The final frontier
AFRICA’S telecommunications market is set for rapid consolidation over the next few years. That’s the view of Vincent de La Bachelerie, global telecommunications leader at Ernst & Young, who says while the telecoms market in the developed world is highly consolidated there’s still a high degree of fragmentation in that market in the underdeveloped world – more specifically, Africa.
De La Bachelerie says over the past few years there’s been a strong focus on the massive growth in mobile users in both China and India. However, as those markets mature, there will be a switch in focus to Africa, which is still considered the last real growth opportunity.
Marc Chaya, partner at Ernst & Young’s business advisory services, says part of the reason for expansion into Africa is that growth in Asia has enabled cellphone manufacturers to drive down the cost of their handsets to a point where they’re affordable for most potential customers. Says Chaya: "In Asia we’ve also seen the penetration growing in even the poorest countries, such as Bangladesh and Pakistan, indicating there’s the potential for mobile services to penetrate far deeper into the market than previously thought."
In addition, Chaya says there’s evidence that even in areas viewed as uneconomical to deploy telecoms infrastructure, the provision of telecoms services acts as a potent stimulus for economic activity.
De La Bachelerie says Africa’s population growth over the next 40 years is also expected to outstrip that of China and India. "United Nations figures show the population of Africa will grow to 2,15bn by 2050 from the current figure of around 800m. Africa has between 10 and 12 major players in the telecoms field but what’s interesting is that those are no longer bound by the classical colonial boundaries. You need only look at MTN, which operates in a number of French-speaking countries, and France Telecom (which recently bought Kenya Telkom) to see how the market is changing." De La Bachelerie says operators are in three main groups, based on where their headquarters are: African, European and Middle Eastern.
Julia Lamberth, lead telecoms director at Ernst & Young, says one of the anomalies of telecoms in Africa is that 40% of operators control only 1% of the market and those small companies are the likely acquisition targets.
However, despite the presence of strong players, Chaya says no single operator has yet been able to build a true pan-African operation. He says industry insiders have been surprised at the level of consolidation thus far, explaining that a few years ago they would have been expecting more than the 10 major players that currently exist.
Lamberth says the market is starting to see the big operators positioning themselves for acquisitive action, such as Zain (previously MTC/Celtel) revealing it has US$500m to leverage acquisitions throughout Africa.
However, operators will be faced with the pitfalls of vastly differing regulatory regimes continent-wide. "The key factor that telecoms operators need to worry about is the stability of regulation," she says, adding: "That was seen in Benin, where MTN had to shut down its network when the government changed the terms of its licence with very little notice."
Some countries have very open regulatory systems while others (such as Ethiopia) still restrict access to the market. Ethiopia is considered one of the last "virgin" markets in Africa, as it has less than 1% mobile penetration and a population of more than 50m.
Due to the expected growth in telecoms in Africa, Ernst & Young is expanding the reach of its Global Telecommunications Centre to include Africa. It also has centres in Paris, Beijing and Mumbai. De La Bachelerie says instead of centralising its African centre in a single location it will have a presence in Johannesburg and Abidjan, in the Ivory Coast. "That decision was made to accommodate the fact that our expertise on the continent is focused on those two hubs and it simply didn’t make sense to force people to relocate."
African telecoms – give your views
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