Africa: a continent of big risks and big rewards
01 January 2009 |
It’s the last great frontier for telecoms, and African operators are having to work inventively as they move to connect up the continent and meet pent-up demand.
Connecting Africa’s people to each other, to the internet and the global economy may be frustrating but is always exciting, challenging and ultimately rewarding. Governments want a connected public sector and to move from slow paper systems to working and learning at the speed of light.
Africa is a wireless story where GSM rules: reaching areas fixed systems cannot, mobiles are connecting people wherever they are. “The African mobile revolution is vast and will have a greater impact than the internet revolution in the developed world,” enthuses Peter Gbedemah, Gateway’s CEO.
Innovation is the sine qua non of African telecoms; operators are creating inventive ways to meet huge pent-up demand. Adapting to local conditions, they are installing base stations powered by renewable energy, overcoming literacy/language barriers, creating new offers to get and keep customers and are making money despite low
ARPUs. Taking what works in one country, they are rolling it out in others. Competition is reducing prices and access to even the most basic services is spurring economic development, supporting small businesses and improving daily lives.
Big Middle Eastern, Asian and European operators are moving into sub-Saharan Africa where demand and growth are phenomenal. Pyramid Research predicts capacity will increase tenfold within two years.
IDC estimates there will be 617 million mobile subscribers by 2012 (from 275 million end 2007). West Africa has 99 million subscribers growing to 185 million by 2012; north Africa’s 115 million will increase to 177 million; 40 million in east Africa will become 87 million and in southern Africa, the current 77 million will grow to 119 million by 2012.
With around 52 mobile subscribers a population of some 157 million, Nigeria has overtaken South Africa as the biggest telecoms market.
Growth is huge
Richard Hurst, programme manager for communications/networking, IDC says: “Although there may be big risks there are big rewards in Africa. Access will always be mobile: operators have no choice. Building fixed-line infrastructure costs three times more than wireless and copper theft is a huge problem. GSM is king and base stations cheaper than satellites. The major challenge for operators’ margins is low ARPU but growth is huge.”
According to Analysys Mason, 27 new operators have launched in the last three years, 80 new mobile licences were awarded between 2005 and 2007 and penetration is only 28%. Among the smaller telcos, Orascom operates in north Africa; Millicom around the equator and Vodacom in the south.
“There are sound business reasons to go to Africa where there are growing markets with significant future prospects,” believes Robert Schumann, lead consultant at Analysys Mason. “Stock markets are growing, banks more reliable and capital more readily available. Many regulators want best practice, do not always protect incumbents and have very sound economic bases for growing telecoms.”
Despite burgeoning demand, handsets and tariffs can be expensive but both are falling as operators introduce creative packages and low value vouchers. New or secondhand phones cost between $10 and $20. “Although prices are relatively high compared to income, the value to users is even higher – people get enormous value from making calls,” explains Schumann. “Operators can reduce costs by sharing sites and using the same tower which is happening in many countries, especially Nigeria.”
Consolidation is creating pan-African operators with economies of scale: most smaller operators will soon be part of bigger groups. Along with Europeans, Middle Eastern/Asian-owned operators, MTC (which rebranded Celtel as Zain), MTN and Etisalat are increasing continental footprints, buying, building and launching new networks.
MTN is acquiring companies and building fixed and mobile networks to provide integrated communications throughout its 21 African operations. In Rwanda it doubled its customer base in one year and will increase it by another 50% to 60% within the next three. Its Zambian business is growing at 75% and Uganda at approximately 30%.
Currently operating in 15 countries, Zain has recapitalised putting it in a good position to acquire new companies and accelerate growth. Seeing over 10 acquisition opportunities, Chris Gabriel, Zain’s CEO for Africa, wants to close at least three within six months. Having bought a 3G licence in Ghana in early 2008, Zain has launched services and is bidding for Rwanda’s third GSM licence.
Indian giant Essar recently acquired 49% of Econet Wireless International which owns 70% Econet Wireless Kenya.
Vodafone has spent $900 million buying 70% of Ghana’s incumbent and will invest $500 million in network development. It has a 40% stake in Kenya’s Safaricom and recently increased its share in Vodacom (to 65%), which will become a subsidiary.
Vodacom is buying all but the broadcasting business of African wholesale and large enterprise operator Gateway which will continue as an independently managed company, delivering connections to customers in 40 countries. “There are around 12 significant players: the overall trend is for more infrastructure, scale, investment and therefore huge consolidation,” says Gbedemah.
Working in 16 African countries, France Telecom also has a 51% stake in Telkom Kenya where it invested E58 million in 2008 in upgrading fixed networks and rolling out converged services under the Orange brand.
Adapting to local conditions
Rather than following western models, telcos are devising systems and solutions adapted to local conditions. “People are looking to change traditional rules of engagement. Unlike the huge complexity in developed markets, there are simpler frameworks of offering services and models than in the west,” explains Gordon Rawling, senior director telecommunications/marketing, Oracle. “We are seeing operators trying to use a replicable model across the continent in the way they run businesses, applications and capabilities. Wallet sizes are smaller so operators have to be inventive to make money: there are lots of interesting things happening.”
In a continent where few have bank accounts, mobile payments are taking off. Supported by the Kenyan central bank, Safaricom’s popular regional M-pesa service allows subscribers to transfer money between people and across national boundaries. Competition will heat up as MTN and Zain launch mobile money services in east Africa which they will likely expand throughout their operations.
Inventive new distribution networks tap into existing channels: SIM cards and handsets are sold through local entrepreneurs running small shops or market stalls. One person in a village may have a phone and resell airtime to multiple card holders. Having alerted people by SMS, Zain drove a lorry loaded with phones and scratch cards into a remote village and sold 10,000 phones within hours.
MTN’s distribution network includes street vendors and market stall holders who buy off wholesalers. “Operators must move into the African mindset and cannot import European practices. Networks must be accessible and affordable. The African self-employed market is huge – people want to buy in small amounts and spend as they go, so MTN offers small denomination prepaid vouchers and low roaming tariffs,” explains Tim Lowry, VP, south east African region for MTN.
Getting connections to where they are needed has spurred inventiveness. Powered by hybrid combinations of sun, wind, batteries and diesel, wireless base stations can now be located outside the electricity gird. Even macro base stations can now be solar powered. The GSMA is working with industry to develop renewable energy systems aiming to power 118,000 new and existing off-grid base stations in developing countries by 2012. “Most African sites run 24x7 on diesel: MTN is the largest single diesel buyer in Nigeria. Around 80% of costs are linked to site construction costs, generators, diesel tanks, fencing, maintenance, fuel delivery and hiring guards,” explains Thomas Sonesson, COO sub-Saharan Africa for Ericsson. “New technologies minimise the number of sites needed to cover larger geographic areas.”
Operators are rolling out remotely monitored “green” sites saving on spiralling diesel costs. Safaricom has 30 solar and wind-powered base stations in Kenya. Alongside hybrid sites, Orange has deployed
35 100% solar-powered base stations in Senegal covering 3,500 customers each and plans for 1,000 across Africa by end 2009. Orange aims to use the 25% energy surplus sites produce to improve local living conditions.
In Nigeria, Zain has trained villagers to run and maintain their sites thereby creating employment and protecting equipment from possible vandalism or theft – an initiative it is introducing in other countries. “Hybrid diesel and battery-powered base stations result in 54% savings and in trails, renewable energy saves 91%,” explains Zain’s Gabriel.
Working with Ericsson, Zain has installed 22 environmentally powered base stations covering around 80% of Lake Victoria’s fishing area where 3,000 to 5,000 fishermen die annually. Mobile connections to emergency services will improve safety.
To reduce customer costs, six east African operators have cooperated to remove international roaming charges between Kenya, Uganda, Tanzania and Rwanda. Subscribers top up using local currency and vouchers and pay home network tariffs anywhere within the system.
Similarly, Zain’s borderless One Network currently eliminates international roaming charges in most of its territories including some Middle Eastern countries and aims to include all. Customers can make calls and text at local rates within One Network, receive incoming calls free and top up with scratch cards bought in any participating country. They have access to all home services including local language help desks.
Ericsson and Columbia University are collaborating with Zain, MTN and others to connect refugee camps and remote rural areas in 10 countries. The aim is to stimulate local business development, deliver mobile telemedicine, health, education and emergency services and develop agriculture applications. Sony Ericsson is providing phones to health clinics and community health workers and solar-powered chargers can recharge around 30 mobiles daily. Ericsson’s African innovation centres are trialling different technologies and developing applications specifically for the rural poor.
Housed in converted shipping containers, three internet cafes in Tanzanian cities are connected to Vodacom’s HSPA network and more are planned. Acting as M-pesa agents, they also sell other Vodacom products.
“Telecoms transforms and can save people’s lives, giving them instant access to health officials and information,” enthuses Gabriel. “Phones save time – people no longer have to walk miles.” He adds regulators and governments realise that lowering the entry costs of licences, equipment and handsets means faster network penetration, while reducing taxes translates into more sales.
Regulators are encouraging competition and network build to stimulate telecoms development. They are issuing universal licences so operators can deploy the most suitable technologies for local conditions. “We are not applying for standalone 3G licences but prefer to get global/universal licences covering all technologies to launch internet services and upgrade to 3G,” explains Anne Bouverot, executive VP, international business development, Orange. “We are mixing technologies in countries where we are the major operator. The market is largely untapped and businesses totally underserved.”
Satellites provide backhaul, national, continental and international connections and fibre is being built but there are comparatively few fixed access networks. Anthony Vonsee, GM, emerging Africa region, Cisco says: “The cost per capita to connect people in Africa by fibre or copper is approximately 40 times higher than in Europe. Mobile operators are building metro-rings via macro base stations. It always comes down to the ROI for any technology choice but operators implementing next-generation IP backbones will be more successful.”
Operators are using HSPA and 3G to meet for demand for broadband applications. “There are around 20 3G licences now with more to come during 2009: the mobile industry in sub-Saharan Africa alone will be worth $50 billion in the next five years,” estimates Gabriel Solomon, senior VP at GSMA. “The fixed market has been stagnant for decades: in South Africa HSPA competes and wins against DSL on price, performance and instant broadband connectivity. The key challenge is how to get a step function in backhaul – operators are investing in cable and microwave and more satellites are going up. Wimax will play two roles: for backhaul and business connections.
“Governments recognise they must open up, make regulations transparent, must trust and enable the private sector. It is vital to open up international gateways for cross-border traffic. Where governments partner with operators to build networks, deployment is faster, penetration higher and costs lower.”
Wimax is being used for fixed/nomadic public sector and business applications and for point-to-point backhaul. In Kenya it provides last mile connections in rural areas. Alcatel-Lucent is building Wimax networks for Vodacom trials in South Africa and talking to Angolan and Libyan operators. Daniel Levy, GM for Africa, Alvarion, counts around 100 Wimax networks: “Cheaper than VSATs, with the same or higher bandwidth, operators are using Wimax to target internet cafes. It is used with satellites as last mile access in rural areas and instead of copper and DSLAMs in cities.”
Although spectrum is widely available, many countries are carrying out frequency audits. According to Ashish Sidhra, TME practice managing consultant for Capgemini: “Some regulators don’t know who’s using what frequency and since allocations are not clear, the QoS is not always good.”
Building out networks
Metropolitan fibre rings have been built in capitals and big cities and are slowly being connected to cross-border networks. “Mobiles are generating a lot of fixed business in building pan-African networks connecting countries – big highways are needed,” says Vincenzo Nesci, president, ME/Africa, Alcatel-Lucent. Hundreds of kilometres of national and international fibre are being strung from electricity poles or laid along rail lines. Fibre is being built from Cape Town to Zambia; throughout Nigeria and East Africa and from Namibia to Rwanda.
MTN is building a transnational fibre network. “From an operator’s perspective, these are big markets with reasonable profits. The biggest challenges are keeping up with demand and rolling out networks which must be re-engineered to accommodate local conditions,” explains Lowry. “We have significantly increased capex in all markets and spent at least twice if not three times as much in 2008 as in 2007 building our own transmission networks in several countries, linking them together and to the world. Providing international connections creates an explosion in demand.”
Two of the three east coast submarine cables are finally expected to go live in 2009. IDC’s regional manager Francis Hook expects the Kenyan Government/Etisalat backed Teams cable, connecting Mombasa to UAE, to start in Q1; Seacom, landing all down the coast to southern Africa, is committed to begin at the end of Q2. The 10,500km Eassy cable will now deliver regional capacity of 1.4Tbps and is due to go live second half of 2010.
Providing high-speed links to global information systems, these cables will dramatically change the economies of connected countries supporting similar social and economic development as happened in west and south Africa. “It will happen faster because wireless will reduce the cost and time delays of building fibre access,” says Michael Foley, CEO east Africa at Essar Telecommunications. “All base stations in Nairobi and Mombasa are connected by fibre and there are links to Uganda, Rwanda and Burundi.”
The west coast Sat3 submarine cable is full and expensive (around $2,000 to $5,000 per Mbps compared to $5 to $10 from London to New York). Prices vary according to who is buying what and governments are threatening to regulate access unless costs fall. South Africa Telkom may run a cable up the west coast for extra capacity. The Nepad broadband initiative aims to link all landlocked countries to subsea cable landing sites by fibre.
For many countries satellites are still the only reliable, ubiquitous, international networks but they can be costly and capacity is under pressure. Connecting rural/remote areas, landlocked countries and offshore oil rigs, VSATs provide high-speed global and continental connections for multinationals and satellites backhaul mobile and submarine cable traffic. With over 40,000 VSATs throughout
Africa, Hughes Network Services provides guaranteed fast connections for governments, businesses and operators. “The basic challenges are lack of space segment over Africa and landing rights in some countries,” explains Soheil Mehrabanzad, assistant VP for Africa/Middle East, Hughes Network Services.
These are exciting times in Africa where operators are working smart and creatively, reducing capex and opex and achieving economies of scale.