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A telecoms deal for Africa’s poorest

By Laura Recuero Virto
Posted on Friday, 26 March 2010 14:52

In the Know features an interview, opinion or analysis on the events making the news in Africa each week.

It’s third time lucky in Africa for Bharti Airtel. After twice trying and failing to agree a merger with South Africa’s MTN, the Indian telecoms giant has secured the South-South tie-up it was ogling after, and is on the cusp of buying the African assets of Kuwaiti firm Zain. Bharti has secured $8.3bn in financing for the deal, which is expected to be sealed in the next few days and will see the firm take over Zain’s operations in 15 African countries (excluding Sudan and Morocco).

Laura Recuero Virto, an economist at the OECD Development Centre, says the deal should bring down prices for African consumers.

A new telecoms deal is about to take place that could bring an unprecedented number of poor people in Africa into the mobile phone market and closer to life-improving services.

Today, Bharti, an Indian telecommunications company, will purchase Kuwaiti Zain’s Africa assets in India’s second-largest ever cross-border deal. Through the deal, Bharti will acquire not only the hard infrastructure of the third-largest mobile operator in Africa in terms of number of users, but also the innovative models responsible for Zain’s success. Africa was the first continent in the world to offer free roaming services across countries through Zain’s network.

But what can Bharti bring to Africa’s poorest that Zain did not? The answer is low prices. While the total cost of mobile ownership is around $10 in African countries, the rate is as low as $2.5 in India, due to fierce competition in the national market. In India, Bharti has managed to make excellent— if volatile— returns by serving the poor. They plan to do the same for the 36m African users that they will add to their 110m Indian subscribers.

How would that translate concretely at an individual level? It could dramatically change the life of African consumers and entrepreneurs. Such a deal could provide consumers increased access at a lower price. And entrepreneurs could see their transaction costs and transaction times substantially reduced.

For the poorest of the poor, this can mean increased access to services. An enlarged presence of mobile phones enables many Africans to have access to basic services for the first time, according to research done on ICT innovation for the African Economic Outlook. Indian institutions are already building a 53-nation pan-African e-network for tele-education and tele-health under an African Union initiative.

Bharti can offer such low prices because they have dramatically reduced transaction costs by putting pressure on retailers. The company has also cut operating costs, through energy efficient structures and systems. The African market, still in its infancy, has only recently faced sufficient competition pressures to promote such cost-reducing innovations.

Mobile phones are also a vehicle for market development. Electronic payments are enabling people to make money transfers between mobile phones. In Kenya, it is 10 times cheaper to send €10 through Safaricom’s M-Pesa mobile network than through Western Union. As a result, M-Pesa has already attracted over 6m consumers in 2 years.

Mobile phones allow entrepreneurs to bypass weak or absent infrastructure when setting up or running their businesses. In 10 West and Central African countries, farmers are accessing crop prices through their mobile phones to learn where it is best to sell their harvest. Telecoms are also enabling businesses to decrease the time allocated to trade (which is the highest in the world in Sub-Saharan Africa). In Ethiopia, the time between transmitting data from an exporter to getting permission from an importer is now a matter of minutes rather than 30 days.

There is a limit, however, to what the Bharti deal can do for the poor. More Africans need to be brought into the information highway, something that is out of Bharti’s control. Internet-based information is located outside of Africa, and international prices to access internet sites are extremely expensive. The extent to which these prices will fall depends upon the capacity and willingness of African governments to finance high-speed national networks and to allow anyone to connect at low cost to international information highways.

So while Africa’s poor should celebrate the deal being made, access to the internet is really where they will reap the most benefits.

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