Kampala, Uganda | THE INDEPENDENT | The opening of the sale of shares of MTN Uganda to the public has caused a stir among Ugandans, especially on the possible risks and what some have assumed as the exclusion of the mobile money business from the deal.
As a requirement by the market regulator and as a global standard practice, any company that intends to go public has to tell the public where its strengths are and what it thinks may be its weaknesses or risks to its businesses.
This is based on the fact that the global practices and national rules and regulations require the company to give as much information as possible to the public, so that whoever is deciding to invest makes an informed decision.
Ugandans appear to be more concerned about the mobile money aspect of the business for two main reasons; handling trillions of shillings in cash and therefore seemingly a profitable venture, as well as the recent creation of a separate entity for the business.
The National Payments Systems Act, 2020, that took effect this financial year, compels telecom companies that offer money transfer businesses to separate the form from the rest of the businesses by creating a separate entity.
This is aimed at streamlining regulation by putting the financial services section under the Bank of Uganda’s regulation, so that the Uganda Communications Commission regulates call, data and digital services.
Consequently, MTN Uganda created MTN Mobile Money Uganda Limited, that runs its mobile money or electronic financial services, while Airtel formed Airtel Mobile Commerce Uganda Limited.
So, is mobile money part of the share sale deal? MTN Uganda Chief Executive Officer Wim Vanhelleputte says yes, it is.
“You are buying shares into MTN Uganda Ltd, which includes 100% of the MTN Mobile money company. The MTN mobile money company is 100% included in the listed company! As a shareholder of MTN, you will get the full economic benefit of the MTN mobile money business,” he says.
Vanhelleputte says while this was a result of the new guidelines and the NPS Act, it is helping them ease management of the various business segments of MTN.
According to the MTN prospectus which will guide the share sale process, mobile money is the second most important source of revenues for the company, accounting for a quarter of total earnings, after voice which brings in half of the company’s revenues.
Data accounts with 20% while 5% is from other digital services, wholesale and device sales.
While the mobile financial services sector is growing, the prospectus lists what the company thinks might be risks from the otherwise good regulations.
“Thus, the law is new and evolving and as they develop, regulations could potentially become more onerous either by imposing additional licensing, reporting, pricing or control requirements or by limiting the company’s flexibility to design or implement new products,” it says in part, adding that this may limit the company’s ability to provide mobile financial services efficiently or at all.
Mobile money services also involve handling of public cash in huge amounts, which is also a risky venture to the company.
In the past, incidents of mobile money fraud have been reported involving billions of shillings, which involve circumventing the company’s controls by employees and agents and resulted in financial losses.
“This exposes the company to the risk of fraud and money-laundering and imposition of fines or penalties and potential reputational damage, including as a result of misconduct or collusion by the company’s mobile money partners or agents,” says the prospectus.
MTN also says other segments are not exempt from risks. For example, demand for traditional paid voice services is in decline across the telecommunications industry globally, and this could happen to Uganda, though in the long-term.
“In MTN’s case, annual growth in voice services revenue of 0.77% – 2.5% is expected in the medium-term. Revenue from fixed-line and mobile telephony voice services is declining across the industry globally, but there is a parallel upward trend in data and digital services revenue.”
The company expects that the demand for data services will continue to be driven by rising smartphone and tablet penetration and usage, usage of video and other multimedia services, as well as improvements in mobile network capability.
However, there is also no guarantee that data will also continue to grow as it is currently.
“There can be no assurance that demand for data will continue to grow at its current pace or at all, for different reasons,” the company says. “These include among other factors, weakening sales of smartphones, delayed 3G and 4G coverage expansion and broader macroeconomic limitations which affect individual incomes and affect consumer affordability.”
The company says that while they are sure of the long-term profitability, there can never be a guarantee that it will always make profits, with the company citing illegal competition.
“The biggest risk to the future growth of the company is unregulated competition from outside Uganda in the fintech industry,” the CEO says.
Vanhelleputte says there are no plans to sell more shares beyond the 20 percent offered and assures that all Ugandan retail applicants will get shares.
“In case of oversubscription, we will apply the Uganda first allotment policy as described in the prospectus. All Ugandan retail investors are guaranteed their shares,” he says.
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