Friday, 14 September 2012

MTN in Iran: risk assessment

There are two possible views of MTN’s activities in Iran: either business as usual or an international incident. Whichever one applies, it is set to be a case study in terms of risk management.

Seven years ago, MTN’s arrangement to enter Iran seemed ideal. MTN was established with a significant amount of South African black capital and expertise. It was a leader even under the minority white government in changing the business landscape, while competitor Vodacom was still trying to sever its own bonds with the old government. As for Iran, it was an old friend and supporter of the incoming ANC administration, oddly parallel to the departing government’s off-the-radar involvement with neighbouring Iraq.

Fast-forward to the present and now MTN is facing a spread of challenges. Courtesy of testimony from a former MTN executive, Turkcell has started a federal case against MTN in Washington, alleging that the tender was won by bribery.

Looking for some USD 4.2 billion in damages, the Turkcell case would be nothing unusual in corporate litigation in the US except for supporting allegations that MTN: facilitated government monitoring of anti-government organisations and individuals through its network technology; facilitated Iranian procurement of South African armaments in possible violation of UN sanctions; and, most importantly, facilitated Iranian procurement of US technology through third parties which would definitely have violated US and UN restrictions on equipment that could be potentially used for nuclear weapons programmes.

It would be invidious to offer comments on quite why Turkcell is only now pursuing the matter years after the event, except to point out the obvious: now is a good time to do so with world focus on Iran’s supposed nuclear arms ambitions. This is very much the sprat to catch a mackerel Turkcell needed to win a court audience for its primary accusation of bribery.

Regarding the business case, MTN’s risks are twofold: a loss of some 10 percent of annual revenue and then the imposition of significant damages in a US court.

The second part is actually the least of all the risks involved. Not even MTN – with annual revenues of around USD 17 billion – would happily appear in court with a cheque for USD 4 billion and plead no contest. However, should the case be lost and full damages imposed, it would be extremely difficult to exact payment from a South African company with group registration in Mauritius via a US federal court.

What mainly is at risk for MTN is the extent to which the accusations might colour other governments’ perceptions about the company, perhaps especially in the Gulf region and other Islamic nations. The issues are serious indeed but if the situation is described as a zero-sum game, it seems that there are two games on the go here. One is the shell-game of routine denials.

But the main event is Turkcell’s move against MTN. Turkcell only commands annual revenues of around USD 5 billion but it stands to win something in its battle with larger MTN anyway. It might not win in terms of hard cash but it could hamper future moves by MTN to expand in the Middle East.

The full article appeared in the 7 September 2012 issue of 'Africa & Middle East Telecom-Week' which can be downloaded here until 25 September 2012.