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The Future of African Mobile Profitability
AfricaNext , April 2009, Pages: 107
African mobile operations have long been extremely profitable; triple digit subscriber growth, solid margins, and a nearly-axiomatic conviction that operators only need build it and profits will come. If only things were this simple. AfricaNext Research analysis of subscriber, revenue, OpEX /CapEX and valuation dynamics, reveals a business that has become increasingly brutal at the edges. The reference report on African mobile economics.
The dramatic growth of mobile services in Africa has been well documented and outstanding enough to make us run out of superlatives to describe it. The expansion has continued unabated over the past three years, with a number of net subscriber additions consistently higher than the previous year’s.
The boom is not over, despite the global economic downturn. We expect African mobile operators to add another 300m subscriptions between 2008 and 2013, taking Africa’s mobile subscription base to 700m. Most markets will increase their mobile penetration by a factor of at least 1.5x. Ten markets will have a penetration rate above 100% by 2013; some will double their penetration levels and at least one (Rwanda) will quadruple it by 2013.
Nonetheless, there is more to the African mobile growth story than gaudy top line revenue and subscriber growth figures. Our analysis lays bare a market that offers a remarkable blend of stupendous value creation alongside ostensibly misguided value destruction, can’t miss profit machines at the top versus volatile opportunities at the bottom, and pervasive premium valuations (at least until recently) for what is increasingly a Darwinist, commodity business.
The African mobile market offers the features of a gold rush in its mature stages; early comers that have built-up their profits and are using them to protect their plots and expand to other areas; latecomers paying premium-entry prices for marginally compelling pieces of the action, using business assumptions based on early entrant performance, despite the starkly different operating environments; and opportunistic players whose long term upside lies primarily in the realization of potential capital gains. Caveat emptor, we say, for there is much that glitters, but all that glitters isn’t gold, a reality that will grow all the starker with the global credit crunch and economic downturn.
Key Questions Examined In The Report:
- How large is the African mobile market over the next five years? How high can African mobile penetration go?
- How many mobile operations can African markets support?
- What, if any correlation is there between ARPU and EBITDA margin in the African context? Does ARPU matter? Are subscriber numbers credible?
- Is the African mobile market a premium or a commodity business? What are the chances of African markets moving to flat rate pricing?
- What are the key drivers of mobile operating expenses? How will mobile broadband impact OpEx?
- What are the long term prospects for interconnect revenue and costs?
- What is the median EBITDA margin in the African mobile market?
- Who are the 50 largest operators in Africa (in revenue terms)?
- What is the projected CapEx allocation over the next five years?
- Is there a correlation between CapEx share and revenue share?
- How many African mobile operators can cover CapEx requirements without resorting to debt and/or equity capital?
- Are African mobile licenses overvalued? Are mobile operator valuations too high?
- How will the credit crunch and the downturn impact competitive and operational dynamics?
- What will be the impact of players such as Warid, Lap Green, Comium?
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