MTN Rwandacell Plc registered a profit after tax loss of Rwf10.9 billion in the quarter ended September 30, a 232.4 per cent decline compared to the same period last year, the company’s financial statements show.

The company’s profitability was impacted by lower earnings before interest, taxes, depreciation, and amortisation (EBITDA) and an increase in depreciation on tower leases.

EBITDA decreased by 22.6 per cent to Rwf 65.6 billion in the period under review, delivering an EBITDA margin of 34 per cent, down 10.9 percentage points year-on-year.

According to MTN, this was largely driven by the decline in voice and data revenue.

Voice revenue declined by 21.4 per cent year-on-year to Rwf 51.8 billion, despite the strong mobile subscriber growth. The share of voice revenue to the total service revenue decreased from 35.4 per cent to 27.4 per cent in the period under review.

Data revenue dropped by 1.9 per cent to Rwf33 billion, primarily due to a 10.3 per cent decline in active data subscribers to 2.3 million.

The telco blamed this on the impact of the zero mobile termination rate (MTR) that was enforced by the Rwanda Utilities Regulatory Authority (RURA) in August last year.

The temporary directive, which was introduced to level the playing field and ensure fair competition in the market, dictated that telecommunication companies would not be paid for calls received on their network from other networks in Rwanda for a period of one year.

MTN has consistently argued that this directive is impacting its voice revenue and driving a rise in interconnect cost of sales with the rise in off-net outgoing traffic to roaming customers in the One Network Area Region (ONA).

MTR directive

The ONA initiative is a plan by East African countries to create a single market for telecommunications. This means that using your phone in another ONA country should be as easy and cheap as using it at home.

However, MTN says the introduction of zero MTR has led to what they see as a problem. People are using their phones in other ONA countries, particularly in South Sudan and Uganda, more often, which is increasing the cost of connecting calls.

"Excluding these effects, the normalized EBITDA margin would have been 41%, a slight drop of 3.9 pp,” said Dunstan Stober, MTN’s acting Chief Financial Officer.

Stober maintained that their focus will be on accelerating commercial execution to grow service revenue and drive operational efficiencies to improve the firm’s earnings profile, and strengthen their balance sheet.

MTN’s overall service revenue remained flat, achieving a 1.6 per cent growth to Rwf 189.3 billion, with mobile money business somewhat offsetting the pressure on voice and data revenues.

Revenue from mobile money business improved by 29.4 per cent to Rwf 83.9 billion in Q3, mainly due to a 13.4 per cent increase in mobile money subscribers to 5.2 million in the same period.

Impact of IFRS rules

MTN attributed the big discrepancy in their profitability to the implementation of the new international financial reporting standards (IFRS16).

The company said its 2023 financials were restated to reflect the accurate computation of the lease accounting under IFRS16 which impacted the depreciation, finance costs and related deferred taxes.

The new rules dictate how companies should record costs when they rent or lease things like cell phone towers, office buildings, and equipment.

In other words, MTN went back and corrected how they calculated wear and tear on leased items (depreciation), how much interest they were paying on these leases (finance costs), and how much tax they needed to pay or save because of these leases (deferred taxes).

The impact of this restatement was significant – it reduced the previously reported Q3 2023 profit after tax from Rwf 11.1 billion to Rwf 8.2 billion, a 34.4 per cent reduction in earnings per share.

Increased operational costs

As a result of IFRS16, MTN saw an increase in operating costs related to tower leases.

Depreciation and amortisation increased by 14.3 per cent largely due to an acceleration of capital expenditure (capex) investments, particularly in the first half of 2024, that led to an increase in commissioned network sites in that period.

In addition, net finance costs decreased by 7.6 per cent, due to the decrease in IFRS16-related leases components.

The company deployed capex of Rwf 64.2 billion in the first nine months of the year, which was an increase of 49.8 per cent with 136 3G sites rolled out across the country.

Capex (ex-leases) reduced by 18.9 per cent to Rwf 34.8 billion as the firm slowed down capex investments in Q3, reflecting a 4.7 percentage points decrease in capex intensity to 18 per cent.

"Despite the headwinds to our business, MTN Rwanda has demonstrated resilience and a continued commitment to deliver best in class connectivity and access to digital services across Rwanda, which is reflected in our strong subscriber growth,” MTN Rwanda Chief Executive Officer, Mapula Bodibe.