|Issue:||Africa and the Middle East 2007|
|Topic:||Africa – the jewel of mobile communications|
Moez Daya is the CEO Africa for MTC/Celtel. He served previously as Celtelís Chief Technical Officer. Mr Dayaís previous experience includes positions as an executive engineer at BT Mobile, as an Executive Director and Head of the cellular planning group at Cellnet (now O2). Mr Daya was also one of the founders of MSI Plc and Product Director of MSIís flagship software product (Planet) before joining Celtel as Technical Director. Mr Daya has a BSc in Electrical and Electronic Engineering from Bath University.
In 2005, the total number of mobile customers in Africa grew by 66 per cent to 134 million. In 2006, it expanded again by 40 per cent to186 million mobile users, about a fifth of the continentís population – far faster growth than in Europe or the United States. Forecasts suggest that Africa will continue to be a major area of growth for the next five years, with the total number of mobiles in use by 2011 reaching 350 million. Yet we should bear in mind that there are still some 700 million Africans today without a phone. Although the push for economic liberalisation and privatisation across sub-Saharan Africa in the 1990s met with limited success, the mobile telecommunications sector has been able to circumvent many of the pitfalls in this process mainly because mobile telephony required new infrastructure and was not under the control of government monopolies. Licences have tended to go to bidders in a fairly transparent manner, within a regulatory environment conducive to investment, which has totalled more than US$25 billion to date. Development impact Africans embraced mobile technology because of the significant advantages that it offered. Areas where customers could afford mobile phones were connected first. The prepaid model suited the cash-based reality of most Africans. Moreover, it relieved the operator of the impossible burden of collecting revenues on a continent with marginally developed banking infrastructure. Mobile phones were not simply a convenience, but a tool that significantly improved the quality of peopleís lives. With practically no fixed-line telephone infrastructure in place and an unreliable postal service, families often dispersed over large geographic areas were now able to stay in touch with one another. Similarly, small- and medium-size enterprises found it much easier to conduct business. Recent research by Waverman, Fuss and Meschi of the London Business School suggests that mobile telephony raises long-term growth rates and that its impact is twice as powerful in developing countries as in the developed world. For every ten per cent increase in teledensity, an African country can expect an additional 0.6 per cent growth in GDP. Moreover, it is generally recognised that mobile phones have improved the overall business climate in Africa and increased the transparency of local and regional markets. The challenge for the mobile industry over the next five years will be to increase market penetration in areas with some coverage and improve coverage especially in rural areas where disposable incomes tend to be much lower. This will take a concerted effort on the part of operators, equipment vendors and governments alike. Countries such as India and the Philippines have shown that doing so can be very attractive to both governments and the private sector. Lowering the cost of ownership – especially the cost of handsets – will take away an important barrier to entry. Important initiatives by the GSM Association and equipment vendors are showing promising results and low cost hand sets below US$20 should be available in the near future. If operators succeed in reducing their capital expenditure on networks, through site sharing, this benefit can be passed on to customers, especially in rural areas, where returns for operators may otherwise be marginal. Finally, governments can play their part by lowering taxes and limiting licence and spectrum fees in the knowledge that the cellular operators are major taxpayers and contributors to development, whilst excess taxation can ultimately lower government receipts by limiting growth. Another important contribution to the ICT sector the government could offer is to increase the availability and reliability of electrical power. Today, telecom operators in Africa depend largely on generating their own power requirements through diesel generators, which significantly increases the cost of operating networks. Market trends Past growth in the penetration of mobile telephony has typically exceeded forecasts. Nevertheless, it is worth considering how current trends suggest future development will proceed. Mobile penetration will increase Despite the rapid growth, penetration of telecoms remains low in sub-Saharan Africa in particular, and the telecoms market can look forward to healthy growth over the next five years. Current mobile penetration in sub-Saharan Africa is between ten per cent and 15 per cent. Based on most market forecasts, this percentage will double over the next five years. There are good reasons for such optimism: ï sub-Saharan African economies are almost all expanding, with many experiencing GDP growth of four to five per cent a year; ï official statistics are often a poor reflection of the populationís actual purchasing power. In many sub-Saharan countries the informal economy is 30 – 80 per cent of the overall economy; ï African mobile users are spending on average between US$6 and US$35 per month on telephone services – a healthy revenue stream to justify the significant investment that is required for the expansion of network infrastructure; and, ï the combined capital expenditure of African operators should exceed US$30 billion over the next five years, significantly increasing coverage and capacity across the continent. To connect the millions of Africans currently without telecom access, operators will have to focus on cost effective network growth, requiring high traffic volumes to offset declining average revenue per user, ARPU, and the significant investment necessary to expand rural coverage. Voice will still dominate For African mobile operators, voice-based services constitute on average 95 per cent of revenue. Data services make up a mere five per cent of overall revenues, of which SMS accounts for 90 per cent. Therefore, operators will continue to focus their attention and network roll out on increased coverage for their voice-based services. There are, however, important data developments: ï a total of 47 networks across the continent have launched GPRS/Edge, General Packet Radio Service /Enhanced Data rates for GSM Evolution, services. Although the market for GPRS is still small, it allows operators to test the market for data services without having to make significant investments in 3G networks. It also enables operators to retain their highest ARPU voice customers, who tend to be GPRS users. ï faster handset replacement cycles and migration to 3G in Europe will ensure a flow of second-hand GPRS handsets into Africa. Once the handsets become more affordable, GPRS services may pick up; and, ï a number of partnerships between mobile operators and banks have seen the launch of mobile banking and money transfer services, for example in Kenya and South Africa. In the long term, the real drive for data adoption will come from higher mobile data speeds and an increased PC penetration leading to higher Internet usage, which should result in increased demand on mobile devices. However, the relatively high cost of PCs, a limited level of literacy and power supply issues will limit the size of the mobile data market in the short term. Although the market for data services will experience growth over the rest of this decade, new data service providers using WiFi or WiMAX networks will have to focus on specific markets, such as Internet services and business data services in urban areas. The mobile operators will introduce voice over IP telephony, VoIP, but only gradually. Investment While there has been significant consolidation, the telecommunications market, like many sectors of the African economy, is still quite fragmented. This may be about to change. As the ICF, the Investment Climate Facility for Africa, seeks to remove obstacles to trade, the mobile industry is leading the way via, for example, the recent removal of all roaming charges for customers across six nations in Central and Eastern Africa. This trend towards removing barriers will continue, through service extensions and by ownership consolidation. Another significant development has been the growing interest of Middle Eastern and Chinese investors. High oil prices have generated excess capital in the Gulf, which is seeking investment opportunities outside of the region. In 2005, MTC acquired Celtel International, a strong regional mobile operator with a presence in 14 markets in sub-Saharan Africa, for US$3.4 billion – the first investment on this scale by a Middle Eastern player in sub-Saharan Africa. This acquisition triggered further consolidation, as other investors saw the value generated by acquiring African telecoms assets. Last year, Africaís largest mobile operator, MTN, acquired Investcomís 13 operations in the Middle East and sub-Saharan Africa. China is already investing heavily in Africa, especially in the extractive industries, and Chinese telecoms equipment vendors are extremely active on the continent. Overall, if the investment commitments made during the Beijing Summit of the Forum on China Africa Cooperation in November 2006 come to fruition, China will soon overtake the World Bank as the main financer on the continent. Over the past decade, the mobile phone has transformed Africa, boosting economic development and improving social conditions. Yet, especially in sub-Sahara, the challenge remains to connect the 85 per cent of people without a phone and to use the mobile network infrastructure to offer innovative and relevant services beyond voice.