The big knock-down, drag out fight of industry talkfest AfricaCom 2014 was the Over-The-Top operators vs the mobile operators. In the event, the former arrived smiling and diplomatic, rather catching the more pugilistic of Africa’s mobile operators off-balance. Russell Southwood dips below the surface to take the temperature of Africa’s dazed and confused mobile operators.
The business logic is clear, only the timing remains to be settled. Everything including voice will soon be data. Without knowing what is happening, the women in a Lagos reception I saw contacting a friend using What’s App know this. And a friend who told me that Vodacom blocked him when he tried to use Skype knows this.
In a world where everything is data, there will be two types of companies and they will not be mobile operators: content companies and data companies. Everyone will want to make a hybrid of those two functions but for reasons that will become very clear later, it’s not easy to be half pregnant.
The clearest articulation of the new content narrative by a mobile operator comes from Millicom. It has appointed a former broadcast executive (from its sister company MTG) to a senior position. It is rolling out content services like a white label version of Deezer (very successfully already in Colombia and now coming to the continent), wants to do DTT and is contemplating Triple Play.
Alongside all this, it has made an investment in Rocket (along with MTN) in start-up company Rocket Internet and opened a small start-up incubator in Rwanda. It understands the payment channel is currently a barrier and is looking to address this.
Whether it will succeed or not with this strategy is not a racing certainty but it has wrenched some strategic clarity out the changing universe it finds itself in.
By contrast, the signals from elsewhere in the industry are not good. A big content producer who was at an event I attended and who is in “dialogue” with MTN and Vodacom told us that both would launch a VoD content play shortly: it would not contain enough content to compete with DStv and they would be doing nothing about data prices to help the market.
Another person again confirmed that “a big mobile operator” would be launching imminently. It had bought content on minimum guarantees (where money has to be placed up front before you get to use the content) and management was pressuring the team to make use of what they’d bought because of the amount invested. Interestingly, the network guys were not consulted and are having caniptions about whether the infrastructure will take the strain. Apparently, there are 66,000 Netflix users in South Africa, a significant number for a service that is not currently actually available there.
I moderated a panel called Monetising content: What strategies for the digital age in Africa? To spare the blushes of the panellists, I will refer to them by their company names but you can look them up ☺ The panel had two mobile operators (Airtel and Vodacom), a broadcaster-invested free-to-air platform (eTV-owned Platco), a digital advertising agency (Apurimac Media) and a digital publisher and ad sales agency (Ole Media).
I asked the panellists to imagine what the market would be like in five years time and what kind of percentage deals they saw evolving in the market. In other words, what percentage of the money in the value chain would stick to them. The broadcaster wasn’t able to answer.
The Airtel representative didn’t want to answer and spoke about developing the ecosystem and partnerships. Bill Hearmon in the audience helpfully shouted out 25%. The Apurimac Media representative also walked gently round the question but then said 50/50. The audience broke into a round of applause for this response.
The warming babble of partnership and developing ecosystems rings rather hollow. An audience member came up to me after the session and said he was getting 23% from Airtel. You can understand (if not sympathise) with Airtel’s position when you realise that its Africa’s subsidiary is loss-making despite heroic efforts to turn it round.
The Vodacom representative was quick to point out that it was a content company but he articulated with great clarity the dilemma of being so. He said its way of doing content had to be kept simple because it was also a bank (through offering m-money services), insurance company (through an increasing number of customers for m-insurance products) and a voice and data business. So to keep it simple, it was buying its content from aggregators who offer catalogues of content.
This almost perfectly replicates the already unsatisfactory relationship between SMS aggregators and mobile companies. You outsource the content curation to a third party and therefore leave the key business decisions to a third party. The very content choices that might differentiate you significantly from others doing the same thing are left in the hands of others. As with SMS, the content aggregator catalogues are all a bit “samey”.
He did say that they were investing in infrastructure to deliver content but that getting this infrastructure right and getting a return was a significant challenge. The difficulty for Vodacom is how to you get sufficient focus on this key task whilst running all the other businesses which in themselves are not going to be a walk in the park.
I then asked the Airtel representative where the power lay in the negotiation between the content owners and the mobile operators. I was told this was the wrong question so I asked another: what was the premium content it would be looking for?
And here the Airtel representative wandered into a logical cul de sac. He said that they would not be looking for premium content as they paid all content owners (and their representatives) equally.
Content business 101: The author who sells more books gets paid more. The music artist whose song sells better gets paid more. The TV producer whose series gets more audience gets paid more. You get the general idea. So why would a mobile operator wanting to differentiate its content offer from its competitors imagine that this informing principle would not apply to them?
While waiting to go onstage for the panel, a man from Orange leaned over and asked me during the presentation by Arun Nagar, Spice Africa: what did I think of music services? And then proceeded to tell me he didn’t think much of them. There is already a ringtone music business worth several hundreds of millions of dollars across the continent and your company owns a share in Deezer. What’s not to like?
In the bad old days when I started doing Balancing Act 15 years ago, there were the (generally state-owned incumbents) who found themselves challenged by the mobile operators. In the more competitive economies it drove them to make efficiency savings and in many cases to make drastic cuts to the number of employees they had. The mobile operators are now the incumbents and apparently MTN have announced cuts of 500 jobs.
In the first of the OTT vs Mobile operator sessions, the MTN representative came in guns blazing, saying he was not going to end up as a dumb pipe and no-one was going to take away their ability to derive income from the value chain. In the Ulster fashion, he was getting his retaliation in first. No-one has any God-given claim to the value chain and if operators would provide cheap, ubiquitous bandwidth, they would have plenty of customers.
Sadly all this testosterone-heavy, macho posturing is meaningless and he has not grasped how the power has shifted. Facebook can afford to be diplomatic as it already has a relationship unmediated by the mobile operator with its significant customer base. Its decision to work with the more intelligent mobile operators (who might also not be dominant players in their markets) is a sign it understands the bigger picture. For data to succeed in Africa, there needs to be content and services that will attract more people to use it. As one of the largest OTT services Facebook has a key role to play in this task.
In the old days, African users were so grateful that effective communications had arrived in the form of the mobile phone that they had figuratively, only to open the window and the money simply poured in. The challenges were considerable but the returns were above average.
The dilemma for the mobile operators is that data requires significant new and continuous investment in infrastructure and yields lower returns. Therefore in my view some operators need to focus on producing bandwidth that is actually lower cost than elsewhere globally. Arun Nagar, CEO, Spice Africa talked about mobile operators needing to think about what was the income yield to them per megabit which is a useful way to think about getting better returns. The man from Orange had left the auditorium by this point.
The success of voice in Africa was a supreme act of improvisation to overcome structural obstacles. Diesel is still delivered by boat and wheelbarrow in parts of Liberia. The diesel costs and delivery charges for it in Nigeria are staggering. As a result, Africa is significantly more expensive at many levels than elsewhere in the world.
Until the mobile operators concentrate on addressing this problem, they will be trapped by lower margins and steady loss of any control over the value chain. On current evidence, they have not yet articulated a strategy to address the hole they find themselves in.