MTN Rwanda has approached local commercial banks about a loan of RWF 50 billion (US $56.1 million) for financing operations and network expansion, according to a report. The operator is already in talks with a consortium of eight local lenders over the possibility of securing investment capital to upgrade its infrastructure. MTN Rwanda CEO Bart Hofker confirmed the operator’s “intention” to raise money from local lenders but did not specify the amount.
Hofker said the company is on a growth trajectory and has embarked on an extensive capital expenditure program for the coming years. He added this investment will transform the operator’s network and related infrastructure.
In 2017, MTN recorded a loss of RWF 985.2 million (US $1.1 million) as a result of the RWF 7 billion (US $7.8 million) fine by the national regulator for non-compliance.
It is of course always a good idea for a mobile operator to invest in its network infrastructure. The network is the life blood of the operator, because it is essential to the functioning of both traditional and innovative services. However, in a climate of increased competition, upgrading the network becomes even more important—even as it becomes more difficult to achieve in the face of financial challenges.
This is the position that MTN Rwanda now finds itself in. It slipped from its position as Rwanda’s leading telecom operator by market share, due to the merger of rivals Bharti Airtel and Tigo Rwanda earlier this year. The latest statistics from the regulator show that MTN’s market is at 45 percent, while Airtel now has 54 percent including Tigo’s assets. The contraction of the market from three operators to two has made competition harder for the now-second-place MTN. As such, boosting its network would be an effective way to gain back lost ground. If MTN can offer better signal quality and coverage, that would give it a meaningful advantage over its new rival in terms of customer acquisition and retention.
It will, however, be costly—thus the effort to obtain a large loan—and the costs are bound to be harder for the operator to bear in light of the hefty fine it just had to pay. The associated costs will be worth it, we believe, in the current market climate. Not only will MTN have the potential to lure customers away from Airtel due to better (and possibly cheaper) traditional services, but it will also be able to develop more new value-added offerings to further strengthen its position and be more relevant in the near future.
From a lender’s point of view, in the investment in MTN’s network is a good bet, because more vigorous and widely available mobile services in the country as a whole will help the overall economy develop, which will benefit financial institutions and other businesses as well as operators.