MTN chief executive sounds warning on African telecoms profitability

By Gemma Ware in Barcelona

Posted on Thursday, 28 February 2013 12:07

”It’s quite clear that whatever we do in Africa we have to avoid what is happening in Europe where the market capitalisation of telecoms companies is on a permanent decline,” said Sifiso Dabengwa of the South African group MTN, which has mobile operations in 21 markets in Africa and the middle east.

Telecoms is not a cash cow. It’s loss making in many companies across Africa

Dabengwa was speaking at the first ever panel dedicated to Sub-Saharan Africa at the annual Mobile World Congress 2013 in Barcelona this week, the world’s biggest mobile trade show.

He heaped doubt on the African telecoms growth story. “I’m not too sure how many operators in Africa are actually profitable,” he said.

In a thinly-disguised jibe at Indian firm Bharti Airtel, whose chief executive for Africa Manoj Kholi was alongside him on the panel, Dabengwa criticised operators who have slashed prices in order to gain market share.

When Bharti entered the African telecoms market in 2010 through the purchase of Zain’s Africa assets, it began a steady assault on prices.

Yet Kholi echoed Dabengwa’s concerns about profitability.

“Telecoms is not a cash cow. It’s loss making in many companies across Africa,” he said, adding that it was probably operators mistake for giving the impression to consumers in their marketing that they were hugely profitable.

Kholi admitted that Bharti had taken a big bet on Africa, and that now “that bet is costing us over $13.5bn in cash.”

He repeated long-held concerns by larger operators that some smaller markets have too many operators serving small populations.

Uganda, for example, with a population of 34m has seven operators, while Burundi’s 9m people are served by five mobile operators. 

But the telecoms executives were put on the spot by Nigeria’s minister of communication technology, Omobola Johnson, who asked them if business was not profitable: “why are you still in Africa?”

In response, Dabengwa admitted that there are “good profits being made” in Africa, but that the sustainability of the industry was under threat.

Also on the panel, Nic Rudwick, chief executive of Liquid Telecom, which has built the largest fibre network in Africa, said mobile operators in Africa were in danger of becoming just another cumbersome utility player.

“They run the risk of losing the entrepreneurship that brought them into the market,” he said.

Rudwick says that because African operators have traditionally had to generate their own power, build their own fibre networks and run their customer-facing operations, it has made it difficult for smaller players to enter the African telecoms infrastructure market.

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