As AfricaCom 2017 closes, what did we learn about the state of the telecoms market in Africa?
The African Economy
Economic growth remains strong across much of Africa, with GDP typically increasing at rates of 4% to 7%, and in some cases significantly higher than this. This growth continues to drive demand for communications services across the continent, leading to more funds being made available for investment.
Given the relatively low base and continued significant existence of unconnected and under connected areas, operators are experiencing growth levels well above the average rates.
Currency depreciation, which has been an increasing feature in a number of markets including South Africa, is a major risk. If a country is growing at 6% but its currency is depreciating against the US Dollar at a rate higher than this, it becomes a major challenge for investors, operators, and vendors.
On balance this tends to favour the larger and better funded operators able to take a longer term view and ride out the market ups and downs; the number one and two operators in most countries are usually doing pretty well. Numbers three, four and below are having a tougher time, with investors being more cautious while customer expectations rise continuously. MVNOs are having the hardest time of all at present, and the sector has and will continue to see some contraction and consolidation.
Don’t forget that effectively all African countries are low ARPU markets. There is still a huge amount of business and growth potential throughout the continent. However, it is critical for operators (and vendors) to find the right business model and strategy in order to succeed.
The three most important sectors for growth in communications in Africa are data, data, and data. Operators that build their business models around voice will struggle.
It is still common in some parts of the media and analyst community to hear that OTT providers are poised to do in Africa what they were accused – often incorrectly - of doing in developed markets, i.e. free riding on the back of networks and removing the incentive for operators to invest in network expansion.
OTTs are not the enemy but the friend of operators. Services are driving demand across the board, both in the consumer and enterprise sectors and at all levels of market development. The most successful operators will be those that build data services led businesses. Networks own the pipe and can monetise this most effectively by collaborating with OTTs.
Another commonly heard but incorrect view - lifted directly from developed markets where fixed wire infrastructure is widespread - is that Wi-Fi offload is a major threat to networks. The opposite is true in Africa, and all emerging markets where there is a deficit of fixed wire infrastructure. Wi-Fi offload can help operators to maintain service levels where networks are under pressure; indeed operators use it themselves. But the key point to remember is simply this: who delivers the capacity to enable services like WhatsApp to work beyond the immediate area? The answer of course is the operators, so one way or another the traffic comes to them anyway.
Networks and Infrastructure
2G is not going away but 3G is. 4.xG will experience major growth in the next 3 years as the demand for data surges. Being late with 4G roll outs will in the longer term be an advantage for Africa as it will give a higher compatibility and lay the foundations for 5G from 2021/22.
Smartphone penetration will more than double from circa 10-15% up to 30-35% in the next 1-2 years, and continue to grow rapidly after this. This is driven by strong awareness of data at all levels of the market plus a longer replacement cycle and falling prices of devices, with low cost handsets from China and India set to take the biggest share. Most customers change their handsets less frequently than in developed markets - perhaps every 4-5 years - due to cost, but as the cost of smart phones comes down this will encourage faster adoption over the coming year.
The main opportunities in infrastructure are in improving the wired element of backhaul and backbone, again driven by the relentless and accelerating increase in demand for data. This will take place mainly with fibre as the cost reduces, backbone networks such as Liquid Telecom and the coastal rings expand, and new links such as Angola-Brazil come on stream.
Connecting the unconnected is still necessary for remote areas and to bring coverage to all areas, particularly low population density regions. Satellite will do well in remote areas but will increasingly get squeezed out of more densely populated areas for cost reasons unless HTS can deliver from 2020-21 onwards (see our separate article from AfricaCom 2017 on this topic).
Apps for smartphones must be optimised for low ARPU smartphone consumers and businesses. This means they need to be much skinnier than those for developed markets to optimise take-up rates, and must be able to run on 3 platforms – voice (SMS) phones, feature phones and smartphones. The smart apps will switch between each platform both to encourage adoption across all tiers of the market but also to service customers who run out of data and need to make a temporary switch to a non-smartphone service.
This feeds directly into the next point, that content and services, including social networks, must be originated locally rather than being localised versions of international services. This is because of three factors – cultural, language and data cost. App providers that recognise this are already experiencing record levels of growth.
Cloud is big and getting bigger. This is across the board from consumers, small and large enterprise and governments.
IoT and Smart City technologies are going to be big, and not only in the more developed markets such as South Africa and Egypt. Governments will lead this investment as they seek to deliver more services digitally to overcome the limitations of their physical infrastructure and increase economic growth.
Key areas and strengths for operators
Quality of service: Great CEM is vital for low ARPU markets. A major growth area is the provision of updated versions of what used to be known as VAS (Value Added Services). These services now enable canny operators to respond to customer needs immediately, seamlessly and automatically by for example making offers to switch to 3G or 2G SMS / USSD service equivalents when PAYG data runs out, provide cloud storage, deliver content, and connect to social networks.
Billing: Operators should not underestimate the strength of the relationship they have with their customers and build on this. Customers trust operators to bill them for services more than they trust content providers. Operators also do not need to collect personal and financial information as they already have this. Operators hold the vital link and low cost base to make the business case for small value transactions, quite apart from MFS, where a high level of trust is enabling them to build major businesses. Security is a major and growing concern in all areas of the market.
All in all, the show perhaps seemed quieter than it in recent years, but overall attitudes were as positive as ever regarding the future of telecoms on the continent.