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Sustainability review - Contents

Economic performance and governance structures

Economic performance and governance structures

Governance structures

Group-wide governance structures are detailed on page 95 of this integrated report. This section of the report specifically addresses the governance and management structures relating to the management of sustainability across the Group. The responsibility for managing sustainability has been allocated to the business risk management department. The board has delegated responsibility for monitoring sustainability issues to the risk and corporate governance committee.

Using last year’s internal sustainability audit findings as a guide, we have developed a sustainability framework that includes key performance indicators (KPIs) for the Group. From the Group’s perspective, many issues around sustainability are being addressed, but not in a co-ordinated and targeted way. We therefore conducted a “current state analysis” against the Group’s “desired future state”. Scoring for the current state assessment ranged from (a) nothing in place; (b) informal activities, but no monitoring; (c) processes in place but no performance measurement to (d) processes in place and KPIs set for the responsible person.

Overall, we found economic indicators to be well embedded but other aspects around sustainability management were less so.

We have identified 20 key areas within the framework that need to be addressed in the coming year. We plan to implement the management structures needed to monitor and measure these areas in each operation. Until this is suitably achieved, no further internal audits will be performed around sustainability management. The envisaged assurance path will include a phased approach, with defined assurance of selected elements. The process will be incrementally improved each year, culminating in full assurance of sustainability management within the Group.

Admittedly, our existing sustainability framework should have been further integrated into operational business practices. Our challenge remains the flow of information and the streamlined implementation of localised processes and procedures in each operation. However, with the sustainability framework now accepted and included in the mandate of our business risk management team, we are confident that we will make progress in integrating sustainability issues into our daily activities, management systems and reporting practices in the coming year.

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Returns to stakeholders

A detailed analysis of our financial performance for the period appears in the Chief Financial Officer’s report. Our value added statement is detailed here. However, the economic returns to our stakeholders go beyond pure financial performance and include considerations such as:

  • The number of subscribers and the benefits they gain from being connected – be it for work, leisure or safety. Our total subscriber base has increased from 15,6 million in March 2005 to 23,2 million at the end of December 2005.
  • Capital investment in our countries of operation have created local jobs and entrepreneurial opportunities. This has a ripple effect that creates more spending power and more jobs. Our capital investment during the period was R6,7 billion (March 2005: R7,6 billion).
  • Licence fees and taxes paid to regulators and governments facilitate further investments and social upliftment initiatives by the authorities. Our total contribution to government was R2,9 billion compared to R4,3 billion in the previous reporting period.
  • Our shareholders received R1,2 billion (March 2005: R680 million) which was returned to individuals – including our own employees – though private investments and pension funds.
  • Our CSI programmes have a broad-based impact through the work of the MTN foundations in South Africa, Nigeria and Cameroon and targeted social investments in our other operating units. However, the social impact on – and long-term economic growth in – our operational countries is far greater than the immediate investment potential: local jobs and entrepreneurial opportunities are created, healthcare is improved and educational standards are raised through our CSI initiatives, often in partnership with other reputable organisations and local companies.
  • MTN employee pay levels and benefits as well as training and development initiatives attract and create a high standard of skill within our countries of operation. This also benefits other organisations in the territories as people move out of the Group and contribute to other aspects of the economy.

Further details on our performances in the regions are provided in the sections that follow. However, the true economic impact and performance of the company are difficult to measure as its deliverables extend beyond the direct recipient.

The table below outlines purchases from local suppliers in our different operations.

  9 months to
December 2005
Rm
12 months to
March 2005
Rm
South Africa 1 174 936
Nigeria 3 360 5 017
Cameroon 217 551
Uganda 227 420
Rwanda 14 14
Swaziland 17 29
Total 5 009 6 964

Ultimately, the impact of our participation in regional economies and communities will only be understood in the context of each country’s ability to develop and secure its own economic growth and sustainability.

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Local supplier support

MTN strongly supports and partners local suppliers in each of its countries of operation to achieve genuine economic growth. These local suppliers are typically SMEs that meet operational office requirements (ie computer services and stationery) and retailers in the handset distribution and airtime recharge cards chain. The Group’s network equipment and handsets, which constitute a significant portion of our purchases, are sourced from global suppliers.

Various initiatives exist to encourage supplier loyalty, such as the support given to informal mobile phone distribution sectors in our operational regions. In South Africa our procurement practices are focused on supporting SMMEs and empowered suppliers. Our preferential procurement philosophy and approach to SMME support in South Africa is detailed below.

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BEE performance in South Africa

MTN forms partnerships with suppliers with a focus on genuine local economic and enterprise development and commercial empowerment. For this reason, we have a formalised and frequently updated black economic empowerment (BEE) policy (available on www.mtn.co.za) and we contract with suppliers according to a stringent BEE procurement scorecard. Our BEE scorecard and associated questionnaire are aligned directly to both the ICT charter and the Good Codes of Practice as set out by the Department of Trade and Industry (the dti) in terms of the Broad- Based Black Economic Empowerment Act (BBBEE Act).

In 2006, we will be focusing on supplier and enterprise development initiatives to ensure that our suppliers and our internal procurement processes support the SMME sector.

MTN’s procurement policies and procedures require that all our suppliers comply with our requirements, such as active involvement in human resource development (ie transfer of skills), economic participation, enterprise development, procurement and corporate social investment. These activities enable MTN to support local industry and facilitate wider economic development and commercial participation in historically disadvantaged communities.

Our vendors are required to complete a detailed questionnaire and we discard any supplier that does not meet the 35% BEE rating required by the ICT charter. We are always prepared to assist a company in becoming compliant, particularly if that company is strategic in its service offering to MTN. Typically, we do this by introducing them to our larger suppliers for managerial assistance or offer them our approved vendor list if theirs falls short of our scorecard requirements. In addition, we record their “weaknesses” in their supplier contracts and request a written plan of action. Some SMMEs we have worked with in this way have become very successful. To further encourage this way of working with our suppliers, we plan to implement a supplier programme in future to reward loyalty, excellence and growth.

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Customer satisfaction

Delivering the best customer experience is at the heart of everything we do and the results of customer satisfactionrelated surveys and reputation audits are viewed as key measures of our success. Our promise to our customers can be summarised as: reliability, uninterrupted service and prompt response to complaints.

Key points of customer communication are our operational customer call centres. Our main challenge over the period, as our subscriber base has grown, has been to maintain the quality and standards of response in view of increased customer interactions. The main issues dealt with by our call centres include elementary customer education and basic functionality instructions, technical issues and directory enquiries. All customer interfaces must correspond to the brand image the Group seeks to project through both promises and delivery.

In addition, the Group’s strategy and view of the upcoming mobile number portability (in South Africa: for further details see the compliance section) goes beyond statutory requirement to an opportunity for adding-value to MTN’s customers.

A specific challenge faced by our call centres during the past year was that numbers on our new biodegradable recharge vouchers were erased when scratched too hard, resulting in customer frustration. This dramatically increased our call volume. However, our response, which has been highly effective, was to initiate an education campaign to guide subscribers in using the new recharge cards appropriately.

As many calls are not of a technical nature, it is clear that increased customer education is required, specifically at points of sale. We will embark on an education campaign in the coming year to enhance customer knowledge.

We will also be expanding our call centre technology infrastructure to handle more calls related to basic phone usage issues and directory enquiries, thereby freeing up our agents to attend to more complex customer queries.

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Tariff structure

Tariff structures and rates are important to all our stakeholders, specifically when attempting to extend the many varied benefits of mobile telephony to the widest possible community markets. Tariffs affect our entire stakeholder base: from the individual customer on a pay-as-you-go scheme; the many entrepreneurs who make a living by selling phone services to villagers; our commercial users of high-end mobile functionality; the governments of countries in which we operate that aim to bring universal access to all; and our financial investors, who require a reasonable return on their investment in a competitive and capital-intensive industry.

Various factors dictate and influence tariff structures. Tariff changes are approved by the regulator in each country of operation and are generally guided by local inflation rates. Tariff adjustments are influenced by a number of dynamic conditions such as:

  • Capital investment in a territory
  • International benchmarks of reception, coverage, and access to international roaming
  • Regulatory factors and universal service obligations enforced contractually with each operator
  • Macroeconomic conditions, such as interest rates, exchange rates and taxation

On the whole, the Group has been able to keep tariff increases below inflation, as the summary below indicates:

  • South African tariffs have decreased overall by between 1% and 2%
  • Nigerian tariffs have remained constant and the connection fee has been reduced
  • Cameroon has had no tariff increases
  • Ugandan tariffs have remained constant for two years
  • Rwanda tariffs increased by 5%. Inflation in the country is 9,1%
  • Swaziland had no tariff increases

Moreover, we have responded to tariff issues at the lower-income group level by introducing per-second billing and low-denomination recharge vouchers. This has expanded our service reach to an even broader customer base.

Tariffs are under constant scrutiny by stakeholders, with the common perception that telecoms companies are profiteering from excessive tariffs. Often, our local tariff structures are compared to global prices. However, the comparisons have to be understood in the context of variable conditions such as:

  • The size of a population and the number of subscribers in a territory
  • The reliance of a market on mobile services over fixed lines and how this contributes to the effectiveness of a country’s economy
  • The reliability of electricity networks and/or reliance on diesel-fuelled generators
  • Rural coverage, which in turn depends on geographic size, spread and number of cities and towns covered by the network
  • Entrepreneurial development through access to mobile telephony services.

In light of significant capital investments required to implement and maintain mobile infrastructure sometimes against the backdrop of harsh social and economic conditions – balancing investment and pricing remains a constant challenge.

The table below illustrates the investment made in our six existing operations during the period:

  9 months to
December 2005
Rm
12 months to
March 2005
Rm
South Africa 2 256 1 745
Nigeria 3 849 5 518
Cameroon 198 194
Uganda 123 88
Rwanda 34 11
Swaziland 12 17
Total capital Investment 6 472 7 573

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Network coverage: quality, reliability, consistency and support

The quality and reliability of our network coverage is central to customer satisfaction. We are also compelled by our licensing obligations to promote universal access to as broad a community base as possible through adequate and reliable network connectivity.

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Compliance with legislation, licence obligations and licence fees

MTN strives to comply with all legislation and to fulfil all its licence obligations. These typically encompass universal service access and annual licence fees. Our strategies, risk frameworks, policies and procedures and internal controls are designed to ensure high levels of regulatory compliance in each of our operations. During the period under review, there were no material instances of non-compliance.

The telecommunications legislative environment is particularly dynamic, with constant changes made to regulations and associated contractual obligations on operators. However, our compliance structures are designed to identify, understand and align with these changing requirements. We work with governments and regulators to develop regulatory environments where the final rules of operation are practical and achievable for the entire industry.

The most noteworthy current and known future developments are:

  • The Electronic Communications Bill (previously the Convergence Bill), mobile number portability and the Monitoring and Interception Act (all in South Africa)
  • The “Lawful interception” initiative in Nigeria
  • ICT charter

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Technology: developments, initiatives and plans

With wireless and high-speed data access becoming available at lower cost, we have been able to enhance our mobile communication services substantially during the past period. We launched our 3G services in 2005 and prior to this we offered our data services on our GPRS and EDGE platforms. MTN remains committed to providing its customers with a seamless broadband experience by further investing in its network and developing tailor-made wireless broadband solutions for customers in both rural and urban areas. By using 3G-enabled phones, customers can make video phone calls, use the high-speed access to enhance their web-browsing and receive e-mails containing large attachments.

Highlights of operating units’ technology and service developments during the review period are reflected in the individual operations reviews.

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Communication: promoting universal service

Ensuring reliable and consistent mobile access to as wide and diverse a community base as possible is not only an obligation of our licence agreements but we view the promotion of universal access as key to our own sustainability as an organisation. We consistently explore and develop new and innovative ways to promote universal service and to increase public awareness of the benefits of mobile telecommunications. We do this not only through the expansion of our network connectivity capabilities but also through targeted efforts to keep our tariff structures competitive. For instance, our per-second billing and low-denomination vouchers are specifically beneficial for our lowest income group customers.

Our key performance indicators in this area are:

  South Africa Nigeria Cameroon Uganda Rwanda Swaziland
Dec
2005
Mar
2005
Dec
2005
Mar
2005
Dec
2005
Mar
2005
Dec
2005
Mar
2005
Dec
2005
Mar
2005
Dec
2005
Mar
2005
Geographic coverage (%) 70 69 38 30 15 15 59 56 80 64 79 79
Population coverage (%) 94 92 64 58 75 72 73 71 3 3 89 89
Base stations (number) 4 738 4 539 2 120 1 662 284 267 312 283 89 78 76 74
Switches (number) 48 45 35 30 3 3 4 4 2 2 2 2
Network capacity utilisation (%) 86 80 75 89 88 62 65 68 76 95 51 56
Commentary on the overall network performance of the Group’s operating units is detailed in the operations review section of the report starting here.

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