Vodafone looks to Africa in the hope of reversing ARPU decline

Posted by Chris Garland Wednesday, February 18th, 2009

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As any operator knows it’s no mean feat launching and establishing a presence in new markets, as Vodafone’s experience in Turkey attests. But the operator is likely to find that Africa offers it no respite from the falling-ARPU trend it is experiencing elsewhere.

Vodafone is eager to tap into Africa and the continent’s huge and still relatively underpenetrated markets, to counter the slowing growth the UK-based operating group is experiencing in developed markets.

In its recently announced results for 2008, Vodafone reported declines in monthly ARPU in every country where it has a presence. Of the 32 units for which the operator reported results, 17 saw ARPU fall more than 10% last year. In Turkey, where Vodafone purchased Telsim nearly three years ago, its operation is floundering because of service-quality problems: Vodafone Turkey saw monthly blended ARPU decline from £14.60 (US$20.70) in 2007 to £11.60 in 2008.

Vodafone Turkey’s poor performance affected the results of Vodafone’s Africa and Central Europe division to some extent last year, though the division’s revenues still increased from £381 million in 2007 to £391 million in 2008.

So Vodafone will be hoping that the payoff for its US$900 million acquisition of a 70% stake in Ghanaian incumbent Ghana Telecom in July, the group’s first new African venture for several years, will come sooner rather than later.

In November, Vodafone also acquired an additional 15% of Vodacom for ZAR22.5 billion (US$2.39 billion) in cash, taking its total holding in South Africa’s biggest mobile operator to 65%.

Additionally, Vodafone has made known its interest in entering Nigeria, Africa’s most populous country and its largest mobile market. “It doesn’t take a very sophisticated analysis to see it is one of the very few large markets with decent GDP, a young population and the classic conditions for being interesting for Vodafone,” Vodafone CEO Vittorio Colao said in November.

But Vodafone faces challenges in Ghana that are typical of those it is likely to find elsewhere on the continent, where markets are becoming more competitive, ARPU is falling and overall subscription growth – though still strong – is tending to slow.
Ghana Telecom’s One Touch unit is the No. 3 mobile network in an increasingly crowded market. Although One Touch’s mobile subscription count grew 30.52% in the 12 months to end-3Q08, that was a slower rate of growth than market leader MTN’s, No. 2 operator Millicom’s and No. 4 operator Kasapa’s. Zain launched services in Ghana in December, making it a five-player market. And both Zain and MTN have launched HSDPA services, while Ghana Telecom has only just commissioned a network upgrade to 3G. One Touch has also experienced a sharp fall in ARPU: 52.36% year-on-year in 3Q08, from US$11 to US$5.24, the lowest figure among Ghana’s four mobile operators at the time.
Vodafone will be hoping that it can successfully tap into demand for services such as its M-Pesa mobile-money-transfer program in Ghana as a way of boosting flagging ARPU levels. Vodafone will also hope to raise ARPU by offering 3G data services.

But although M-Pesa is an important potential revenue generator – it has proved popular in other markets, most notably Kenya, and users pay a transaction fee for the service – it alone will not compensate for a fall in ARPU of the scale experienced by One Touch. And Vodafone has fallen behind MTN and Zain in its ability to offer higher-ARPU data services in Ghana.

Vodafone’s success in tackling those challenges in Ghana will be an important test of its future performance on the continent.