With a subscriber base of over 830 million, Africa is one of the fastest growing telecom markets in the world. The continent’s vast geographical spread and disparate economic development make it a challenging, yet very interesting market. The introduction of wireless technologies has proved to be a game-changer for Africa’s telecom industry and the growth in the number of mobile subscribers has been phenomenal. While it took more than two decades for the continent to notch up the first 100 million wireless subscribers, the next 100 million were added in less than four years, and growth has been on the rise ever since. Even though 2G connections continue to dominate the region, 3G networks have grown at a brisk rate in recent years, with many countries now experiencing a 4G wave.

Mobile telephony has also had a positive and significant impact on social and economic development in the region, which is reflected in the growing adoption of mobile money services. Further, Africa is a leader in the adoption of digital and mobile-enabled applications in the areas of commerce, health and education.

The liberalisation of the sector, the entry of multinational conglomerates and increasing competition have all contributed to Africa’s telecom revolution. According to the African Development Bank Group, the private sector has invested $50 billion-$80 billion in the past decade in the continent, with a focus on mobile and related applications, and more recently in international submarine cables. Even as some of the telecom markets in Africa inch closer to satur-ation, the telecom sector presents immense opportunities for both operators and vendors around the world.

Current status

Wireless subscriptions in most of the countries in the region have recorded a compound annual growth rate of 20-25 per cent between 2010 and 2015. Nigeria is the largest market in terms of subscribers, followed by Egypt and South Africa. The northern side of the continent is relatively more well connected than its counterparts, as most countries in North Africa have achieved a teledensity of 100 per cent or more. Consequently, the growth opportunities offered by these countries in terms of pure voice-based mobile communication are going to be limited in the future. In contrast, small markets such as Kenya, Sudan, Zambia and Senegal, where telecom penetration continues to be modest, present significant growth potential going forward.

Internet and broadband penetration in the continent is among the lowest in the world. It is estimated that internet usage in Africa currently stands between 20 per cent and 30 per cent. This is low as compared to the 35-45 per cent registered in the Arab countries and the Asia-Pacific region, and even lower when compared to the European (over 60 per cent) and American markets (over 70 per cent).

Evolving policy and institutional landscape

Most of the telecom markets in the region have grown from conventional publicly owned telephone monopolies to include a host of new private players in the telecom domain. The telecom markets in Libya and Ethiopia, however, continue to be largely state controlled. Some governments have even privatised their former state-owned enterprises, while others have gone a step further and opened their markets to international operators.

Many countries are now also moving towards universal licensing regimes, which will allow service providers to offer a host of services (wireless, wireline, internet and broadband) under a single licence. For instance, Angola’s telecommunication authority allowed its four fixed network operators, including state-owned Angola Telecom and MSTelecom, to compete with mobile operators Movicel and Unitel in both the mobile and fixed line sectors.

Further, the African governments have, from time to time, introduced policy measures to facilitate ease of access for consumers. These range from introducing facilities such as mobile number portability (for switching between operators while retaining numbers) and stringent tariff regulations to encouraging operators to remove inactive subscribers from their networks. A number of markets such as Ghana, Uganda and the Ivory Coast have introduced mandatory SIM registration schemes.

Market structure and participants

There have been two key outcomes of liberalising telecom policies – inter-country expansion of home-grown players such as the MTN Group, which currently has operations across 16 countries in Africa; and the entry of major international players such as India’s Bharti Airtel, UK-based Vodafone Plc, France’s Orange Telecom and UAE-based Etisalat in the region. In 2010, Bharti Airtel acquired Kuwait-based Zain Telecom’s African operations, which was among the biggest deals in the region. Currently, Airtel has operations across 17 countries.

Market structures vary widely across the continent. While some markets such as Ghana, Nigeria and Tanzania are highly fragmented, several others such as Ethiopia, Mali and Angola continue to be served by one or two players.

Key sector trends

• Data uptake:  Like other emerging telecom markets in the world, Africa too has embarked on the transition from voice to data services. The launch of 3G/4G services, increasing smartphone adoption as well as an overall awareness about the benefits of data services have resulted in a higher uptake of mobile broadband. Among the various 3G-enabled markets in the continent, Libya, Ethiopia and South Africa have high proportions (between 30 and 50 per cent) of subscribers accessing 3G services. The 4G market, on the other hand, is still at a nascent stage in the continent. Services are available in a limited number of markets such as South Africa, Uganda, Angola, Tanzania and Namibia. Several other countries are in the process of firming up their plans for service launches.
• Smartphone adoption: Affordability is the most important factor driving smartphone adoption in these markets. The entry of several international and local handset manufacturers has made the smartphone space highly competitive, which, in turn, is playing a key role in driving down the price of handsets. GSMA Intelligence estimates that the average selling price of smartphones is now 20 per cent lower than it was in 2008 in Africa. Mobile operators are also devising ways to encourage smartphone usage among their subscribers, as it provides opportunities to sell data services. In South Africa, mobile operators have designed contracts wherein they offer smartphones on an instalment basis to help consumers avoid paying steep one-time acquisition prices. In other markets such as Nigeria and Zimbabwe, bank-led device financing schemes are also available. The continent’s smartphone market is expected to double in the next four years, with the average smartphone penetration expected to surpass 20 per cent by 2017. Better coverage of 3G and 4G services as well as increasing affordability of handsets will give a major boost to the segment. According to industry estimates, if the average price of smartphones comes down by $10 to around $90, approximately 100 million more people could have access to these devices. The “sweet spot” for mass adoption, however, would be in the $25-$50 range.
• Infrastructure sharing and outsourcing: Sharing of base transceiver stations and towers has helped operators in reducing capex while improving network coverage. In recent years, deriving value from selling and outsourcing tower assets has become an attractive proposition and many operators have adopted this route through different models (joint venture/asset sale/operation and maintenance/co-location rights).
• Telecom driving socio-economic growth: Mobile phones with high speed internet connections are proving to be a tool for empowerment, and social and economic development in African markets. Mobile money services have been a clear success in the region, so much so that they now act as a quasi-currency in many countries. The M-Pesa service, launched in 2007 by Safaricom in partnership with Vodafone, holds great promise for the large unbanked population in Kenya. Its increasing adoption over the years has proved to be a boon for the operator, as well as for the Kenyan economy as a whole. Currently, the service has a strong user base of around 20 million and close to 40 per cent of Kenya’s GDP flows through this payment platform. The service has also been successful in countries such as Tanzania, Egypt, Lesotho and Mozambique; however, its uptake in South Africa has not been up to the mark. In recent years, several other operators such as Econet Wireless and Bharti Airtel have followed suit and launched similar services for their subscribers in Africa.

Challenges

While Africa may be commonly characterised as a single marketplace, in reality, its markets are highly diverse in terms of their economic growth, telecom maturity, regulatory structures, etc. Disposable incomes vary, which can have a significant impact on operator and handset manufacturer strategies. An additional challenge for improving coverage in a number of countries is their sheer geographic scale.

With the entry of new players, several markets have become overcrowded. While increased competition benefits consumers by driving down tariffs and improving service quality, the model is highly unsustainable from an operator’s point of view. The ARPU decreased by about 80 per cent between 2001 and 2011 on account of increased competition and this, in turn, has had a strong bearing on operator profitability.

The amount of spectrum allocated for offering mobile services in Africa is amongst the lowest worldwide. Most of the countries in the region have spectrum between 200 MHz and 300 MHz, which is much lower than the 500 MHz of allocation common in developed markets. Inadequate spectrum impacts the quality of service, and there have been several instances of patchy coverage and black holes for mobile broadband.

Tardy approval processes for tower and fibre roll-out, as well as difficulties in obtaining right of way are the main issues for operators investing in the region. Further, the limited reach of grid-based electricity and supporting infrastructure, specifically in rural areas, make the roll-out of telecom services extremely challenging.

Growth opportunities

Like other emerging markets, African countries too have a high level of multi-SIM users. As a result, the unique subscriptions in the region stand at just 25-35 per cent of the total wireless subscriptions. This figure is very small compared with the global average of 50 per cent, or that of developed regions like Europe, which stands at 80 per cent. The low unique subscriptions in Africa indicate that there exists a huge population base that is yet to be connected.

Further, the millions of unserved rural people present a significant growth opportunity for operators. In the past, the onus of providing services in rural areas lay largely on the countries’ governments. Operators have shied away from foraying into these markets primarily due to the high cost of service provisioning and lower returns. However, as most of the urban markets are now nearing saturation, operators are keen on tapping the rural potential.

Operators in Africa are also increasingly exploring opportunities to expand the range of their product offerings beyond traditional voice services. They are tapping new business segments such as enterprise customers; have revived their fixed line services for offering high-bandwidth applications; and are expanding their service portfolios with mobility solutions, machine-to-machine services, cloud computing, managed services, etc. The line between IT and telecom services is fast blurring, and operators are partnering with IT companies to offer a host of services to end-users. The value-added services space is also witnessing significant activity, with operators in the region partnering with app developers across the world to cater to the needs of their subscribers more efficiently. Mobile payments and commerce are among the most promising areas, reflecting the potential of mobile and broadband services to reach Africa’s large unbanked population and enable them to participate in mainstream financial services. As per the GSM Association, at the end of 2014, 53 per cent of all live mobile money deployments across the world were located in sub-Saharan Africa.

Conclusion

Africa continues to present immense opportunities for growth, given the disparity in mobile penetration levels, population base and economic growth across countries in the region. The sheer size of the population that is yet to be connected makes Africa a lucrative destination for investors and telecom companies alike. While voice services will continue to be the mainstay of operator businesses, data and new enterprise solutions are poised to be the key focus areas for them. The affordability of smartphones and the growing availability of 3G/4G services are likely to result in the mass adoption of high speed internet services.

Africa features on the list of regions where significant growth – in both subscriptions and revenue – is expected over the next five years.