NEWS ANALYSIS

james.middleton@informa.com

shortage and poor infrastructure. Furthermore, would existing operators really want to share their infrastructure with a new competitor? Interestingly, network sharing has been prevalent in India

for some time now with more than one third of all towers shared (as of June 2009), according to Informa estimates. The fact that this is the case has helped in the continued rapid rise in subscriber numbers across rural areas.

Tip five: Maximise mobile data potential

There is substantial opportunity for growth in mobile data services in Africa. Demand for data services is great and the arrival of new undersea cables should remove some of the bottleneck created by Africa’s lack of international connectivity. The fact is that this demand will be met mainly by wireless rather than wireline connections. To illustrate this, the number of HSPA subscriptions in

Africa was 3.09 million at end-3Q09, almost double the 1.41 million subscriptions recorded one year earlier. With fixed broadband scarce in Africa—the rate of household broadband penetration across the continent was just 2.26 per cent at end-3Q09, according to Informa—the demand for data services must be met mainly by mobile operators. Although data revenues are still significantly lower than

voice revenues, there is no doubt that the strongest growth over the next few years will be in data rather than voice. Mobile voice revenues in Africa will rise from $44.41bn in 2009 to a peak of $48.49bn in 2012, before falling back to $46.63bn in 2014, according to forecasts by Informa.

Tip six: Build on potential of WiMAX for Africa

Globally the prospects for WiMAX may have dimmed somewhat in the past couple of years, partly as a result of the strong growth of HSPA, which is often seen as a rival to WiMAX, and partly as a result of a lost appetite for network spending. But Africa still offers WiMAX technology a home. The very

low rate of wireline broadband availability combined with the growing demand for data services, means that wireless technologies will make up the considerable shortfall. A number of Africa’s larger operators, along with some

new entrants, are acquiring WiMAX operators and licenses so that they can focus on those markets. A new WiMAX network is invariably cheaper than a new wireline network, and GSM operators can take advantage of their existing infrastructure when deploying WiMAX.

Tip seven: Provide the most relevant content

In a marketplace in which operators are not just fighting for a share of a user’s communications wallet but for a share of that user’s entire spend, it is important that a new operator is able to offer something directly relevant to the addressable market. The ongoing success of Safaricom’s M-Pesa mobile-money-

transfer services in Kenya is perhaps the clearest example of the potential of relevant content, which goes well beyond the communications remit, and directly appeals to the mass market. Offering the right product portfolio will be a big step for any new investor, both in terms of differentiation and build-

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ing brand. By providing a relevant service that addresses the local needs of the market, an operator can win over mass market appeal.

Tip eight: Build a distinct brand

Mobile operators in Africa are fortunate. Unlike in some of the world’s more developed markets, trust and familiarity are associated with many operators. The very fact that in many cases the mobile handset has empowered individu- als—be it by allowing consumers to transfer money, adver- tise their services to a wider audience, or allowing them to source useful local information, such as crop prices—means that mobile consumers often have a great affinity with the mobile operator brand. Any investor entering the market will have to work to

build up its brand value but if it can show itself to be reliable in terms of network quality or innovative in providing a service that is relevant to end-users, it will be able to build a strong and distinctive brand. A local flavour will help, and this will require local market knowledge. Despite invest- ing heavily in its brand, Zain suffered from its top-down approach of management with too much emphasis coming from its headquarters based in the Middle East.

Tip nine: Expect market consolidation and build M&A strategy

It is inevitable that the African market will go through a period of consolidation. Governments have distributed new mobile licenses liberally and profited as a result. So too have the consumers in most markets. Competition has led to a greater choice of provider and lower pricing, although not necessarily high quality. But the simple fact is that in many of Africa’s markets, there are simply too many mobile operators for all to be profitable. Even an investor with the size and scale of Zain has struggled and has only returned a profit in a few of its sub-Saharan African markets. Any new operator entering Africa must accept that it does so shortly before a period of market consolidation. Rather than fear this, it should welcome it as an opportunity and see it as a chance to divest any legacy stakes that it might have picked up and does not find attractive, perhaps because the market is already too crowded, or because it does not have enough growth potential.

Tip ten: Build a robust distribution model

Distribution is one of the most important and yet over- looked factors determining success or failure in the African mobile market.

African mobile markets are overwhelmingly prepaid, and that means airtime vouchers, as well as new SIM cards, must be widely and easily available if an operator is to have a business that functions at all, successfully or not. As retail and distribution networks are less developed in much of sub-Saharan Africa than in India, for example, African operators need to invest more heavily in strengthen- ing those networks than their counterparts in some other emerging markets. n

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