African operators are focusing on data services

Posted by Matthew Reed Wednesday, November 25th, 2009

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At Informa Telecoms & Media’s Africacom conference in Cape Town earlier this month, it was apparent that major operators across the continent are looking more to data and other value-added services to stimulate future expansion, as the strong growth in mobile subscription count seen in the past few years begins to slow.

In addition, according to Zain Africa CEO Chris Gabriel, many African markets are becoming more competitive, with ruthless price battles, high churn and even a decline in subscription numbers in some places. There are also high levels of multiple-SIM ownership.

Gabriel cited Uganda as an example of the competitive pressures in sub-Saharan Africa. “There are 37 licensees and eight mobile operators [in Uganda],” he said. “It’s very difficult to compete in this kind of market.”

As a result, the focus for operators has to change. “It’s not about customer numbers anymore; it’s about value share,” Gabriel said. Voice is still the killer application for mobile operators in Africa, but there is a new emphasis on data, content and m-commerce offerings, such as Zain’s Zap mobile banking service. There are 10 million Zap-enabled handsets and more than 1 million regular Zap users, according to Gabriel. Services based on local content also hold potential, and Zain is running programs in Zambia and Malawi to encourage the development of that content.

Operators have also suffered as a result of the recession. Ivory Coast operator Moov’s revenue fell significantly in 1H09 as a result of drops in foreign aid and remittances from nationals living overseas. Revenues have since picked up again, however.

And according to Marc Rennard, Orange’s executive vice president for Africa, the Middle East and Asia, there is still strong potential for growth in Africa, which will be realized as economies recover from the recession. SIM penetration on the continent is still under 45%, Rennard said, citing Informa data. So Orange has installed solar base stations and sold “millions” of ultralow-cost handsets to extend services to more remote areas and to people with low incomes, he added.

Broadband and mobile payment services are the most promising means of expanding non-SMS data revenues in Africa over the coming year, Rennard said. To tap that opportunity, Orange offers mobile broadband services through all its operations in Africa and has introduced prepaid options to make the services more widely accessible. In addition, Orange’s Orange Money program is set to be available in four West African countries by early 2010. Orange is also planning a project to develop local content.

The recent experience of Safaricom reveals the opportunity that exists for African operators in developing data services. In the six months to end-September, Safaricom’s data revenues were up 93.6% year-on-year, to KES7.2 billion (US$96.58 million), equating to 17.7% of the operator’s total revenue, up from 10.8% in the six months to end-September 2008.

Safaricom said that the growth in its data revenues was due largely to mobile broadband and its mobile-money-transfer service, M-Pesa. There were almost 8 million users of M-Pesa at end-September, almost twice the number recorded a year earlier. And Safaricom’s revenues from M-Pesa amounted to KES3.22 billion in the six months to end-September, up from KES926 million in the same period a year earlier, accounting for 7.9% of Safaricom’s total revenue.

Safaricom’s 3G network covers Nairobi, Mombasa and the major cities in Central and Western Kenya and the Rift Valley. Safaricom is also in the process of buying a WiMAX-service provider, Packet Stream Data Network. Safaricom acquired its existing WiMAX subsidiary, One Communications, last year. Once the acquisition is completed, Safaricom will be able to launch a national fixed data service.

The prospects for data services in Africa rest in part on the promise that the new submarine cables that are arriving on the shores of the continent will both improve the availability of international bandwidth and reduce its cost. And there are some signs that the promise will be made good: Themba Kumalo, CEO of MTN Uganda, said that there has been a reduction of almost 60% in the cost of international bandwidth.

So the big operators might be justified in their continued optimism. Orange sees long-term potential in Africa, Rennard said. And Zain’s Gabriel says there is “a golden opportunity for growth” – but adds that scale and efficiency are needed to seize that opportunity.