badly by governments in developing countries. Biznews quoted Faircliff as saying:

Events like this, even if the final outcome is a lesser fine, still highlight the unmanageable risk of doing business in highly regulated industries in emerging markets.

We feel that uncomfortable relations with the Nigerian regulator could pose added risk to the pending license renewals in that country. Telcos and resources companies can often get a raw deal.

The MTN Nigeria license is due for renewal in 2016. If the fine is not reduced to a more sensible level, MTN Group may prefer to exit from Nigeria, even though it represents a relatively large share of their international business.

My prediction is that the Nigerian regulator is waving an axe over this South African goose, in the hope of frightening it into laying some golden eggs. They will not swing the axe, because chopping off the goose’s head would be bad business for everyone, including the Nigerian government.

However poor the risk management in MTN Group – and the potential risk was plainly stated in advance – the Nigerian regulator is behaving foolishly. Even if MTN Nigeria renews their license, every foreign investor has just been warned about the risks they take when putting money into Nigeria. They will respond by investing less, and demanding higher returns. The NCC would have been better advised to manage the potential shock to investors by pressuring MTN with an incremental approach, perhaps by breaking up deadlines for SIM disconnection so lesser fines were levied each time they failed to disconnect several smaller groups of SIMs.

Whoever is responsible for communication between NCC and MTN Nigeria, it is obvious that MTN Nigeria did not understand that such a large fine was a serious possibility. Risk management is about good communication between people as well as understanding data. NCC failed to signal how they might punish MTN, or MTN failed to interpret those signals correctly. It does neither of them any good to destroy billions of dollars of shareholder value, especially over something as trivial and easy as disconnecting SIMs.

The leadership in both organizations should consider sacking their underlings, if they were responsible for mishandling the relationship between telco and regulator. And even if one organization feels all the fault lies with the other, they must still seek to improve the way they communicate, to avoid this kind of unnecessary crisis ever happening again.

Eric Priezkalns
Eric Priezkalns

Eric is a recognized expert on communications risk and assurance. He was Director of Risk Management for Qatar Telecom and has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and others.

 

Eric was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He was a founding member of Qatar’s National Committee for Internet Safety and the first leader of the TM Forum’s Enterprise Risk Management team. Eric currently sits on the committee of the Risk & Assurance Group, and is an editorial advisor to Black Swan. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.

 

Commsrisk is edited by Eric. Look here for more about Eric’s history as editor.

  • Yagazie

    Generally a well written article, though I respectfully do not agree with your conclusion that the NCC had failed to signal to MTN as to how they might be punnished or that the failure by MTN to disconnect unregistered SIMs is a trivial matter.
    Nigeria is currently going through serious security challenges- Boko Haram insurgency, kidnappings and other such crimes. Unfortunately MTN has a history of flouting NCC regulations and despite being fined- merely viewed such fines as a ‘slap on the wrist’ or factored same as ‘part of the cost of doing business’ in Nigeria. MTN also has a history of regulatory infractions in some other countries such as Iran and Zambia where it has operations.
    The reason for the hefty fine (which as you have correctly stated in your artiicle was in line with the pre-determined and guidelines- known to all the telecoms operators) imposed on MTN was simply because MTN had consistently undermined the efforts of the Nigerian Govt to tackle security challenges and the war on terror and allied crimes, as it had persistenlty refused to deactivate unregistered mobile phones lnes from its network.
    The three other mobile phone operators in Nigeria namely Bharti-Airtel, Globalcom and Eitisalat had complied with the directive to block unregistered SIMS on their networks. It is instructive that it was only MTN which refused to do so.
    Nigeria is open to foreign investment. However foreign investors should respect our country’s laws and proviced they do so then they won’t have any problems. Finally, MTN could not have behaved in such a cavaier manner in South Africa or the United States or Europe. Why then does it expect to do so in Nigeria?

    • Hi Yagazie, and thanks for your thoughtful comment. I’d like to clarify that I do not know if the failure in communication between MTN and NCC should be blamed on one, the other, or both.

      However, I would say that no regulator should be happy to find themselves in a situation where they impose a fine that could cause so much damage to a business. MTN Nigeria employs people, invests in infrastructure, and provides services – regulators don’t want to put those things at risk.

      Though analogies to warfare are used too much in business, a good analogy applies here. If we were the leaders of two nations, perhaps one of us might feel justified to go to war with the other. However, it would always be better if we could avoid war. If some changes in the way we communicate could help to avoid war, then we should enthusiastically pursue those changes. As Winston Churhill once said: “jaw jaw is better than war war.” The same might be said about this situation. It doesn’t help Nigeria to see 20% wiped off MTN’s share price. Clearly MTN doesn’t want that either. So could this situation have been handled with more talk, before taking the action that resulted in this outcome?

      I think there is one obvious technique that could have avoided this massive fine, as I pointed out in my article. Clearly it matters greatly to the Nigerian government to have these SIMs disconnected. We can tell that from the size of the penalty in the law. However, progress in implementing this law was slow. Such slow progress can also send a confusing message. Perhaps the government feels the telcos were to blame for the slow progress, and maybe they are correct. However, penalties should be ramped up progressively, to make the government’s frustration clear, and encourage the required change of behavior. Governments shouldn’t leap from zero penalty to a death penalty. Though the law was explicit in stating the fine per each SIM not disconnected, nothing prevents the use of common sense when signaling and applying practical deadlines. Instead of issuing a fine for over 5 million SIMs that had not been disconnected, it could have been even more effective to set a tighter deadline for the first 100,000 SIMs, then impose a fine if that deadline was missed, then a slightly later deadline for the next 100,000 SIMs, and so on. This would have avoided a massive shock to the business and its investors, but the company would have got the same message, and would have responded in the way the government wanted.

      To use another analogy: we in telecoms care deeply about bill shock, especially when people use data services whilst roaming overseas. The customer signs a contract, they use a service, and they get a correct bill. But the bill can be huge, and that upsets people. So instead of doing that, we have learned the importance of warning people, before they rack up a huge bill. If telcos can improve by learning to treat customers that way, what prevents regulators from showing the same respect to telcos?

      • Yagazie

        Hello Eric, you are welcome.
        Let me start by saying that I agree with your position that no regulator should be happy to find themselves in a siutation hwere they impose a fine that could cause so much damage to a business and put at risk the investment that MTN has made in infrastructure, services and employment. To put it another way, ‘one should not throw out the baby with the bath water’.
        That said, however, I do not agree with your position that the progress in implementing this law was slow or that the use of incremental penalties for each breach would have been a preferred option.
        Regarding the implementation of the law (or rather the directive), please permit me to lay out in some detail the relevant time-line and narrative leading to the impostion of this fine:
        1. On July 8 2015, – the NCC directs operators to deactivate all pre-registered SIM cards (i.e. SIMs registered but without a record of activitiy) within a period of 21 days – from July 8 to July 29.
        2. On August 4 2015,- Operators, representives of the Office of the National Security Adviser (Onsa), the department of state services (DSS) and the NCC hold a meeting to discuss issues concerning SIM registration in Nigeria. The issue of invalid registrations is highlighted as a major threat to national security and a directive is issued to all telecoms operators to deactivate all SIM cards with improper/invalid registarion details by 11 August 2015.
        3. On 17 August 2015 – The NCC and security agencies conduct a compliance audit on all operators between 17 August and 19 August following the expiry of the 11 August deadline for the deactivation of improperly registered SIM cards. The NCC disclosed that desptie sharing a list of invalid registration details with operators, MTN makes little or no effort towards compliance with the deactivation diirective, whereas ohter operators have largely complied.
        4. On 4 September 2015 – A high level unprecedented meeing chaired by the Chief of Staff to President Buhari is calledat the presidential villa, Aso Rock in Abuja. Telecoms CEOs are brought to meet teh heads of the main security agencies- Onsa, the DSS, DMI (Directorate of millitary intelligence) and the NCC to have the compliance with the deactivation directive emphasised. Operators are advised that the continued non-compliance might lead to the impoostion of drastic penalties.
        5. – Now following this last meetng, the other 3 telecoms operators (Airtel, Globalcom and Eitisalat) complied fully with the directive. MTN did not make any effort to even substantially comply with the directive.
        6. – Shortly thereafter a former Finance Minister and Secretary to the Nigerian Govt (Chief Olu Falae – a 77 year old man) was kidnapped from his farm and was mercifully released unharmed a couple of days later after a ransome had been paid.
        7. – The kidnap caused huge tensions in the country as the former minister was christian from the south-west and his kidnappers were fulani muslims from the north. As you may be aware, religion is a powder keg in Nigeria. One shudders to think of the blood-letting that would have been unleashed in the country if this revered elder statesman had been harmed or worse still killed by his abductors.
        8. The kidnappers were eventually apprehended and unsurprisingly It turned out that the kidnappers had used an improperly registerd SIM card on the MTN network to commit this crime.
        9. – At this point it was now clear to the Nigerian authorities that MTN had no intention of complying with the directive despite having been made aware of the underlying security reasons behind same.
        10. – Thus since MTN had shown itself to be an irresponsible corporate citizen, a very harsh lesson (within the ambit of the law) had to be given to serve as a deterrent to others who might be tempted to follow MTNs behaviour – hence the hefty fine.
        Thus from the above narrative, it is clear that there was no delay on the part of the NCC in implementing the directive nor would an incremental penalty have sufficed. This was a matter of National Security which trumps every other consideration. MTN had ample opporutuntiy to cmply with the directive but chose not to do so.
        For the record, please note that MTN’s row with regulators in Nigeria has nothing to do with geopolitics or revenue drives as is being insinuated in some quarters. These insinuations are patently untrue and while it is tempting to position MTN’s woes squarely within the complicated love-hate relationship that is believed to exist between Nigeria and South Africa, anyone with a rudimentary knowledge of Nigeria’s telecoms history would know better.
        Finally for the record, impostion of fines by the NCC for breaches of its regulations is not perculiar to MTN alone. For example in March 2014, three of Nigeria’s biggest mobile phone providers- MTN, Globalcom and Airtel, were fined a total of $4million for poor network services. Please note that Globalcom is owned by a Nigerian billionaire. The big difference this time around for MTN was the size of what is an otherwise legitimate fine.
        Hopefully MTN and other foreign businesses in Nigeria would have learnt a salutory lesson from this saga, namely that – (i) Nigeria is open for business.(iii) You are all welcome to come do business and make money- (iii) but please, please respect and operate within the confines of our laws- or serious sanctions will follow- period!

        • Thanks Yagazie, I appreciate you sharing your knowledge of the circumstances that led up to the fine.

          To be honest, I don’t understand why MTN would fail to disconnect the SIMs. The law stated that the punishment would be much greater than the value of a typical customer, so it would be insane to ignore the law in order to temporarily increase revenues. I also find it hard to believe that MTN’s systems or processes are so poor that disconnecting the SIMs – even a large number of SIMs like this – would be difficult for them.

          I can only assume that MTN didn’t believe they would be fined. The mystery is why they thought like this.

          • Yagazie

            Eric – you’re welcome. I just felt it was important to put the record straight.
            As to why MTN behaved in such a manner- only they know. However if I were to hazard a guess, It could be that it was a business decision taken in the belief that any fine imposed by the NCC for the breach of the directive would be less than the amount of revenue that would be lost by de-activating the 5.1 million subcribers with improperly regstered SIMs. But for the current security implications in having such SiMs active, they might have gotten away wtih it.
            Unfortunately MTN has a history of breaching NCC guidelines/regulations and a few recent examples will suffice:-
            In 2012 – MTN was non-compliant with the restrictions on promotions imposed on mobile operatiors on 8 November 2012 in an effoert to address persistent quality -of-service issues in the industy.
            In 2013 – MTN failed to comply with the NCC’s determnation of dominance n 2013 and violated pricing obligations under the 2013 dominance determination for MTn Virtual Top-Up Plus.
            In May 2014- NCC issued a final warning to MTN to comply with its pricing obligations under the 2013 dominance determination or face penalties.
            In October 2014 NCC imposed sanctions on MTN for continaully violating its prcing obligations (despite the final warning issued in May 2014) under teh 2013 dominance determination through its iPulse offer.
            On 8 August 2015 MTN failed to comply with an NCC directive to all operators to stop the automatic migration of date bundles subscrbers to ‘pay- as -you -go’ browsing upon depletion of their data bundles. Other operators complied with this directive..
            Thus going by previous form- it could be that MTN thought that in respect of the August directive to de-activate improperly registered SIMs, it would be ‘business as usual’- a dangerous assumption to make in light of the current security climate in Nigeria and with a new govt led by a President with a well known attitude of ‘zero tolerance’ towards corruption and indiscipline. In my view MTN Nigerias top management should be changed for incompetence.
            The Nigerian Govt has no ‘animus’ against MTN. Nigeria is open to foreign direct investment and In fact has recently (despite the $5.2billion fine), renewed MTN’s operating spectrums and extended its operating licence (which was due to expire in February 2016) up to 2021. MTN’s current licence was not revoked nor was a renewal refused.
            All that we expect is that foriegn entities doing business in Nigeria comply with our rules and regulations- which surely is not too much to ask?