A mobile telecommunications revolution in Africa is bringing new economic opportunities to the world's most impoverished continent, while providing lessons that can help carriers around the world push into other low-value markets. Brad Howarth reports.
Africa is not the first continent many people would think of when it comes to hosting a mobile communications revolution. But closer examination reveals a market that may already boast as many as 150 million subscribers. And at a time when subscriber growth rates in North America and Western Europe are grinding to a halt, Africa witnessed growth for 2005 of 61 percent.
According to the last results posted by the telecommunications research group BuddeComm, 14 African countries have achieved greater than 100 percent growth in subscribers for the past five years, and penetration across the continent climbed above 13 percent in 2005, with several countries reaching 50 percent. There are 120 digital networks operating across the continent.
Africa is also a market whose unusual conditions are driving a level of ingenuity that mobile telecommunications companies around the world can learn from as they push further into low-income markets. It is the poorest continent on earth, with a gross domestic product of less than US$2000 per person, and 36.2 percent of its population living on less than US$1 per day.
But even amongst such extreme poverty, the mobile communications sector is flourishing, and likely to have long term consequences on the lives of many of its inhabitants.
Shameel Joosub, managing director, Vodacom
The economics of African mobile telecommunications are very different to those of Western nations. The market is anchored squarely in a high-volume, low value model, with by far the majority of phone owners on pre-paid plans -- in some markets close to 100 percent. Average revenue per user is as little as US$5 per month in some countries, rising to around US$10 per month in the most developed market, South Africa.
But despite the harsh market conditions, there is still money to be made. BuddeComm reports that mobile revenues passed the US$10 billion barrier in 2003, with profits estimated at over US$1 billion.
According to Robert Lipschitz, an analyst with the African economics consulting firm Genesis Analytics, the vigour with which mobile phones have been adopted reflects a situation where much of the population never previously had access to reliable fixed-line communications. In 2001 Africa became the first continent where mobile phones outnumbered fixed telephone lines, and mobile users now account for 80 percent of the total number of phone lines on the continent.
"And that is driven by a failure of fixed-line networks to roll out to rural and low-income areas," Lipschitz said. "So the prepaid services have been taken up with gusto by the local population."
The most lucrative market for network operators is South Africa, where a stronger proportion of high-income earners helped fund early infrastructure deployment for three networks, Vodacom, MTN and Cell C. All three carriers have been criticised however for poor customer service, although this is expected to improve with the introduction in late 2006 of call number portability. In 2005 the South African market also saw the introduction of Virgin as a mobile virtual network operator on the Cell C network.
The largest player in South Africa is Vodacom, a Pretoria-based network operator that is 50 percent owned by Vodafone, and which also operates in Tanzania, the Democratic Republic of Congo, Lesotho and Mozambique. In 2005 Vodacom experienced 49.3 percent growth in South Africa, to 23.5 million subscribers, which is roughly 58 percent of the total market.
For managing director for South African operations at Vodacom, Shameel Joosub, the African market provides three specific challenges: reducing the barriers to getting new subscribers onto his network; raising the average revenue per user; and driving down the cost of service provision such as base stations and backhaul connections.
"Where some [other networks] may have 5000 $50 customers, we are going to have 20,000 $10 customers," Joosub said.
One of the keys to success is in building scale -- as more users come on to the existing infrastructure, the cost of maintenance of that network per subscriber declines accordingly. Joosub estimates that Vodacom is also driving down infrastructure costs for his network by at least 10 percent each year, but each country provides new challenges.
"In each of the countries [outside of South Africa] that we are operating in, we are the biggest purchaser of diesel, purely to service the base stations [with electricity]," Joosub said. "Your operating costs go up because there are no proper roads in some of the countries. The lack of infrastructure really pushes up your costs, which brings down your margin as well."
Regardless, Vodacom still managed to increase its net profit for 2005 by 23.1 percent to 5.1 billion rand (AU$923 million) for 2005.
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