|Issue:||Africa and the Middle East II 2002|
|Topic:||Developing a free market economy: the way forward for mobile telecoms in Africa|
|Author:||Olivier Suinat and Ross Swarts|
|Title:||General Manager and Telecoms Account Manager|
The potential for mobile telecommunications development and growth in Africa is well documented and discussed. However ICT vendors, solution providers and consumers rarely dig deeper than the pure statistics. This is an issue, as countries across Africa face the challenge of moving from a heavily-regulated market to one that’s open and deregulated, marked by competition, high service levels and a broad range of offerings. For that to be successful, in-depth knowledge and experience is required by all who play a role.
Much has been made of the potential for mobile telecommunications expansion in Africa. Indeed, the majority of information and communication technology (ICT) vendors, partners or solution providers often go on record predicting growth in this market – as well as giving the ubiquitous comment about how the lack of legacy infrastructure creates no impediment to mobile telco installations. Simply agreeing that there’s positive growth in the size and spread of networks based on the Global System for Mobile (GSM) messaging standard in Africa does not pass muster for an accurate market analysis, though. How many operators are there in each country and what investment was made in licence auctions and infrastructures? How is that licence money used to promote or subsidise in-country telco services? What criteria do operators have to meet as part of their licence agreements? How does this influence the variety and level of service offered to consumers? How are these services priced – and are they competitive? These are key issues to be raised when attempting to identify the real potential for mobile telco expansion in Africa. And it’s crucial to consider the pivotal role played by governments and regulatory authorities. What kind of market have these bodies created – regulated or free? How does this impact local or foreign direct telco investment? And how can the public and private sector collaborate to create the most workable situation? Statistically Speaking Not to shirk the aforementioned trend of going on record with statistics about growth, the arrival of GSM technology and mobile phones has clearly revolutionised Africa’s business and personal landscape. To get a feel for the size of the market, the number of countries on the continent with mobile phones has risen from six to 42 over the past decade and more than 80 GSM networks have been installed. According to the ITU , in 1996 there were approximately 15 million phone users on the continent – 14 million fixed line and 1 million mobile users. Today, there are 50 million phone users: 22 million fixed line and 28 million mobile. The total number of users is expected to rise to 131 million in 2005 with almost 80 per cent of them favouring mobile technologies. OperationalCchallenges In the face of these figures, it’s clear why regional and international organisations are upbeat about mobile telco growth in Africa. And rightly so. A great deal has already been accomplished in terms of expansion and liberalisation. However, challenges to further growth remain. For example, governments are faced with the task of auctioning mobile telco service licences. They invite potential operators to bid on the licence, set base levels for that bid, monitor the process and manage the funds accrued as a result. The latter is no mean feat, either. How do they invest the money most effectively so telco operators and end users benefit? How do they control the cost of the licence to stimulate interest considering that a large investment in infrastructure will need to be made by the successful bidder? There’s also the issue of regulatory bodies. Typically linked closely to a country’s ministry of telecommunications, regulators face difficult challenges in creating a framework within which mobile operators can provide services. Should the consumer price of telco services be fixed, given that this will limit the potential revenue that operators can generate? What criteria should be placed on operators regarding the expansion of their network within a certain time frame? Together, these organisations face the issue of competition – how many potential operators should be allowed to have a presence in a particular market? They also have to tackle the state (or lack thereof) of the physical infrastructure that supports a mobile telco provider’s business. What fibre optic network backbones exist within a country and what would need to be built from scratch? How do governments and regulators present a business case for foreign investors when the initial fibre network investment is so high? Against this backdrop, new mobile telco operators also face their own challenges. How do they establish an infrastructure with relatively limited resources? Do they focus on providing excellent quality of service to a small geographic area; or do they expand their network to garner a large geographic footprint and work on service quality in due course? How do they meet customer needs and government criteria while generating a return-on-investment for their shareholders? Clearly, there are many questions for everyone involved. Thankfully, there are many answers too. Operational Utopia and the Free Market Economy From HP’s experience in Africa, it’s clear that a great many strides have already been taken on the road to liberalisation and expansion of the mobile telco market. We have worked closely with market players at government level, with regional and international regulators, with mobile and fixed line telco operators, with partners and systems integrators, and with mobile telephony users. This has led us to acknowledge, commend and appreciate the role that governments and regulators play in creating a market for mobile telco services. It has also shown us that it’s possible to create more progressive frameworks for operation that ensure mobile telco market growth will match or exceed the oft-quoted statistics. The critical elements of the questions posed above can begin to be answered by focusing on one key issue, one vital move that can be made to get the ball rolling: deregulation. In a deregulated market, governments, regulators, operators and other private sector companies work together to create a positive business environment in which mobile telco services can prosper – a free market economy, if you will. In this environment, governments would focus on stimulating market conditions so they are attractive for local and foreign direct operator investment. Regulators would agree on a standard framework for operation; relax price controls; set and monitor quality of service levels; ease the network expansion criteria that operators are required to meet; and assist with roaming and interconnect issues for local and international mobile-mobile and mobile-fixed line connections. The result would be the gradual integration of fixed and mobile networks that creates a backbone which benefits urban and rural telco users alike. In a free market economy, market conditions balance the price of services based on a willing seller, willing buyer principle. Mobile operators cannot overcharge as they will have no customer base. They cannot offer poor quality of service for the same reason. They can focus on good service in specific geographic areas because they are not tied to having a certain number of nodes in certain regions by a certain date. And in a free market, private and public sector bodies regularly put their heads together to evaluate the state of the market, the services that are being offered (and their price) and ways of making investment more attractive. Tackling the fibre optic network infrastructure question is also not as difficult as it may seem. While mobile operators may need to invest in their own fibre backbone in some countries, that should not be the case across the whole continent – huge network backbones already exist within certain parts of Africa. Take Nigeria as an example. The country has three private networks, each of which is capable of supplying communications to the country’s entire populace (the official teledensity in Nigeria is estimated to be approximately one in 3000 … that’s 400 000 lines for a population of 120 million people). These networks are not owned or operated by telecoms companies, though, but by companies in the oil, gas or financial services markets. These networks are not shared. And these private sector organisations cannot obtain a licence to offer public voice services over these networks, should they wish to. The first potential course of action could be to revise government policy on telecommunications, allowing non-telecoms companies to offer voice and/or data services over their networks. This is not a simple task but it is a solution that can be tabled for discussion. Another course of action could be to share some of the bandwidth on these networks, interlink the infrastructures and subsequently create a comprehensive converged backbone that’s more than capable of transmitting the voice and/or data volumes produced by the country. And yet another solution – one which is already gaining pace – is privatisation. Economic Implications Related closely to this infrastructure issue is the fact that wireless and satellite telco networks are not used purely for consumer communication in Africa – they are also basic for critical industries like the banking sector. For example, to enable credit card transactions, real-time connections need to be established between geographically remote sites. Unless a reliable telco backbone exists, this isn’t possible. Clearly, for an economy to grow, businesses need to be able to communicate. In doing so, they can create value, jobs, revenue and wealth for the nation. We have seen that in markets where GSM has taken off, a retail industry has been created around it. There are new retail outlets that sell mobile phones and pre-paid cards. It has therefore created employment and stimulated the development of a solid retail culture. In some cases, the advertising industry has also flourished as a result of mobile telecommunications. The operators’ advertising presence is, in many areas, extremely strong. Such an advertising and marketing culture can then be leveraged by other industries. Consider also the importance of distance learning or the increasing acceptance of telemedicine – the ability for doctors and non-governmental organisations to access medical information from around the globe, and for individuals to visit Internet sites to learn more about health and disease. This kind of information exchange can only be beneficial for urban, peri-urban and rural Africa. And it’s only possible with a solid telco infrastructure. Conclusion: The Quintessential Hard Decision What we’re advocating here is not a simple matter. Changing the regulatory conditions that govern the mobile telco market is tough and challenging. Suppliers need to work with governments, regulators and mobile telco operators to capitalise on the opportunity for African nations to leapfrog into a new telecoms model and provide proven, cost-efficient telco solutions that are packaged, adapted and delivered according to the needs of African countries. We see the potential for the integration of land-based infrastructures in cities with digital cellular and satellite-based networks in rural areas. We see the use of these infrastructures as crucial for other industry sectors – such as financial services, and oil and gas, among others. And we see markets flourishing where there are solid telco infrastructures. Of course, the shift towards free market economics remains fundamental to the success of mobile telecommunications in Africa. As a market observer recently commented with reference to South Africa, it’s important for government to be involved and it’s important for a regulator to exist … but if prices are fixed, the market is closed, there’s no competition and consumers are faced with limited choice – that’s not a deregulated environment. The operator suffers, the consumers suffer and little interest can be expected from foreign operators because the services that can be offered – and the profits garnered from them – are limited. Deregulation is, therefore, one of the key ways forward for mobile telco development in Africa.