What Went Wrong Between MTN and Nigeria?

The cliché “To whom much is given, much is expected” seem to be true for telecommunications giant, MTN, especially as it pertains to its operations in Nigeria.

MTN launched its Global System of Mobile Communications (GSM), service on August 8, 2001 connecting 100,000 lines (24 hours after another licensee, Econet Wireless began) and from the get go; it benefited a lot from being a pioneer.

Not only was a sim card sold for as much as N30,000 (today it is virtually free), MTN got loads of tax reliefs and concessions, because the then Obasanjo government wanted to make sure that its plan to democratize telephony had no hitches.

That early lead helped MTN grow in leaps and bounds, and today, it is the largest network in terms of subscriber base in Nigeria. In addition, MTN Nigeria contributes a huge chunk of the profit declared yearly by the MTN Group.

That is why anything that affects MTN in Nigeria would definitely shake the MTN Group, little wonder that when the news broke that the company had been slammed with a whopping $5.2billion (Over 1Ntrillion) fine by Nigerian Communications Commission (NCC), it hit the parent company like a Tsunami.

MTN shares came tumbling down, losing a massive 20 per cent in minutes, and fearing the worst, the Johannesburg Stock Exchange (JSE) ordered a temporary suspension on trading of the shares. It was a face-saving announcement from the Board that stemmed the tide, and calmed frayed nerves.

That was not all, pronto, the Group Chief Executive, Sifiso Debengwa rushed to Nigeria to meet with the NCC officials but there was no truce, he went home empty handed-and it was no surprise that he had to resign his position early this week.

How did MTN get itself into this billion dollar mess? Well, insiders revealed that even before  Mike Ikpoki, its first ever Nigerian MD/CEO assumed office, the behemoth has allegedly established a culture of shunning impunity, regulatory authorities at will and it was just a matter a time before the Pharaoh who knew Moses would depart the throne  and the hammer would come crashing down!

The analysis below captures the full story of the MTN $5.2 billion debacle. It takes the reader through the NCC rules and how MTN found itself in these troubled waters, highlighting MTN’s penchant for ignoring directives.

Background

Subscriber Identification Module or SIM card registration is a standard requirement that is increasingly prevalent the world over. Authorities and regulators mandate subscriber registration in order to control crime and offer security to mobile telephony customers and to the community at large. May 1, 2010: Telecommunications operators in Nigeria were mandated to start collecting biometric and non-biometric personal information for each new subscriber in an effort to improve information gathering towards enhancing national security. This was initiated by the Office of the National Security Adviser (NSA) in collaboration with other security agencies and the Nigerian Communications Commission (NCC).

November 7, 2011: The SIM Registration Regulations came into force. Section 19 of the SIM Registration Regulations sets out a fine of N200, 000 for every SIM card which is found to be fully active without proper registration details while Section 20 of the Regulations also stipulates a fine of N200, 000 for failure to deactivate any SIM Card without proper registration details. Specifically, newly purchased and activated SIM cards are required to block outbound calls until submission of registration details, where this registration is not completed within 30 days of activation then the SIM must be fully barred from the network. June 30, 2013:

Following the expiration of an initial grace period provided to existing subscribers to register their SIM cards, the NCC mandated all operators to deactivate all unregistered existing SIM cards on their networks by June 30, 2013.

November 2013: Operators were directed to fully bar any newly registered SIM card which fails to perform a voice or data communication within 48 hours after its registration.

Directive to deactivate improperly registered SIM cards

September 2014: The NCC, to whom operators upload registrations every month, shared details back to the operators of registrations records that the NCC judged as invalid on the NCC system. Operators were directed to clean up their registration records through deactivation or reconcile the records within a 30- day period.

July 8, 2015: The NCC directed operators to deactivate all pre-registered SIM cards (SIMs registered but without a record of activity) within a period of 21 days – from July 8, 2015 to July 29, 2015. August 4, 2015: Operators, representatives of the National Security Adviser (NSA), Director State Security (DSS) and the NCC held a meeting to discuss issues around SIM registration in Nigeria. The issue of invalid registrations was highlighted as a major threat to national security and a directive was issued to all telecommunications operators to deactivate all SIM cards with improper/invalid registration details by August 11, 2015.

August 17, 2015: The NCC and security agencies conducted a compliance audit on all operators between August 17, 2015 and August 19, 2015 following expiry of the deadline of August 11, 2015, for deactivation of improperly registered SIM cards. The NCC disclosed, at Press Conference on August 17, 2015, that despite sharing a list of invalid registration details with operators, MTN had made little or no effort towards compliance with the deactivation directive whilst other operators had largely complied.

September 4, 2015: A high level meeting chaired by the Chief of Staff to the President of Nigeria was called at the presidential villa. This meeting is unprecedented in the Nigerian business industry as the telecom CEOs were brought to meet the heads of the main security agencies (the National Security Adviser; the Director of State Security; the Director of Military Intelligence) and the Executive Vice Chairman of the NCC, in order for the compliance with the deactivation directive to be emphasized. Operators were advised that continued non-compliance would lead to the imposition of penalties of N200, 000 per improperly registered SIM card in line with S.19 & S.20 of the SIM Registration Regulations 2011, and that all businesses must respect the law or risk licenses being revoked.

The Chief of Staff to the President of Nigeria implored operators to take the matter seriously noting that (i) security and safety of the people is No. 1 on the president agenda; (ii) 70% of kidnappings, violent crimes and insurgence are facilitated using unregistered SIM cards making it impossible to trace the perpetrators; (iii) government supports the private sector but companies must operate within the law; (iv) in other countries heavy fines are levied on the private sector for non-compliance (e.g. JP Morgan’s $20bn fine). It was also agreed that (i) operators were to immediately reconcile the records of their deactivations against the list of invalid registrations earlier shared with operators by the NCC by September 7, 2015; and (ii) a penalty of N200, 000 per unregistered / poorly registered SIM would be imposed as stipulated in the SIM Registration Regulations 2011.

MTN’s disregard for compliance

Despite the above detailed entreaties and warnings over a 12 month period (from September 2014), on the importance of ensuring that only SIM cards with valid SIM registration details are active on telecommunications networks, MTN failed to comply with the directive to deactivate improperly registered subscribers. The NCC and security agencies informed the public during a press conference held on August 18, 2015, that, as at the expiration of the 7-day deactivation deadline ending on August 11, 2015, MTN had failed to fully deactivate any subscriber.

September 2015: Following repeated warnings and compliance enforcement visits as detailed above, MTN only made a partial attempt to bar unregistered subscribers in selected areas over a few days in September 2015. Other operators had fully complied and reconciled their deactivations with the invalid registrations shared by the NCC up to 4 weeks earlier. The consequence of MTNs refusal to comply with the directive is even more pronounced as fully half of all the invalid registrations shared by the NCC belonged to MTN. These SIM cards with invalid registrations pose a grave security risk to the country as their registration information cannot be used to successfully identify their owners in the event of a security issue involving any of these SIM cards. The recent kidnapping of the former finance minister Chief Olu Falae is one example of this risk; the kidnappers used MTN SIM cards and MTN was unable to provide any registration data for those SIMs.

Non-compliance

MTN’s non-compliance with the deactivation directive is unfortunately not an isolated incident. It needs to be seen in the context of a general pattern of non-compliance, with regulatory directives that actually predates the current SIM registration infractions.

November 8, 2012: The NCC directed operators to cease all promotions in an effort to address persistent Quality of Service issues within the industry. On April 2, 2013, the NCC lifted the ban on promotions for EMTS, Airtel and Globacom based on appreciable improvements in their Quality of Service while the NCC indicated that MTN’s ban on promotions would remain in place following the lack of improvement in its Quality of Service. MTN’s ban was subsequently lifted in June 2013. For the duration of the ban however, MTN failed to comply with the restriction on promotions, continuing to offer promotions below the line for the period of the ban.

April 2013: The NCC published its Determination of Dominance 2013, wherein it declared MTN a dominant operator in the voice services and wholesale leased lines market and imposed an obligation to offer undifferentiated on-net and off-net tariffs on MTN among other restrictions. Enforcement of the obligation commenced in July 2013. MTN failed to comply with the obligation from July 2013 to October 2014 when the NCC eventually granted MTN a waiver to offer differentiated on-net and on-net tariffs despite MTN’s non-compliance with the on-net pricing restriction in the first instance.

July 2013: The NCC directed MTN to withdraw the Virtual Top Up plus offer for being in violation of its pricing obligations under the 2013 Dominance Determination.

May 2014: The NCC issued a ‘Final Warning’ to MTN to comply with its pricing obligations under the 2013 Dominance Determination or face penalties.

October 2014: The NCC imposed sanctions on MTN for violating its pricing obligations under the 2013 Dominance Determination through its ipulse offer.

August 3, 2015: The NCC directed that, from August 24, 2015, all operators were to stop the automatic migration of data bundle subscribers to Pay As You Go (PAYG) browsing upon depletion of their data bundles. As at October 8, 2015, only Globacom and Etisalat had complied with the directive with MTN characteristically failing to comply.

Q2 2015: In the NCC quarterly compliance enforcement report for Q2 2015, out of the 6 sanctions imposed on operators for various acts on non-compliance, MTN was involved and sanctioned for 4 separate infractions. As it stands today, MTN’s persistent violations have forced the NCC to impose the unprecedented sanction of suspending all regulatory services to MTN following its accumulation of over 28 separate and proven infractions.

Recent Developments Thursday October 22nd, 2014: Having reviewed the registration records of all the telecom operators and having taken into consideration their compliance records, the NCC imposed a fine on MTN alone for noncompliance on SIM registration. The fine of N1,040 trillion is in line with Section 19 of the SIM Registration Regulations specifying N200,000 per unregistered SIM and the penalty has been applied for the 5.2m MTN SIM card registration records found to be non-compliant by the NCC. This unprecedented fine is indicative of the magnitude of the transgression and the seriousness with which the NCC and the authorities are approaching this issue. It is also more likely to ensure that the wilful non-compliance by MTN ceases.