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Mobile Africa
Tariff Consultancy, Jan 2007, Pages: 160
The growth of mobile services in Africa
There is little doubt that the spread of the mobile network in Africa is a major contribution to economic growth. It is likely that the main method of communication for voice and data will be via the mobile handset and that increasingly the mobile is substituting even the limited existing fixed line capacity.
Price points for the adoption of mobile services are low and are becoming lower as more subscribers are introduced. Although the cost of new handsets continue to be reduced, much of the new subscriber growth is due to the spread of the second-hand handset market which continues to increase. This means that ARPU will continue to decline at the margin but that there is a limited impact due to handset subsidy. Overall this means that the operator will be able to make an acceptable margin. Distribution channels in the local economy will become more important as new types of micro finance and phone sharing will be required to drive mobile penetration into rural communities. Operators seem to be developing a two-tier approach with distributors being used in rural areas and a form of direct sales force being used in urban areas.
There are a number of countries which remain substantially under-served by mobile phone networks in Africa with penetration levels at or below 10 per cent. In some cases the constraint is obviously due to conflict or internal political & economic instability which has made long-term investment impossible.
In countries like Sudan, Somalia and Zimbabwe subscriber growth is being curtailed due to a lack of investment due to the economic and political regime.
However, there are a range of countries which are starting to become attractive investment opportunities, where penetration rates are low but populations are large and where there is now a semblance of economic stability.
Overall the mobile network provides a relatively low cost option of promoting economic growth in society. One of the problems is that governments and some development funds continue to channel funds into large-scale infrastructure projects rather than ensuring that the conditions are right for a number of mobile networks to flourish.
But Africa has conclusively proved that it is possible for a relatively poor country to benefit and support competitive mobile networks. Even in remote areas a local economy is produced which allows the benefits of the mobile phone to filter down to the poorest sections of society. We believe that the growth in Africa will continue in the years to come, and that there is no reason why the less developed countries will benefit providing there is some form of political and economic stability.
Although used overwhelmingly for voice communications the mobile will gradually become a multi-purpose communication device. Already the mobile in Africa is used extensively for SMS text messages, which is generating new types of value added service application. In December 2006 the smallest of South Africa’s network mobile operators, Cell-C, announced that it was upgrading its messaging network to cope with the anticipated Christmas demand. In 2005, Cell-C’s network had more than 16 million SMS messages over the Christmas period with demand anticipated to be sharply higher in 2006, from a network with 2.7 million active subscribers.
Besides text messaging 3G and HSDPA networks are being developed for deployment in Africa. There is also the potential of WIMAX deployments for business use. Increasingly the future of the African mobile network will be tied to strategy of the large Pan-African mobile operators that are being formed, with MTN and MTC (Celtel) in the vanguard. In particular Celtel’s formation of a “One Network” service to seamlessly link the three countries in East Africa is one example of the types of added value service that can be created, and which other mobile providers in more developed markets have failed to create.
There are a range of other operators which are in the process of developing a Pan-African footprint. These include Vodacom, who are on the acquisition trail, Atlantique Telecom; Wataniya Telecom; Millicom; and Warid Telecom. Most of the potential interest and new investment is coming from Middle Eastern operators from outside of Africa.
This report believes that the future for mobile data services is finely poised, as it is dependent on the low handset cost – and then low usage costs – if the service is to be widely adopted. To ensure service adoption will require investment and improved regulation with the emphasis on incentives for investment, the removal of prohibitive taxes and a range of mobile operators who will compete for new subscribers and who have an interest in reducing prices.
One of the weaknesses of the African mobile market is the absence of strong independent regulation. As a result the granting of licences and competition policy in many cases tends to be provided by a quasi-governmental agency. But on the whole the regulatory position overall is improving with the appointment of agencies to regulate the industry which are at arms length from the government of the day.
In summary the market for mobile services in Africa looks capable of sustained long-term growth. It has already created a series of new business models despite conditions of extreme poverty and will continue to disprove the sceptics for some time to come. The mobile network has also proved itself to be a real engine of development even in the poorest of areas.
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