African telecoms in 2010
The telecoms and Internet sectors in Africa have come out of 2010 with greater confidence but there’s that nagging feeling that things will never be the same as they were in the earlier golden years.
This year saw the arrival of the EASSy and Main One cables but still no sign of a fully operational Glo One yet. Main One looks set to extend itself to South Africa.
O3B will not start its service until the first half of 2013, well after all the remaining international cables (WACS and ACE) are finished. Prices for international fibre keep coming down, although it’s happening more quickly on the east rather than the west coast of Africa.
With some exceptions, satellite operators and resellers are either reporting some degree of revenue loss or through gritted teeth saying things are “holding steady.”
Absorbing the bandwidth increase
Operators of all kinds ramped up their bandwidth requirements considerably in 2009, some by as much as ten times as they finally got their hands on even cheaper bandwidth on Africa’s east coast. So for those selling international bandwidth, 2010 was inevitably a somewhat quieter year.
The steady downward cascade of retail Internet prices was slower than might have been anticipated but it’s begun to happen. However, operators are still not wholly confident about new markets like retail household broadband and mobile Internet.
After years of selling premium price bandwidth to corporates, it needs a different mindset and attitude to branding and quality of service that is not yet completely in place.
Everyone cannot do everything
Coming out of dealing with over-staffed and unreliable incumbents, it was hardly surprising that mobile operators did not trust others to do things like provide network infrastructure for them. So a number of mobile operators have poured money into acquisitions and fibre network roll-out.
But 2010 will probably go down as the year when many companies realised that it was not possible to dominate the national or international fibre space in Africa: it’s just too big and will cost too much. So what’s the alternative?
There seems to be two prongs to it. If at an international level you can create a structure several companies will trust, why not at a national (or indeed cross-border) level? The approaches may differ between small markets (with an SPV like the Burundi Backbone System) to more informal alliances over trench digging as has happened in South Africa.
The second prong is more virtual alliances (think airline service companies) where several companies are able to offer a single branded service to move traffic around the continent: in other words, putting together the bewildering jigsaw puzzle of fibre network that is coming into existence so that it can work in some more unified way.
Will 2011 be the year the wheels come off the vertical integrators?
The new incumbents like Safaricom and Sonatel have steadily entrenched their position by ever extending their service offer. No market is healthy where over 80% of the revenues are controlled by a single entity.
For those companies in this happy circumstance, it has seemed to be an unassailable position. But trouble is on its way for the vertical integrators from a number of different directions. Niche competitors may yet have a more successful service focus than the “do-everything, control everything” big company: having a single person the customer can contact does not solve the complexities of cross-departmental team working.
Price competition in Kenya from Airtel is at last beginning to take some of the shine off Safaricom’s dominant position. And for some countries, a regulatory challenge to abuse of dominant market postion may yet move up the agenda. A number of regulatory frameworks have quite precise definitions of dominant market position and they are often set at 25-30% market share.
More complex Internet use means more bandwidth
Where retail Internet prices have come down, the number of Internet users has jumped considerably: the introduction of mobile Internet has reinforced this trend, particularly where operators have been in fierce competition.
The Internet in Africa used to be just e-mail and web-browsing: it was like sucking a thick milk shake through a very thin straw. Despite this challenges, Africa’s 18-34 year olds put sites like You Tube in the Top 10 most used sites for those African countries analysed by Alexa.com.
Facebook use has begun to explode across the continent with over a million users in Nigeria and over three-quarters of a million in Kenya. It’s an order of magnitude different to the scale of mobile subscriptions but remember this is just the beginning of the process. The transition from SMS to mobile Internet is under way for an ever larger numbers of users.
The US$50 smartphone is not too far off and feature phones at US$25-30 (with a Snaptu-style interface) will be bought by the less well-off.
How can you not have one when some of your friends are already on Facebook and are downloading cool music and clips?
Imagine what the mobile Internet market might look like in both advertising and content terms if 50% or more of the market had access to a smartphone or a feature-phone? Broadband data drives revenues will replace revenues lost as voice ARPUs and SMS revenues shrink.
The services and apps ecology
As attention shifts from building network to providing service and applications to African users, there are some big challenges ahead. Thus far Africa’s mobile operators have loaded the dice too much in their own favour in terms of revenue splits.
They have also not really paid enough attention to how content can be developed in the medium to long term as smartphones and feature rich phones replace handsets offering basic SMS. The operators will protest that they take the percentage slice they do out of the value chain because they do all the marketing and there’s more than a grain of truth there: few African content providers have built well-known brands or have the money to do so.
Apps appear to offer a tantalising way of African developers generating enough money, both on the continent and elsewhere. But a number of key players are suspicious of proprietary apps and fear the inevitable consequence of Africa’s larger mobile operators sitting astride the market with their own apps stores.
Africa’s not facing this problem alone as it’s part of a bigger global issue but money makes things harder in Africa. The top You Tube channel generated millions and millions of views but its operator got the princely sum of just over US$120,000 for his troubles: this is no way to finance a content ecology. Since it’s either going to be advertising and/or pay-per-view/use, this is something Africa will again perhaps have to find innovative ways of tackling this issue in 2011.
The mobile phone as Africa’s credit card
There’s a strange counter-argument going about that M-Money services have not really taken off in Africa. The reality is that in those countries where they have been between 12-18 months in the market, they have gained critical mass and are now widely used.
The next stage of development is the steady weaving of a web of relationships with merchants to accept M-Pesa for everywhere from African supermarkets to the more traditional market stalls. Beyond that, operators have to figure out a way to create seamless interconnection between the users of different M-Money systems.
The problem’s not a technical one but again an issue of mindset: mobile operators believe that they can somehow do better by themselves than with all the potential customers interacting.
What might be born if the whole M-money proposition didn’t sit so uncomfortably between the banks and the mobile phone companies, would be the phone as a credit card. Not the ridiculous spending limits found in developed countries but helpful modest credit amounts that can be paid back after a month that will iron out the ups and downs of life in the informal economy.
Great disappointments of 2010
Expresso (not yet more than the sum of its parts); Portugal Telecom (what happened to the African expansion strategy?); Telkom SA’s African expansion strategy; the Global Voice Group (Nuff said); the non-arrival of MVNOs; and the lack of success (so far) of insurgent challengers.
African telecoms in 2010 << Comments and views
Source: Balancingact-Africa
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