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.