World’s largest $5.2bn fine against MTN Nigeria-Investors Beware

World's largest $5.2bn fine against MTN Nigeria-Investors Beware

MTN was fined for
having 5.2 million active but unregistered SIM cards. ever since the fine was
announced, the South African-based MTN Group has lost more than 10% of its
value. The group CEO resigned last week.

MTN is the major and
biggest player in Nigeria, where it had about 62 million subscribers before the
deactivations and, according to Strand Consult, total revenue of about $10bn in
2014. MTN said it made $2.6bn in profits in Nigeria last year, making the fine
equivalent to two years’ profits and three times the $1.8bn the company says it
has invested here.
Entner said the fine will
hurt MTN’s service to Nigerians. “I think the company can survive it (but)
it will probably have to really cut down on expanding, improving the network
and make a whole bunch of other cuts.”
“It is totally out of proportion,” said industry
expert John Strand of Denmark-based Strand Consult. “I have never seen any
operator receiving a fine of more $100m and I’ve been in this business for 20
Until now, the United States tended to levy the highest fines.
AT&T is suing the Federal Communications Commission over a $100m fine — the
largest ever imposed by that body.
“There is no comparable fine, anywhere in the world,”
Roger Entner, of Recon Analytics based in Dedham, Massachusetts, said of the
Nigerian sanction. “This is far beyond anything that anybody has ever been
levied — by magnitudes.”
Unregistered SIM cards are a matter of national security in
Nigeria and may have caused deaths. Boko Haram Islamic extremists use cell
phones to activate bombs and coordinate other attacks, say law enforcers.
Mobile phones are also used in rampant armed robberies and kidnappings.
Unregistered MTN SIM cards were used to make calls demanding ransom in the
September kidnapping of a former Nigerian finance minister — weeks after a
deadline for providers to deactivate unregistered cards.
MTN ignored other Nigerian rules and had committed a total of 28
infractions, Nigerian Communications Commission spokesman Tony Ojobo told The
Associated Press.
MTN officers “have always been flouting regulations,”
he declared.
The company was the only cell phone provider that failed to meet
a mid-August deadline to deactivate unregistered cards, said Ojobo. The
commission’s enforcers wound up deactivating the millions of cards. The fine is
based on sanctions of 200 000 naira ($1 000) for each unregistered card, an
amount agreed in consultation with service providers in 2011.
Standard & Poor’s downgraded MTN and Nigeria and put both on
a negative credit watch. The credit rating service cited “heightened
regulatory and country risk in Nigeria” and fears that MTN’s liquidity
could “weaken significantly,” depending on the ultimate size of the
fine and the timing of its payment.
MTN extended its Nigeria operating license this month until
2021, for $94.2mn. It had little choice, the analysts said, noting the Nigerian
operation provides more than a third of the group’s revenues, though it
operates in 21 other countries in Africa, the Middle East, Afghanistan and
MTN bought its Nigeria license for $285m in 2001.
“Then, everyone expected it to be a product for the few
among the many, but today it is the product for everybody. Nigerians have been
able to get affordable telecommunications,” Strand said. That’s because
Nigeria has Africa’s largest population, estimated at 170 million, and building
a telecommunications network costs roughly the same for 1 million or 10 million
subscribers, he said. Mobile telephone networks, in a country without working
landlines, have immeasurably boosted business and trade.
The fine equals nearly a quarter of the 2014 national budget of
Nigeria, Africa’s biggest oil producer which has been hammered by the global
plunge in petroleum prices and depreciated naira currency.
A review of Nigeria’s penalties for tax avoidance and
cybercrime, and global precedent, led Strand to suggest a fine of $500m is more
Strand warned the fine could hurt foreign investment: 

question is
: What is the purpose in giving a company a fine of this amount? Is
it just a revenue generator for the government? I think it’s a big message to
send to other investors in Nigeria: Stay out of this country.”