Run out of airtime on an MTN prepaid line and the network will lend you some. XtraTime advances a small amount to a customer with little or no balance and takes it back out of the next recharge. It is not a loan in any formal sense, as MTN South Africa chief executive Ferdi Moolman puts it, it is an advance. It has also become a big contributor to what mobile operators earn from financial services, and a way to make a prepaid deal look better than the next one.
The scale is the part that surprises. An estimated 48% of Vodacom's airtime top-ups run through advances, and MTN's own share reached 42% at one point. At its height MTN was extending up to R800 million a month.
The half that stopped repaying
The model works for as long as people recharge. MTN found repayment cycles stretching past 50%, meaning about one in every two subscribers could not settle the advance at the next top-up and carried it into the following month. Someone who cannot get more airtime from MTN goes to another network and gets it there, so the debt does not stop, it spreads across operators.
So MTN turned its own tap down. It decided it had gone too deep into the market and had to reset the product in the customer's interest. Advances came down to between R400 million and R500 million. In-month repayment improved from about half of customers in October last year to about seven in ten now, leaving materially lower outstanding balances behind it.
What the reset cost
Cleaning the base cost MTN customers and revenue at the same time. Its South African subscriber base fell 0.7% to 39.5 million in the six months to June, dragged down by a prepaid base that shrank 4.5%. Prepaid service revenue fell 3.3% over the same half.
The South African business as a whole barely moved. Service revenue there rose 1.5% to R21.94 billion, while operating earnings before one-off items fell 7.6%. Take out the advance repayments and cash recharges grew 9.4%, which is the number MTN points to as evidence that customers are spending their own money again rather than the network's.
The pullback was not the only response. MTN has been going after direct relationships with banks instead of working through intermediaries, on the grounds that it understands its customers better that way.
The pressure it is answering is not only economic. Telkom is the fastest-growing mobile business in the country, and non-telecoms players like Capitec and FNB are competing for the same prepaid spend.
Moolman says MTN is comfortable enough to start pushing XtraTime into the market again and has begun doing it, with the warning that going out carelessly would land the company back where it was. The test arrives in guidance MTN has already given for South Africa: low-to-mid single-digit growth, with an operating margin of 35% to 37%.
