Higher costs related to financing leases of cellular towers and a depreciation of the Rwandan franc against the United States dollar weighed heavily on MTN Rwandacell Plc’s financial performance in 2023.

The company registered a decline in profitability. Net earnings dropped by 28.9 per cent to Rwf11.4 billion in 2023, despite an increase in service revenue by 11 per cent to Rwf246.5 billion and a 6.5 per cent year-on-year growth in subscriber base.

MTN Rwanda, which rents cellular towers from IHS Holding, saw a 15.8 per cent increase in net finance costs to Rwf36.5 billion in 2023.

On an investor call on Monday, March 18, 2023, company executives attributed the headwinds to Rwanda’s macroeconomic environment which saw inflation rise to historic highs in 2023, and dampened the Rwandan franc.

"We have had forex losses because of the nature of our business. We do deal a lot with [foreign] vendors who bill us in US dollars. Depreciation of the franc has worsened and this has had an impact on finance surcharges,” Mark Nkurunziza, MTN Rwanda’s chief financial officer told The New Times.

The US dollar appreciated by 18.05 per cent against the Rwandan franc in 2023 driven by global strengthening of the US dollar in response to the Federal Reserve’s monetary policy stance.

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MTN currently operates more than 1,200 cellular sites across the country.

"We carry a huge network, more than 1,200 sites across the country. Where we use vendors such as Huawei and Ericsson, maintenance costs are high and transmission costs are quite high,” Nkurunziza said.

The chief financial officer highlighted that optimization of efficiency – which could mean anything that would bring down costs or streamline operations – is the company’s top priority in 2024.

"We are looking to onboard those foreign vendors to come and operate locally in Rwanda. Once they operate in Rwanda, we transact with them in local currency, that should be an incentive for us,” he said.

Cutting down on energy costs, getting more solar to power data centres, and adopting more electric vehicles is another priority the company hopes could drive down finance costs in the future.

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Interconnection rules erode margins

Earnings before interest, taxes, depreciation, and amortization (EBITDA), another key metric for core operations, did not improve as expected. EBITDA margin was 46.4 per cent in 2023, 1.9 percentage points lower compared to the previous period.

The company attributed the negative growth in EBITDA margin to the new mobile interconnection rules introduced by the Rwanda Utility and Regulatory Authority (RURA).

The interconnection rules were introduced last year and dictated that telecom companies would not get paid for calls received on their network from other networks in Rwanda for a period of one year.

The telecom regulator directed companies to cut interconnection rates to zero.

"This negatively impacted our financial performance and spurred increased pricing aggression and value destruction in the market,” Mapula Bodibe, MTN Rwanda CEO noted.

Had RURA not introduced such rules, MTN’s profit margins or EBITDA would have risen by 11.4 per cent, the company said.

RURA introduced new interconnection rules in August last year as a step in the right direction to end the long-standing high charges among telecom operators.

This is not the first-time interconnection rates were revised. Previously RURA revised down interconnection rates to level the playing field for the telecommunication market.

Operators with fewer subscribers in the past showed concerns about the previously higher interconnection rates made on rival’s network, saying the dominant player was using this rate as an unfair competition tool in the telecom market.

ALSO READ: RURA to review interconnection fees

Steady topline

Despite a drop in profit after tax, the firm’s topline performance was solid with service revenue growing by double-digit at 11.2 per cent to Rwf246.5 billion. This is consistent with growth registered in data, financial technology, and MTN’s enterprise business segments.

MTN grew its active data customer base by 14.3 per cent to 2.6 million. This translated into data revenue growth of 11.2 per cent to Rwf45 billion year-on-year.

Total subscribers increased by 6.5 per cent year-on-year to 7.3 million. This increase did not, however, translate into increased voice revenue. MTN Rwanda’s voice revenue declined by 21.3 per cent to Rwf84 billion in 2023.

The company’s financial technology business grew 30.2 per cent to Rwf97 billion driven mainly by revenue growth in mobile money and a surge in active mobile money subscribers.

The volume and value of mobile money transactions grew by 32 per cent to Rwf1.9 billion and 45.4 per cent to Rwf21 trillion, respectively.

Active Mobile Money subscribers increased by 13.9 per cent year-on-year to 4.9 million.

Growth in MTN’s data and service revenues is somewhat consistent with broad growth seen in information and communication services in Rwanda. Information and communication sector grew 35 per cent in 2023, according to the recent data from the National Institute of Statistics of Rwanda (NISR).

"We are seeing increasing usage of telecom services,” NISR Director General told The New Times recently, saying the increase mainly comes from calling, messaging, and data services.

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The firm is confident that with the macroeconomic environment improving, inflation getting back to normal, and the economy more broadly steadily growing, there are avenues for more growth.

MTN projects to grow its profit by 18 per cent in 2024.

"We are looking at overall growth of 18% and obviously there is a lot of room for growth in mobile money. There are some services that are still in the pipeline that will come through,” Nkurunziza said.

During the investor call, executives hinted on a plan to introduce new revenue streams, including the launch of two new products – InsurTech and streamline BankTech.

Insurance technology and banking technology are increasingly new products that financial institutions are partnering with financial technology companies to introduce to markets. Telcos, too, are entering this space.

MTN also sees data revenue growing in the near future given the low levels of smartphone penetration, which they see as an opportunity for growth.

Whether these ambitions and plans will enable the company to achieve the 18% growth rate remains to be seen. Analysts, however, agree that the company can realise these growth prospects.

Kevin Karobia, Senior Investment Analyst at BK Capital particularly points to the heavy capital expenditure – which grew 20.8 per cent to Rwf83.2 billion – that MTN has made as key to driving growth.

"There was heavy capex expenditure in items like 4G rollout, which is expected to generate strong data revenue growth. The mobile money and fintech revenue growth will also continue aggressively as with other regional telcos, boosted by the improved mobile phone penetration,” he weighed in.