NEWS ANALYSIS
Ten tips for investing in Africa
Touted for so long as the land of opportunity for telecoms investors, Africa is on the brink of a deal that is could transform its competitive landscape.
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hat does the long expected deal between Indian carrier Bharti Airtel and emerging markets giant Zain say about the state of the African market?
That Zain does not regard Africa as profitable and that it wants to focus on its more “lucrative” MENA footprint? Or that Airtel sees such potential that it is prepared to spend almost $11bn as a means of entering this land of opportunity? Towards the end of March, following months of specula-
tion, Zain’s board of directors met in Kuwait to discuss Bharti’s $10.7bn offer for the Kuwait-based carrier’s sub-Saharan African assets. The due diligence process had been completed and a definitive agreement is expected to be signed by the time you read this. Analysts at Informa Telecoms & Media say the case for Africa as an attractive investment destination is based largely on subscription growth potential. At the end of 2009, there were just over 450 million active subscriptions across the region, accounting for a penetration rate of below 45 per cent. Such is the preponderance of multi-SIM activity in Africa that in fact single user penetration is closer to 35 per cent and with Informa forecasting that half the region’s population will remain unconnected in 2014, the potential for connecting new customers is therefore tremendous. But there are obstacles to be overcome. As Zain discov-
ered, the big challenge is how to create a profitable business from a typically low revenue generating population that is also geographically dispersed throughout unconnected rural areas. And understanding the complexities of Africa’s many diverse markets is critical, not least with several different regulatory directives and competition with as many as five or six other carriers.
It is with this in mind that Informa principal analysts Nick
Jotischky and Matt Reed have put together a specialist guide to investing in Africa’s mobile telecommunications market in ten steps.
Tip one: Be innovative on pricing
Mobile tariffs in much of Africa are high compared to those in some other emerging markets. For example, Zain Kenya’s lowest tariff is about $0.04 per minute, for on-net calls. Compared to India, where Reliance Communications offers tariffs that are as low as $0.01 per minute. The fact that tariffs in Africa are relatively high is
reflected in ARPU levels. In 4Q09 blended monthly ARPU across Africa as a whole was $10.49—but in India blended monthly ARPU in 4Q09 was much lower, at just $2.73. According to Informa, operators that employ a lean,
efficient business model, like that pioneered by operators such as India’s Airtel, which is known for its extensive use of outsourcing to keep operating costs down, will be best- placed to run a profitable operation on low tariffs.
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Tip two: Leverage existing trusted supplier relation- ships and create partnerships
At a time when operators are looking to transform their network-centric business to one that is service-led, there is the danger that supply chains can become even more fragmented and complex. While this business transformation concept is as real in Africa as anywhere else in the world—end users demand the most relevant services—networks also remain a major concern. Indeed, the quality, reliability and range of a network can still be a differentiator in Africa, especially as operators look to rural expansion for new customers. Operators in Africa are fighting for differentiators on at least two fronts. This means that any carrier aiming to build up a pan-regional business must work closely with its partners for reasons of cost efficiency and because any supplier partnership will have a vital impact on its operational delivery performance. The supplier landscape for the operator has become clut- tered and confusing.
Tip three: Focus on operational delivery, outsource those services that are not core
As long as its partner relationships are sound, the operator should be able to focus on what a growing number of providers see as being core to operational success (customer, financial, regulatory and brand management). It is these fac- tors that will drive strategy and ensure that pricing levels are competitive, the distribution model is robust and efficient, and that an operator’s products and service portfolio meets the needs and demands of its customers.
Africa has seen a huge rise in the number of managed
service contracts being awarded. By volume, Africa now ac- counts for approximately a quarter of all managed service contracts. The African region has many traits that will help drive the need for managed services. Firstly, as a competi- tive marketplace, operators want to reduce the time to market for new technologies and for launching new serv- ices. Mobile operators too are keen to show that they are more than just dumb pipes and build up their brand equity. To achieve this, operators are aware that they must focus on service enablement and value creation, rather than net- work management or back-office functions. With customer relationship management also imperative to striving for customer loyalty, outsourcing anything that is not seen as a core competency is becoming more appealing.
Tip four: Create network sharing agreements to reduce opex and facilitate rural expansion
There is some visibility of network sharing in South Africa, Nigeria and Ghana, but in general, the model in Africa remains limited. Generally an operator-led initiative, most of Africa’s mobile operators remain tight-lipped when it comes to network sharing, unwilling to give away any competitive advantage. However, something that any investor would need to
remember is that, while network sharing would help an operator bring down costs, in Africa, structural costs would still remain high, due to power »
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james.middleton@informa.com
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