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Romeo Bertolini, Olaf Nielinger and Monika Muylkens: Prospects for African telecom markets


12/2006
  

[ Telecommunications ]

Market in transition

The African mobile phone market is currently one of the fastest growing in the world. Almost one in five Africans already has access to mobile telecommunications services. There is nevertheless still a long way to go.


[ By Romeo Bertolini, Olaf Nielinger and Monika Muylkens ]

The number of African mobile phone users increased tenfold in the years from 1999 to 2004 alone, from 7.5 to 82 million people; and it will probably pass the 130 million mark this year. Growth is also the clear trend for the years to come. This boom in Africa surprises many people in developed countries, where mobile phones still symbolise status and wealth, qualities which do not fit the widely-held image of African misery.

In Africa, however, the mobile telephone is by no means a luxury good. Many people, even the very poor, are prepared to spend the little money they have on telecommunication services. A telephone call can avoid the need to make exhausting and time-consuming journeys. Phones facilitate business opportunities and ensure that people can be contacted in both their personal and professional lives.

Mobile telephony in Africa is big business, and has huge appeal for the major players in the telecommunications industry. So it comes as no surprise that the biggest corporate take-over in the history of sub-Saharan Africa was in the mobile-phone sector. Celtel, a Pan-African mobile-phone operator, was sold to the Kuwaiti consortium MTC for $3.4 billion last year.

Operators’ business models show just how great the potential for growth really is. Calculations are based on the average revenue per user and month (ARPU). While young African markets have ARPUs of about $50, more consolidated markets currently have ARPUs of about $27. Celtel, which is mainly active in Africa’s poorest countries, is currently still well below that level, at $17 dollars. There are even already realistic business models based on ARPUs of two to four dollars.

Several factors have contributed to success. Given the general crisis of fixed-line infrastructure, there is a keen interest in doing without. The political enviroment has become more market-friendly and competition-oriented internationally. Most important, however, some brilliant entrepreneurs have made good use of their new-won freedoms. However, there is another necessary condition. Comparative analysis shows that liberalisation alone generates only minimal impetus for growth. Effective regulation is also needed.

At best, regulation sets fair and transparent market rules and combines market dynamics with control instruments, which result in lower charges and connect more people to the network. Thus, through the right mix of obligations and incentives, regulatory authorities have succeeded in getting areas outside highly profitable metropolitan regions covered. They have also abolished barriers to market entry for new competitors, for instance, by setting rules on interconnections and tariffs, designed to pave the way for healthy development.

Even though the achievements of African regulatory authorities differ, these bodies are generally mobile phone-friendly and favour the transfer of capital into this business sector. At the same time, fixed-line networks are coming under increasing pressure, especially as the private providers of mobile communications see themselves under no obligation to invest in the maintenance or expansion of such infrastructure, even though mobile telephony also makes use of it.


An ever-changing environment

Market consolidation is not yet imminent. Countries with monopolistic market structures (such as Rwanda, Malawi and Ethiopia) and those with duopolisitic structures (such as Cameroon, Côte d’Ivoire and Mozambique) will probably issue further licences for mobile communication services in the medium-term. In addition, there will be more mergers and acquisitions.

On the other hand, some companies will inevitably lose out. Pioneers in Africa’s mobile communications market such as Millicom International Cellular (MIC) have already suffered drastic losses in market share. Others, like Telecel, have almost completely lost ground, with new players emerging in their place. The take-over of Celtel by the Kuwaiti mobile phone operator MTC and the increased African involvement of Etisalat from the United Arab Emirates are evidence of the changing market dynamics.

Africa’s fixed-line infrastructure is in crisis, with a negative impact on service provision. The problems experienced by incumbent telephone companies prevent the development of high-performance regional and international data links. Cost-effective broadband connections are the most important prerequisite for growth in internet and data communication. While GSM mobile phone will remain the technology to provide mass markets with voice communications, its significance on the economic and regulatory agenda will surely pale in comparison with broadband technologies. Mobile providers will therefore face a changed environment.

Change will speed up because of the convergence of various technologies. The boundaries between fixed-line networks, mobile telephony and voice and data services are blurring. WiMAX, UMTS (CDMA-2000), HSDPA and DSL are just some of the acronyms for technological services able to add momentum in the electronic communications market. Regulatory bodies in Africa are already replacing their technology-based licences with convergence licences, as the introduction of a unified licensing regime in Nigeria recently exemplified.

Electronic communications and data services are constantly changing; they require political control and regulatory direction. In the early stages of mobile telephony, the role of development banks was to accelerate development. Today, new opportunities are opening up for development policy-makers. In the sense of poverty-orien- tation, new incentives could contribute to improving supply in rural areas, and thus untie funds in favour of the development of rural infrastructure.

Furthermore, development efforts should be directed at closing the gap between mobile telephony and the fixed-line network. Doing so requires new regulatory approaches. This applies to the areas of convergence, cross-border services and incentive systems designed to stimulate competition in infrastructure. Accordingly, in East Africa, the last remaining gap in the global information infrastructure is currently being closed by laying an underwater fibre-optic cable system, connecting the region to the rest of the world. This will make possible more cost-effective and powerful access to the global fibre-optic network compared with the satellite connections used now. Business also has a huge interest in closing this gap and in laying the EASSy (East African Submarine System). However, the example of the west African equivalent SAT3 cable shows that business interests and socio-economic objectives do not necessarily correspond.

Germany and other bi- and multilateral donors have been called on to work together with African partners to remedy political and regulatory obstacles. In East Africa, national governments, NEPAD and the donor community want to promote free access to EASSy through competitive funding proposals and political influence. Furthermore, they want to cooperate with investors on adopting a cost-based system of charges, which would ensure that the cable has broad effect. In any case, the instruments available must be refined, for the purpose of EASSy and other projects, as well as for cross-border traffic in general. Innovative approaches to funding are being tested.

One example is least subsidy auctions, with the bidder asking for the lowest grant receiving the contract. Approaches like this point in the right direction. That is similarly the case for innovative incentive systems and the promotion of public private partnerships (PPPs). African partners should also get appropriate and targeted support for capacity building and IT application, particularly for e-health, e-education and e-government.

In this context, approaches to regulation and funding are often very technical. Those in charge, however, should not lose sight of the essential issues. What is at stake is not merely providing various countries with up-to-date communications sectors, thus boosting their economic performance. Rather, the primary objective is to raise the standards of life for millions of people.


Romeo Bertolini
works for the Germany‘s Ministry for Economic Cooperation and Development (BMZ) in the division “Regional development policy; Middle East”. This article expresses his personal view. romeo.bertolini@bmz.bund.de

Olaf Nielinger
is a consultant in the field of “ICT Policy Management and Regulation” for Detecon International.
olaf.nielinger@detecon.com

Monika Muylkens
works for the BMZ in the division “Co-operation with the business sector”. This article expresses her personal view.
monika.muylkens@bmz.bund.de




Sources:
EMC Informa Telecom & Media’s World Cellular Information Service:
World Cellular Investors, March 2006.
Gartner Dataquest: Forecast: mobile services, Africa 2000-2009, December 2005.
Vodafone, 2005: Impact of mobile phones in the developing world. http://www.vodafone.com/ assets/ files/en/ SIM_Project_download_3.pdf
Fink, C.; Kenny, C., 2004: A Digital Divide? The Economist, No. 3, 2004.