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WHAT IT MEANS: Digital services could deepen telecom profits. Cross-selling of services has been intensified.

MTN may establish a separate holding company to house its new businesses, which it says will make a significant contribution to its revenues over the next two years.

The new entities include digital service businesses such as those involving job sites, classifieds for car sales, restaurant food delivery, online hotel and flight booking services under the Africa Internet Holdings and Middle East Internet Holdings brands, music and video streaming, mobile money and tower companies.

These businesses make MTN something of a pioneer, and are expected to put it well ahead of its rivals.

Mobile operators — who are themselves disrupters — haven’t quite prepared themselves for the onslaught that over-the-top (OTT) operators like WhatsApp and WeChat pose to their business models. They have been slow to transform into digital operators, and this failure has allowed OTT players to quietly steal their market.

But telecommunications companies can no longer ignore the impact of digital services on their businesses. Access to high-speed Internet — helped by greater infrastructure investment — and the increased number of smart devices have driven fast adoption of digital services.

In its half-year financial results released earlier this month, MTN says it is undertaking a "deep and fundamental strategic review of its operations and processes" to ensure that it operates more optimally.

It will embark on a process of "housing new revenue streams, particularly digital services, outside the core business, [enabling] more agility and greater flexibility to accelerate growth".

Pressed for an explanation, the company would not elaborate, except to say that it was "evaluating options".

MTN expects new revenue streams from its digital businesses to increase in the next 12-18 months. Investing in these businesses is part of its strategy to offset the stagnant growth in its traditional business, voice. It is also spending billions of rand on its network across the 22 countries in which it operates to enable better digital services.

Digital services now contribute 26% of the total half-year data revenues, which grew 32% to R19.8bn. The contribution of mobile financial services to total data revenue has been 6%.

A report by global research firm Ovum, released in April, confirms the trend that telecom operators will ramp up digital services to include industry-focused services such as the Internet of things and machine-to-machine communications — mobile-based services.

"The current focus on [Internet Protocol] voice and messaging services will ease off; however, cloud-based services and digital content-based services will remain on telecoms companies’ radar for the next five years," the report says.

Africa Analysis MD Dobek Pater advises cross-selling of new products by telecom companies such as MTN through leveraging off their extensive customer base. Other options include the bundling of products from different services. FNB’s bundling of financial and telecom products is a good example of this.

MTN has intensified cross-selling. In June it ran a voucher deal campaign for its employees and customers that made them eligible for discounts of R250 and R750 on domestic and international flights respectively.

"In other markets, such as Nigeria, we also have offers via Africa Internet Group that leverage our mobile money service," says Herman Singh, MTN group chief digital officer.

To strengthen these offers, Pater says, mobile network operators entering the digital services market could establish strategic partnerships with suppliers such as companies that provide video content.

The Ovum report says that drawing in expertise from third-party organisations such as tech start-ups is essential, given that telecom operators do not always have the required skills to support these services. It also enables telecom operators to cut down on capital and operational expenditure.

"Third-party companies come with skills and expertise, while telecom operators bring the benefit of their strong customer relationships to extend the scale and popularity of the third party’s service in the customer base," it says.

Many of MTN’s markets have experienced strong growth in digital services, and the demand for data is still soaring. For example, CEO Phuthuma Nhleko expects Iran to become a data operation in future years. MTN’s Iran business grew data revenue by 65% over the six months to June, while the number of smartphone handsets increased by 25.8% to 25.8m. Nhleko says there are plenty of e-commerce opportunities in Iran.

Similarly, there are other opportunities for MTN to grow digital services across its 22 markets, where it has 232.6m subscribers. Data penetration in many countries is still low.

The company has strengthened its management by recruiting bankers, an indication that it may ramp up its financial services offerings. Its mobile money services are also gaining traction in many markets.

Other new revenue streams include leasing cellphone towers to rivals. MTN has sold its towers in more than five countries on the continent to tower management companies American Tower Company and IHS Holdings. In markets such as Ghana, Uganda, and Nigeria the towers are housed in a joint venture between MTN and those tower management companies.

The towers are leased to MTN and its rivals.

IHS is the largest independent tower operator in Europe, Middle East and Africa.

The tower business is "extremely well positioned for future growth" says Nhleko. With 3G upgrades and the move to 4G across MTN’s markets, it should experience even greater growth.