|Topic:||Unleashing digital delivery in Africa|
Gabrielle Gauthey is Executive Vice President in charge of Global Government and Public Affairs for Alcatel-Lucent. She is also President of Gitep-Tics, the French telecom industry association.
Ms Gauthey began her career with France Telecom. In 1990 she became General Secretary of the “Invest in France” agency. From 1995 to 1997 she was adviser to François Fillon, Minister for Posts, Telecommunications and Space Affairs. From 1998 to July 2000 Ms Gauthey was Deputy CEO of Sofirad and CEO of “Le SAT”, the first satellite-based operator of French-language digital TV and radio services in Africa. Till January 2003, she was Director of the Information and Communication Technologies Department at the Caisse des Depots et Consignations, responsible for investment in the” regional digital development” programme by mandate of the State. From 2003 to 2008 she was Commissioner at the French Regulatory Authority for Electronic Communications and Posts (ARCEP).
Gabrielle Gauthey is a graduate of the Ecole Polytechnique and holds a postgraduate degree in economic analysis.
The telecommunications sector and its traditional voice-based value chain is changing profoundly. Operators need new revenues to invest and survive. In Africa, the telecom sector still has to face numerous basic challenges and a many new ones as well. Mobile data usage is exploding and traditional service providers need to innovate to generate revenues to make the investments needed to thrive in the new environment. Africa is undergoing a major socio-economic transformation; the mobile revolution will help further this transformation.
Africa in the global mobile data explosion era
There is no doubt that mobile data explosion has occurred in the world with a magnitude and speed that we have never experienced in the past.
According the latest GSMA: Mobile Economy 2013 report, 6.8 billion mobile connections have been reached in 2012 globally. Mobile data volumes have demonstrated a remarkable 78 per cent CAGR between 2010 and 2012 and it is predicted that a sustainable 66 per cent CAGR will be observed between 2012 and 2016 worldwide.
Streaming video and music will represent at least 50 per cent of the traffic by 2016 according to the 2012 Alcatel-lucent Bell Labs Index. People watch one billion views a day on YouTube mobile and traffic from mobile devices tripled in 2011 25 per cent of global YouTube views come from mobile devices (Youtube statistics)..
In Africa, mobile growth has even been more spectacular over the last decade (the highest with a 30 per cent CAGR over ten years according to the GSMA). The continent is also the second largest mobile market in the world in number of connections after Asia. The mobile has already revolutionized communications and helped reduce the digital divide dramatically.
Despite this admirable performance, mobile penetration remains low compared to the other continents (less than 53 per cent in 2011), leaving much of the rural population in Africa un-connected.
This mobile performance also remains hampered by the delay in the development of Internet and fixed network infrastructures. In fact, wired networks are underdeveloped and practically absent in many African countries. The growth curve of broadband is in its infancy and the continent accounts for only five per cent of broadband Internet users worldwide in 2012.
In the absence of fixed infrastructure, there is no doubt broadband will mainly be mobile. For instance, 2.5 million out of the 3.5 broadband connections (about 70 per cent) in south Africa were based on 3G/HSPA In 2012. The total fleet of internet subscribers in Morocco was a little less than four million in 2012, of which 83 per cent were 3G subscribers.
Between changing business models and local content ambitions
The serious shift in the value chain is a major disruption faced by the traditional Telcos. They first are experiencing the end of a model based on voice: the one hundred years’ old model dating from Graham Bell, relying on the selling of minutes of voice priced according to the distance no longer prevails. Today they are unable to monetize increasing data traffics through traditional business models.
They are also faced with increasingly unbalanced data interconnection agreements with powerful and bandwidth hungry ’OTTs’ that can jeopardize the efficiency of the network and the quality of experience (QoE) for consumers.
As a result they are reluctant and even unable to finance the necessary upgrades in their networks.
At the same time it is true that much of the innovation and growth comes from these OTT’s, either powerful search engines (Google), leading social and media networks (Facebook, Youtube) or important device manufacturers and applications stores (Apple, Android). They enjoy quick revenue growth, stunning increase of their market capitalization, and for sure very different Price/Earning ratio than the traditional service providers.
They moreover have very different business models, and are often global players, while operators are mainly local and regional players.
In Africa and as highlighted earlier, data services and internet are only at the beginning of their growth curve leaving room for analysis and planning, but also raising other important questions with regards to the origin of internet services and content.
The vast majority of internet traffic in Africa is ’imported’. Content is located in servers that are based outside of the continent frontiers, incurring inevitably additional demand and cost for international capacity.
The landing of several submarine-cables connecting Africa to Europe and to the rest of the world has contributed to reduce international connectivity cost and improve capacity. Nevertheless, most governments, policy makers, and some private initiatives in Africa are tackling the local content issue. Some examples hereafter to illustrate such efforts:
• The past few years have witnessed the creation of a number of ’innovation hubs’ referred to as local ICT development clusters (LIDs) – such as BantaLabs in Senegal, iHub and NaiLab in Kenya, and Hive CoLab and AppLab in Uganda.
• Home grown applications such as MXit, a South African mobile social network, has become the most popular social network in its home country, has expanded to reach more than 50 million users across Africa and is now gaining momentum worldwide (source: http://site.mxit.com).
• Internet exchange points (IXPs) are progressively growing in Africa allowing savings on international capacity costs and contributing to improved quality of service. The establishment of an IXP enables local internet service providers to connect directly together and exchange domestic traffic thereby reducing or eliminating tromboning and saving cost on international transit and reducing latency. Countries like Nigeria and Kenya have already benefitted from deploying IXPs.
• Over one million customers were able to use facebook for the first time thanks to the Orange and Facebook initiative that made the service accessible from any telephone in the African via USSD (Unstructured Supplementary Service Data).
With these observations in mind, we can state that the future of the Telcos and OTTs is linked in Africa even more than in any other geographical zone.
They must realize that they need to join forces with governments and policy makers to assure the on-going digitization of the African society.
OTTs stimulate internet-based services and content usage in Africa. At the same time, they need to reach as many subscribers as possible even in the most landlocked countries and for this, they need the Telcos.
What are the solutions to finance the huge investment gap?
A combination of the two following options is likely to be needed:
a. Engage in new business models between the OTT’s and the service providers, allowing for a fairer distribution of the value chain. This means offering wholesale pricing schemes based on service gradation related to differentiated QoS in bandwidth, latency, jitter, security, etc. These wholesale interconnection agreements should allow a rebalance of the unbalanced interconnections mentioned before and as much as possible be based on multi lateral, open protocols and standards and not only on bi-lateral agreements.
In a nutshell service providers should indeed be proud to be pipes…but smart ones.
It is therefore essential to allow service providers to manage their network and offer these differentiated offers of course under certain conditions:
-non harmful discrimination towards users or competitors
-increased transparency, which means the disclosure of quantitative information available with today’s techniques to network users concerning their actual bitrates, capacity , traffic , content managements practices in order to empower them with what they need to know to make informed purchasing decisions and informed use of the services they purchase (even if of course this transparency might be difficult to apply in the same way in a fixed and a mobile environment because of the laws of physics and the location uncertainty of the subscribers) -this management should also not be at the expense of the necessary investment in the increased capacity of the network.
b. Second, imagine new investment models
The net-neutrality debate must not distract all the key players from the more crucial, more urgent and more difficult one: how to fund the increased capacities needed to deal with the tidal wave of the data traffic growth?
There is little doubt that the first solution based on new business models will only be one part of the solution and that it will not alone solve the whole equation.
New investment models based on infrastructure sharing need to be assessed and should be encouraged; they are in fact gradually emerging all around the world both in the field of wireline and wireless next generation access. Informa Telecoms & Media predicts in 2013 that network-sharing and operator consolidation will sweep through emerging markets, especially in Africa.
In a wireline environment, the network is composed of mainly three distinct layers with very different characteristics concerning their cost and return on investment. The first one, the passive layer (civil works and dark fiber) accounts for almost 80 per cent of the cost with around 15 years rate of return. The second is the active infrastructure layer, which concentrates the intelligence of the network and has a five year rate of return. Then the service layer has as we know again very different costs and even shorter rate of return. It is a mistake to pretend financing these three parts in an integrated and homogenous manner.
The passive layer is the foundation of all the others and has all the characteristics of an essential infrastructure; it should therefore be shared, co-financed as much as possible and open to all.
In the wireless domain also there is an increasing incentive to share next generation networks :
– first the increase in capacity will come from a densification through small cells (with wireline backhauls – in this sense the future of wireless is wireline.) However the scarcity of sites in dense areas and the increased environmental sensitivity will lead the operators to share sites and even Radio Acess Networks (RAN).
– second the increased scarcity of spectrum, especially for LTE where broader channels are needed will force operators to increasingly share the spectrum. The Government of Kenya is leading an effort to create an open wireless access wholesale national operator leveraging Kenya’s digital dividend DD band to deploy LTE access technology based on a public private partnership (PPP).
– last but not least, the viability of the duplication of three or four parallel networks in rural areas is highly doubtful
The telecommunications sector has faced deeper changes in the past few years than ever before. The unprecedented mobile data explosion and the serious shift in the value chain faced by the traditional service providers have brought to surface the need for innovative thinking to unleash digital delivery, monetize network assets, and promote investments. The African continent is undergoing a major economical and social transformation and is witnessing an unprecedented mobile revolution which will no doubt underpin this transformation. It will require more than ever a harmonized and collaborative effort to address the increasing demand for internet services and connectivity. It is most likely that the most disruptive challenges are still ahead and the African continent will be no exception.