|Trends in the African mobile broadband market
Richard Hurst is a senior analyst in Ovum’s Emerging Markets team, and is based in Johannesburg, South Africa. Prior to joining Ovum, he worked as program manager for Communications and Networking Africa at IDC South Africa, where he was responsible for IDC’s telecoms and networking research, analysis, and consulting services across the African continent.
Mr Hurst has published various studies covering market sizing data as well as forecasts on the use of fixed-line and mobile wireless technologies including GSM, CDMA, ADSL, Wi-Fi, and wireless broadband. This research has also included an investigation of the regulatory environment and how current and future changes are expected to impact market developments and future growth. In addition, Richard Hurst has led consulting projects for various financial institutions to assist in testing the validity surrounding the business cases of new network ventures.
Richard Hurst graduated from the University of South Africa where he received a BA in Economics and Politics followed by an MBA at Milpark Business School.
Competing broadband technologies in Africa are analysed by Ovum. The forecast shows high growth for HSPA, but other access types (WiMax, WCDMA) will continue to serve broadband connectivity. The launch of 3G services will depend on political and regulatory issues, as well as costs. Despite the appeal of business users, it is envisaged that the carriers’ strategy for 3G will hinge on the consumer mass market. However, they must consider how to manage traffic with the potential hike in data consumption, and balance this against cost of infrastructure.
The African mobile broadband market is growing at an incredibly fast rate, with Ovum’s most recent forecast predicting that users will hit approximately 277 million by 2015. That represents a compound annual growth rate (CAGR) of 40 percent, from 2010 to 2015. In contrast, we anticipate that Africa’s fixed-line market will decline by a CAGR of – One percent for the same forecast period.
The need to meet the pent-up demand for access to data services, the lack of fixed-line infrastructure and the increasing affordability of services are undoubtedly key drivers of the market. Meanwhile the affordability of small-screen devices such as smartphones and feature phones, over big-screen devices such as laptops and tablet computers, is having a huge impact. A massive 79 percent of mobile broadband connections will be for small-screen devices in 2015, the highest figure in the world. This has huge ramifications for mobile operators as their business model becomes more challenging, as services for big screen-devices usually command a premium. On the flip side, the huge take-up of small-screen mobile broadband connections also offers operators a great opportunity to bill for value-added services.
3G connections will continue to grow
3G services arrived in Africa with Emtel in Mauritius – the first to go live during the fourth quarter of 2004 – followed closely by the launch of 3G services in South Africa via operators Vodacom and MTN. Other networks have since gone live with services in Kenya, Tanzania, Nigeria, Egypt, and Ghana, to name a few.
Currently 3G services are available in 24 African countries with more than 54 networks live, offering access speeds between 1.8Mbps and 7.2Mbps. A large majority of these operators have introduced HSPA services, despite the fact that a larger portion of the connections are on the WCDMA platform.
According to our research, the number of 3G 3GPP connections in Africa at the end of 2010 stood at 39.5 million with 21.5 million on WCDMA technology. Meanwhile the number of HSPA connections stood at 17.9 million. In Africa, HSPA currently represents 3.5% of total mobile connections; Ovum expects this to rise to 19 percent or 188 million connections by the end of 2015.
An interesting element of the African 3G environment will be the rise and fall of CDMA EV-DO connections. These connections are set to rise to 22.9 million by the end of 2014 before dropping off to around 21.5 million in 2015. However, Ovum believes the market driver for this is likely to be the fixed wireless applications rather than a pure mobile 3G play. The number of CDMA 1xRTT connections is expected to peak in 2010 at 14.6 million connections before dropping off to 3.5 million by 2015. The reasons for the decline are the ongoing substitution of WCDMA and HSPA as well as CDMA EV-DO.
Most operators have opted to approach the African market with caution, as characterised by their insistence on access to the appropriate spectrum, a thorough assessment of market penetration, network usage, and the overall cost of rolling out a network. In light of this, network operators have often restricted 3G coverage to the urban areas based on market appetite and network planning.
LTE has been propelled to the forefront of next-generation access
LTE (Long-term Evolution) has been recognised as solution to the problem of bringing broadband to the masses in Africa and will drive the next wave of growth in the market. The technology has now risen above WiMAX in terms of importance to emerging markets such as Africa, with the growing industry consensus surrounding LTE, and the large investments from the vendor community propelling it to the forefront of next-generation mobile access. The number of LTE connections is expected to rise to around 3.9 million in 2015, accounting for roughly 0.4 percent of 3GPP connections.
Figure 1: African mobile broadband connections, 2008–15
Uncertainty around WiMAX will continue
Ovum believes that mobile WiMAX will still have a role to play in the African broadband market but the lack of mass market traction implies that this will be limited to a niche or selected role, most likely serving as a fixed-line alternative technology to meet the demand for basic broadband access and services. In this instance it is likely that the 16d standard will prevail as a broadband platform.
New submarine cables will boost uptake
The recent commissioning of a number of submarine cables around the continent is expected to give a boost to broadband uptake in Africa. We expect the market to gain additional impetus following the commissioning of various submarine cables – SEACOM, TEAMS, Global One, and Main One – which will boost international capacity. Mobile network operators are expected to take up this capacity and begin driving Internet services to customers for simple applications such as social networking, email, and even mobile video streaming.
Prices will drop as capacity becomes available
As more international capacity becomes available at a lower cost to ISPs, these cost reductions are set to lead to a noticeable drop in tariffs. Broadband prices in Africa remain one of the highest in the world, as indicated by our study: ‘Broadband pricing in emerging markets: a comparison of DSL, HSPA and WiMAX’.
Operators will look to data services to arrest declining average revenue per user
Network operators in Africa face the challenge of deriving additional value from customers as the ARPU across the region experiences a decline. Mobile data offers network operators a tool to begin arresting the decline. Operators have tackled the issue by offering content and services such as news, ringtones, and rich media served to the small-screen, be it a smart phone or feature rich device.
The regulatory environment remains challenging
The regulatory environment as it pertains to the 3G market across Africa remains one of the major concerns for network operators. Licensing fees, access to spectrum, and the overall effectiveness of the regulator in being able to regulate the markets are among the principal concerns.
3G licensing in some African states has been a protracted process, with little clarity surrounding timeframes, prices, and spectrum availability. The delays have been brought about by a mixture of political uncertainty in some instances; corruption and bureaucratic red tape in others. In addition, operators are becoming increasingly wary of regulatory change and the arrival of additional competition into the market.
Some African states have sought to streamline the licensing process, having adopted a more horizontal, service- and technology- or platform-neutral approach to licensing, often referred to as convergence or unified licensing. A number of states have sought to introduce measures such as a licensing regime, either via legislation or regulation.
The unified licensing regime has meant that regulators are attempting to structure their licensing framework to be more conducive to the arrival of MVNOs and similar operators in their markets.
Regulators across the continent are starting to open their markets for 3G, with Algeria, Gabon, Burkina Faso, and the Ivory Coast offering tenders for 3G licenses which are expected to be issued in the next 12 months.
The costs of 3G licenses have also varied across Africa, with licenses and spectrum fetching between US$25m (in the case of Kenya and the Communications Commission of Kenya), $80m for the Tunisian 3G license awarded to Tunisie Telecom, and US$150m for the 3G licenses awarded to MTN Nigeria, Celtel (Now Airtel Nigeria), Globacom, and Alheri Engineering.
Network operators must balance network and service strategy
For network operators, the 3G African opportunity needs to be addressed with a degree of caution and planning. The key issues will be access to 3G licenses and spectrum at the most appropriate price. This is expected to determine product and service pricing as well as market segmentation strategies from the operators. Despite the appeal that business users present to network operators, Ovum believes that the most appropriate strategy may be a mass-market one, driving ARPU up while increasing or securing a subscriber base.
However, operators need to consider carefully how they will manage the traffic generated by their drive to increase data consumption. The issue first came to the fore in developed markets, but the meager cost base on which mobile network operators function in emerging markets makes it a real risk. However, it is here that operators are most likely to innovate – so there is also an opportunity for those that are prepared to think creatively.
Price sensitivity will affect the vendor opportunity
For equipment vendors, the African 3G opportunity is expected to revolve around the price of network equipment, devices, and the willingness of network operators to take advantage of the opportunity.
Vendors will also need to look at the opportunity as part of a long-term relationship with the operator. To this end, ancillary services such as network planning and consulting will play a vital role, particularly in the complex 3G network environment and ecosystem.