Pan-Africa’s mobile telecoms giants
Africa’s major telecoms players may soon be a combination of South
African and Indian firms but rapid changes are afoot and other
pan-African operators could yet emerge from any part of the continent?
It is a breathless time to be a pan-African mobile phone operator. When executives are not scratching their heads about how to market data services to an internet-hungry continent, they may be plotting to feed on the cheap, fast international connectivity on offer from newly-arrived fibreoptic cables. Or they may be sitting tight-fisted through boardroom buyout talks. The latter is because some kind of South-South consolidation is imminent. South Africa’s MTN and Indian telecoms giant Bharti have pushed back their deadline for revitalised merger talks until 30 September as they hammer out the details of a deal that could create the world’s third largest mobile company, with over 200m subscribers. After discussions with French group Vivendi to sell its African operations recently fell through, Kuwaiti-based Zain decided instead to sell a 46% stake of its business on 8 September to a consortium of Asian telecoms companies including India’s Vavasi Group and Malaysian billionaire Syed Mokhtar-al-Bukhary. Another Mumbai-based conglomerate, Essar, which already owns a mobile licence to operate in Uganda, is also in talks with Dhabi-based Warid Telecom, which has operations in Uganda, Congo and a GSM licence in Côte d’Ivoire.?
Indian firms are no strangers to Africa, as they are eager to find new markets where they can put to use their expertise of penetrating hard-to-reach rural customers with ARPUs (average return per user) as low as $2. “In comparison with Indian, African operations are expensive,” says Rajiv Mehrotra, an Indian telecoms entrepreneur and founder of VNL, whose low-cost solar-powered mobile base stations are soon to launch in North and West Africa. “India is the toughest battlefield where the war is being fought over mobile business. If you can survive in this market and make money… then Indian companies will be successful anywhere in the globe.”?
Dropped like a hot potato ?
Still, the problems Zain has had in attracting a buyer for its African operations, and the fact that it is trying to sell them so soon after rebranding them from Celtel in 2008, is a sign of the uncertainty over where the long-term value lies in the African market. “It’s a classic mismatch between seller and expectation,” Russell Southwood, CEO of Balancing Act, a consultancy focused on telecoms and internet in Africa, says of the failed Vivendi-Zain deal. “I suspect Vivendi offered them a price that they didn’t find acceptable, precisely because Vivendi took the view that prices had gone down and Zain probably feels that in the longer term, they will go up.” The slow courtship between MTN and Bharti also hinges on price. Reports suggest MTN is pushing Bharti to raise its original offer by $1bn in what would be a complex split-share deal with both companies owning a percentage of the other.
Africa saw the world’s fastest growth in mobile phones in 2008, but ARPUs are dropping as operators move on to target lower-income customers (see graphs). According to a report on technology and innovation published as part of the AfDB and OECD’s 2009 African Economic Outlook, mobile penetration rates vary dramatically across the continent, from 3.4% in Ethiopia, Eritrea and Somalia, to approaching 100% in North African countries such as Libya, Algeria and Tunisia.
Still nowhere near European saturation levels, customer growth from mobile voice services alone is limited. Though it recorded an 8.2% increase in revenues and a 19.5% increase in customers in the second quarter of 2009, pan-African operator Vodacom, controlled since June by the UK’s Vodafone Group after South African courts okayed the merger despite union opposition, saw a 4.7% decline in ARPU on the previous three months. It blamed the drop on the economic slowdown.
Pan-African mobile operators are refashioning themselves to offer their customers a total telecoms solution. Data services are at the forefront of this repositioning. “Four or five years from now we expect that data services alone will contribute far more than 25% of operators’ revenues,” says Daniel Torras, an analyst with South African telecoms investment firm, Delta Partners.
There is real appetite to tackle the challenge of how to make money from data. Zain spokesman Antoine Abou Khalil told The Africa Report that between 10-13% of its African revenues already come from data, with 350m SMSs sent every month in Africa. “Zain recognises that mobile data is a substantial and important opportunity and we expect to grow our revenues five-fold over the coming three years,” he says. The operator opened data roaming access for internet and email in May on its cross-border One Network and has seen strong growth in take-up and revenues from its Blackberry services.
There is a scramble to roll out both 3G networks that can support mobile broadband and 4G radio technologies such as WiMAX. According to the WiMAX Forum, Africa was the world’s most active region with 101 deployments in July 2009, 21% of the global total. South African-based MTN has WiMAX licences in six countries, while Vodacom owns 24.9% of the South African WiMAX network WBS/iBurst.
All you can eat?
All this is encouraged by the arrival on the East African coast in June of the TEAMS fibreoptic cable and in July of SEACOM, which have brought a dramatic drop in the price of connectivity. “Effectively, the market has already got prices now which were a tenth of the price they were before,” says Balancing Act’s Southwood. “The key issue is whether people pass that onto the retail customers.” ?
Operators’ first step will be to offer more bandwidth for the same price, and ‘all you can eat’ packages. The smaller companies are getting deals out to the market fastest. Access Kenya is offering ‘double bandwidth for free’ upgrades to all its corporate customers, having spent Ksh60m on a ten-fold upgrade in the size of its core internet network to prepare for the arrival of SEACOM and TEAMS and has bought 2.5Gb of space on each cable. It has a target to offer connection speeds of 1Mb by the first quarter of 2010, up from the 128kb speeds it was delivering two years ago.
The cables are already reaching inland into Rwanda and Tanzania, but the bigger operators are still investing in more. MTN is a member of the WACS Consortium in West Africa, while France Telecom/Orange has invested in the ACE cable that will run from Morocco to South Africa, and in Lion, linking Madagascar, Mauritius and La Reunion to high-speed international networks.
Fibreoptic presents new challenges for Africa’s satellite providers, RascomStar-QAF, O3B, and Inmarsat, and resellers such as Seamobile and Intersat. But mobile operators are not abandoning satellite entirely. A new African-focused satellite from Intelsat called New Dawn, set to launch in early 2010, has received commitments – from Zain Nigeria, Vodacom and its subsidiary Gateway Communications, and Israeli V-SAT and satellite broadband provider, Gilat Satcom – Intelsat’s Vice President for Africa, Flavien Bachabi told The Africa Report. The company’s sales pitch was done no harm in July by a break in the connection of the Telkom-owned SAT-3 submarine cable in Benin, which disrupted 70% of Nigeria’s internet coverage and led one Nigerian ISP, Linkserve, to switch immediately to its satellite backup.
Mobile operators are also forging ahead with investments in telecoms infrastructure. Of the 508,000km of terrestrial backbone infrastructure in Sub-Saharan Africa in 2007, fixed-line operators owned 32% and mobile operators 68%, according to the OECD/AfDB.
As competition for customers mounts, add-on services are gaining increasing importance over pure voice. Following the success of Safaricom’s M-Pesa money transfer scheme in Kenya, which has attracted over 5m customers since launching in 2007, MTN, Zain and Orange have all created their own mobile banking services. MTN teamed up with Standard Bank for its Mobile Money account, while Zain recently added a new element to its ZAP service allowing SMEs to pay up to 1,000 customers at once using a mobile phone. The next expansion will be in the market for remittances, though talk of a possible link-up between Safaricom and Western Union has brought calls from banks for more regulation of financial services offered by mobile operators.
Any new pricing packages will need to tread a fine line between attracting new subscribers and reducing customer churn. Chinese-made dual SIM phones, which allow customers to access two SIM cards at once are becoming increasingly popular among customers keen to minimise cross-operator call charges. Free, advertising-sponsored services are also gaining popularity. In South Africa, Vodacom’s ‘Please Call Me Back’ service, which allows customers who have run out of credit to send seven free messages a day accompanied by a 115 character advertisement, fields around 20m messages a day in a country of 48m people.
There could still be room in the market for another pan-African operator to emerge, says Southwood, and it could be from West Africa. “There are a number of smaller chains like Comium and Africell which I would have thought were attractive acquisitions for somebody wishing to do this.” He points to UAE’s Etisalat, which bought Atlantique Telecom and created the Moov brand with operations across West Africa.
Those operators that already have a pan-African footprint may look to capitalise on what they’ve already got. A spokesman for France Telecom and Orange, Tom Wright, told The Africa Report that it was not interested in buying Zain’s African assets. “Rather than focusing on acquiring large pan-African mobile operators, such as Zain or MTN, France Telecom is focusing on scale: building new infrastructure and offering new services in specific markets, such as Niger, Kenya and Uganda.” What is clear is that the success of the pan-African operators has created an appetite for others to try their hand at going continental.