THE next two to three years will be challenging for African telecoms operators as the industry adjusts to a changed way of operating, according to a new report.
Prices of basic communications are expected to fall to between 3 and 6 US cents (27c and 54c) a minute from current highs of more than 10 US cents a minute due to competition among operators.
The industry is expected to shift attention from the upper classes and a focus on voice traffic to the mass market and a drive to gain a more significant share of data services.
According to the research, about 70 percent of the collective revenues from the cellular network business in sub-Saharan Africa is generated by the continent’s top five operators: MTN, Vodacom, France Telecom and, to a lesser extent, Bharti Airtel and Millicom.
The report from global management consulting company AT Kearney, titled “Africa telecoms at a crossroads”, was unveiled in Johannesburg yesterday.
Laurent Viviez, the head of Africa telecoms at AT Kearney and a co-author of the report, said, however, the paradigm shift offered substantial long-term prospects.
Viviez said among six things that would have to be on the agendas of telecoms chief executives to create a path for renewed profitable growth was a sounder economic environment for the industry.
He forecast that several small-scale second-tier operators would disappear through consolidation in the market or shutting down loss-making operations, and he cited Telkom’s withdrawal from Multi-Links in Nigeria.
“It’s very simple. In telecoms there is a direct correlation between market share and profitability,” Viviez said, adding that at least 20 percent market share enabled an operator to be profitable.
African governments, however, also needed to relax high taxes on companies, especially on import tariffs such as cellphone handsets and personal computers. He cited the example of MTN, which represented 5 percent of total tax income in Ghana in 2008.
Smarter pricing and differentiated value propositions, new services, operational excellence and continued network investment would be key to growth.
Data and cellphone value-added services in Africa are expected to grow at 16 percent a year to reach $14 billion over the next four years.
Viviez suggested that advertised cellphone penetration rates are an illusion. AT Kearney data show in Africa SIM card penetration is about 70 percent due to multiple SIM ownership, so real penetration is about 35 percent. By the second half of this year in South Africa cellphone penetration was 128 percent of the population “but the real level is closer to 70 percent of South Africans having a cellphone”, he said.
Meanwhile Mark Jennings, the investment principal of the Investec Africa Frontier Private Equity Fund, said that investors searching for growth in the industry “would do well to look in the field of infrastructure outsourcing”.
“Investors should take heed of the fact that the mobile voice phone market in sub-Saharan Africa has grown by 61 percent on average over the last 10 years and we see no reason for this growth to end – just to take a different route.”
Last year the fund invested in IHS, a Nigeria-based independent telecoms infrastructure provider that builds and manages cellphone tower networks owned by cellular network operators in Africa according to a model termed “co-location”.
Jennings said since Investec’s investment, IHS grew from owning 270 towers in one country to owning close to 3 000 towers in three countries.
“Their most recent milestone is the conclusion of an agreement with MTN to acquire its more than 1 750 towers in Cameroon and Ivory Coast,” he said.