AHEAD OF THE CURVE: Opening up the continent
Africa is a challenging telecoms market at the best of times but can the right strategies and investments help carriers to tap into this lucrative region?
With an estimated population of over 1 billion, Africa is the second-largest and second most populous continent in the world. And while some countries in the region are pressing forward with innovative technology and developments, other countries lack even the most basic of infrastructure.
Fixed-line and mobile broadband services are very much in their infancy and both are exhibiting a high annual growth rate across Africa. Over the last 12 months, the region has been heavily investing in infrastructure for both technologies.
In July, Algérie Télécom in northern Africa announced plans to deploy 20,000km of additional fibre by the end of 2015. Further south, in May 2014, the Tanzania Telecommunications Company (TTCL) invested $1.6 million in a network upgrade, designed to double its mobile network capacity.
“Unlike most other global regions, mobile voice traffic continues to be a key growth area for African operators,” said Chris Buist director at analyst firm Coleago.
The FTTH (fibre-to-the-home) Council of Africa is working to achieve greater network infrastructure across the continent, and Buist notes South Africa as holding great potential in this market.
“MTN has just launched its FTTH service, and Telkom, Vodacom and startup Vumatel also have implementation plans in progress,” he says.
John Melick, chairman at the Djibouti Data Center (DDC), says network grooming and expansion requirements are also key drivers of telecoms growth in Africa.
The DDC recently launched the Djibouti Internet Exchange (DjIX) and Melick says that this has “garnered tremendous interest as service providers can now peer locally in east Africa”. He also claims it can reduce costs typically associated with IP transit and latency, as well as improve network quality.
Mobile money remains the crown jewel of the African telecoms market. In 2013, the mobile payments market was valued at $600 billion globally, and in Kenya it is the country’s most popular service, according to research from telecoms IT solutions provider Tecnotree.
“Money transfer services continue to remain a key value-added service for operators,” confirms Stavros Vougas, VP for APAC and MEA at Tecnotree. “The recent LTE deployments which are enabling increased network capacity are likely to encourage more mobile payment service providers to enter the market.”
As well as mobile money, other value-added services, such as e-health, are picking up traction in Africa as mobile operators explore new revenue streams.
The GSMA announced a partnership with security provider Gemalto in July for the pan-African mHealth initiative (PAMI), designed to improve maternal and child health and nutrition in sub-Saharan Africa. These kinds of corporate social responsibility (CSR) initiatives do not just bring education and healthcare to more people, but they also help develop telecoms in Africa as a whole.
Poverty aside, carriers are facing fresh challenges across Africa. The aggressive entrance of OTT players in Africa, for instance, could limit opportunities for carriers.
“[OTT presence] has the potential to undermine revenue and thus investment for established operators if they don’t respond in the right way,” says Gagun Gahir, director of carrier services for EMEA at IDT Corporation.
Dialogue between OTT players and operators has to date been more limited than in western markets, where both parties have seen the benefits of a closer working relationship. In fact, dialogue in general can be a problem. According to Gahir, many non-English speaking nations are beginning to suspect that their choice of national language is holding them back in what is fast becoming an English-speaking business world.
Traditional difficulties countering the region’s vast scale and sheer number of landlocked countries remain, making it difficult to establish robust, reliable and resilient IP connectivity.
This is combined with the issue of accessing basic and stable power and electricity in order to run these networks in some countries. Other factors preventing telecoms growth are regulatory and governmental issues. “Some African governments see telecoms as the golden goose for short-term tax income,” says Buist.
Gahir agrees that some governments see telecoms as a “cash cow” for short-term revenue rather than as a driver of long-term economic growth, and this is a problem for operators which struggle to secure continued support.
Melick says that “stable regulatory environments” are a problem area for telecoms expansion as some regulators are unable to introduce cost-effective handsets for 4G and LTE mobile services. “Readily available LTE spectrum for competition, credible management teams and clear exit paths for investors are all challenges,” he adds.
Leading with LTE
Buist believes that LTE could act as a lifeline for Africa.
“LTE as a technology has the potential to considerably level the playing field where wealth distribution is concerned, but the ability for many to take advantage of LTE will take some time,” he says.
Despite the approximate dozen countries (including Liberia, Ghana, Tanzania, Nigeria, Zimbabwe and Ethiopia) that have already implemented LTE networks, roll-out across the region is slow, with the vast majority of networks in Africa still hovering at 2G.
International operators are playing a role in advancing LTE deployments. In April, YooMee Africa announced plans for the deployment of a TD-LTE network in Abidjan, Côte d’Ivoire on the west coast of the continent. The launch marks the Swiss operator’s first entry into the country, and highlights co-operation from national regulators.
There is also growing focus on deploying connectivity to rural areas of more developed African countries. “It is particularly positive to see the technology reaching far beyond the affluent central business districts and now incorporating the economically and socially deprived areas on the outskirts as well,” says Vougas.
Vougas expects these operators to take their expertise in providing rural connectivity to neighbouring markets, and at the end of April South Africa’s Vodacom, for example, won a tender for the roll-out of telecoms services to rural areas of Tanzania. The deal was part of the Tanzanian government’s Communications and Infrastructure and e-Government project (RCIP Tanzania) – designed to provide higher quality infrastructure in the country – and is a prime example of the success of support from regulators.
As well as internal support, Africa relies heavily on international investment, and the region could be a greenfield opportunity if approached in the right way.
“Africa needs $25 billion to build the next generation of internet-ready networks,” says Gahir. “It is a massive investment opportunity.”
Over the past three to five years, for example, huge investment has gone into tower companies which take over management of tower infrastructure from operators, and lease it back to them. This looks set to continue with the likes of Bharti Airtel and Vodacom having sold a number of assets to tower firm Helios Towers.
Airtel sold 3,100 towers across four African counties to Helios in early July 2014, in a deal valued at approximately $500 million and designed to help Airtel to reduce its debt and capital expenditure.
Buist also sees opportunities for international investment in rolling out fibre-optic networks. In East Africa, the construction of a fibre ring connecting five East African countries (Kenya, Rwanda, Tanzania, Uganda and Burundi) has just been completed by Liquid Telecom, to ensure reliable and continuous connectivity. Amb Dr Richard Sezibera, secretary general of the East African Community (EAC), the regional intergovernmental organisation of the five countries, says that the development was a huge milestone for the continent.
“By providing our nations with a 21st-century broadband network that directly connects us to each other and the outside world, Liquid Telecom continues to help the economic development of our region,” Sezibera adds.
Moving forward, a data tsunami is on its way, and with this comes new opportunities for OTT relationships and content delivery.
“African operators will seek to diversify and – to paraphrase Netflix – become OTT providers faster than OTT providers can become operators,” Gahir says.
According to research from Swedish vendor Ericsson, voice traffic in sub-Saharan Africa is forecast to double between 2013 and 2019, while data traffic is expected to surge by 20 times the existing rate for the same period.
Buist concludes that regulators will need to provide clarity and stability for operators when it comes to spectrum, infrastructure sharing and M&A activity, to allow for well-informed investment decisions.
“With the expected increase in data, these decisions will need to be made as soon as possible,” he says.