Mobile Telephony: An African Success Story | INA Global

Mobile Telephony: An African Success Story

Article  by  Antoine LABEY  •  Published 26.09.2011  •  Updated 28.09.2011
Cabine de téléphone sur un bateau
The advent of mobile telephones in Africa has constituted, more than anywhere else, a real revolution, opening up a multitude of unforeseen uses for this tool.

Summary

Africa today boasts one mobile phone for every two inhabitants. Appearing first in the business world, they then went on to win over the young, followed by the less well-off, finally reaching rural populations. The market is still rapidly expanding and has excited the acquisitive instincts of the key African and international telecommunication companies. Today the mobile fills an all-round gap as a means of communication, information, payment and recreation.

Lightning Growth

The mobile telephone swiftly appeared in the eyes of many Africans as theway to overcome the shortcomings of existing telecommunications facilities, starting with the landline, with which the continent is woefully under-equipped. The connection rate to landlines has stagnated at around 1.5% of the population, according to a memo by the French Institute for International Affairs (IFRI). If the modern and trendy image the mobile conveysand the impact of fashion are taken into account, it is no wonder the mobile has achieved such extraordinary success, even in the most modest of households, despite eating up an undue proportion of household budgets: the acquisition cost for a landline is about eight euros throughout the continent, while the population’s standard of living is 10 to 30 times lower than in Europe. Since 2005, the number of mobile subscribers has overtaken the landline subscribers and Africa is the continent with the highest mobile telephone growth rate. User numbers reached half a billion by the end of 2010 from just 52 million in 2003. This constitutes a yearly growth rate of 50%, versus only 7.5% in France and 27% in Asia, according to the IFRI.


African countries ranked in terms of the number of mobile subscriptions in 2010
(per 100 inhabitants)

Source: ITU World Telecommunication / ICT Indicators Database
 

This passion for the mobile on a continent with over one billion inhabitants has not failed to awaken the acquisitive instincts of investors round the world, faced with slackening demand on their home markets, be they Asian, European or North American. Alongside the big money-making, outward-looking business activities like mining and oil, the mobile telephony sector has been the focus of investment inflows for more than a decade
. “Foreign direct investments in the African telecommunications sector hardly suffered at all when the Internet bubble burst in 2000-2001 – even if only a handful of companies handle most of these investments”, stated the African Development Bank (ABD) and the Organisation for Economic Cooperation and Development (OECD) in their African Economic Outlook 2009. The most symbolic of these investments has been the purchase of set-ups in fifteen countries from the Kuwaiti group Zain by the Indian telecoms leader Bharti Airtel in 2010. This transaction was concluded for 10 billion dollars, the second biggest deal ever entered into by an Indian company abroad[+] NoteThe largest was the purchase in 2006 of the European steel maker Arcelor by the Mittal group for 28 billion dollars.X [1].

The biggest operator on the continent is still the South African group MTN, which developed its layout from its South African base with effect from 1995. Starting from the neighbouring southern African countries (Botswana, Swaziland, Zambia) then those in East Africa (Uganda, Rwanda, Sudan), it then deployed along the main coastal west African countries (Cote d’Ivoire, Ghana, Benin, Nigeria, Cameroon, Congo, etc.). Now MTN has come to occupy the leading position in several countries including Nigeria, which constitutes its primary market with more than 35 million subscribers, i.e. a third of its African subscribers.
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Stiffer Competition

The arrival of the major western operators coincided with the surge of liberalisation demanded by the International Monetary Fund (IMF) during the 1990s. To pay off their debts, the African states had to sell their telecommunications companies. This is how Orange (formerly France Telecom) became established in some fifteen countries including Cote d’Ivoire, Senegal, Mali, Niger, Cameroon, Kenya and Uganda and, in North Africa, in Morocco, Tunisia and Egypt. SFR chose its Moroccan subsidiary Maroc Telecom as its bridgehead from which to deploy on the continent[+] NoteOn this topic see Maroc Telecom, an African base for Vivendi.X [2]. The British giant Vodafone, world leader in mobile telephony, is established in South Africa via Vodacom, in Kenya with Safaricom and in Ghana with Vodaphone Ghana.

The 10 largest African mobile telephone operators on the continent

For these major international groups facing the saturation of their home markets and  exacerbated competitive pressure on their prices and margins, Africa remains an important, if not the most important  source of growth. Orange is garnering double-digit growth almost everywhere it is located: 16.5% in Cameroon, 13% in Mali and even 10% in Cote d’Ivoire despite the political disturbances. Profit margins are also generally comfortable: 2.3 billion dollars in 2010 for the MTN group i.e., 15% of its turnover, 1.2% billion for Maroc Telecom (32% of turnover) 157 million for Orange Mali (43% of turnover) according to the yearly ranking drawn up by the weekly magazine Jeune Afrique.

But this position was only made possible by heavy investment, which accounts for the market’s concentration. Six operators – Orange, Vodacom, Zain (now Bharti), MTN and Tigo (Millicom) – represented 52% of mobile telephone subscriptions in 2008 according to the ADB-OECD report quoted above (see diagram). The rest is taken up by around a hundred operators of modest size and established in a very limited number of countries, except for the two North African groups Orascom and Maroc Telecom, well established south of the Sahara (see the table of the Top 10 African companies).

The five mobile telephony leaders in Africa


In Tunisia, the market has undergone some upheaval since its “Jasmine Revolution” in 2010-2011. The confiscation of the assets of the Ben Ali clan puts the State back on the front line again. It now possesses shareholdings, often majority holdings, in the three main telecommunication groups in the country: Tunisie Telecom, Orange Tunisie and Tunisiana.
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Town and Country Alike

The mobile telephone developed in three major phases in Africa, with a considerable impact each time on the lifestyle and economic life of the populations concerned. The African Development Bank reckoned that an increase of 10% in the number of users corresponded to an increase of 1% to 1.5% of GDP.

The mobile was taken up in the first place by the business world, with CEOs in industry and commerce making up for the shortcomings of the landline situation, a severe handicap in running a business. Laura Recuero Virto, an economist at the OECD, cited as an example in an article from The Africa Report the case of exchanging data between Europe and Ethiopia to obtain an import licence, which could previously take up to a month and could subsequently be handled almost instantaneously. Mobiles then spread to the better-off urban middle classes and then, with the operators’ aggressive advertising and commercial campaigns, grew popular among the younger demographic (15-25 years old).

This “target” is particularly pampered as it represents nearly half of the subscribers on the continent and the segment most inclined to devote a growing portion of its budget to acquiring the latest functionalities and technologies as they come on to the market. So the operators rack up the offerings made to measure for the young (Club’s cool, Funzone and Moov’in) to bring in and tie down a clientele that will be the first to adopt the new services ushered in by the development of 3G and 4G.

The last category to be reached by the mobile was that of low-income consumers. Here once again, the operators have tailored their offerings to attract these potential customers. Surveys enabled them to determine with accuracy the amount these consumers were prepared to spend to own and use a mobile: from 5 to 10 dollars per month in Cote d’Ivoire, Ghana and Nigeria but only 2 dollars in Ethiopia. They have proposed prepaid services at low cost or low rates involving advertising breaks, whilst developing a market for cheap second-hand phones. The arrival of Bharti on the market should finally convince the most reluctant amongst them. The Indian group plans to apply in Africa its “base of the economic pyramid” model that paid off in India: offering basic services to a large number of individuals at a low cost.

Eventually, as the networks expanded, the mobile gradually tapped into the countryside. This is no doubt where the socio-economic impact is most clear-cut, since it was here that communications (i.e. transport infrastructure and telephone networks) were really not up to scratch. For instance, farmers and fishermen using SMS services (Xam Marse in Senegal, SMS Sokini in Kenya, Wougnet in Uganda and Esoko in Ghana) found themselves connected overnight with the rest of the world. Thus they were able to find out in real time what town market prices were and were better able to negotiate the sale of their produce with the traders, who were previously the only ones to know what deals were being done. For fishermen, the mobile phone also serves as an alert facility in the event of a distress situation and enables them to be located by the search and rescue services[+] NoteOn the use of social networks in Africa, see “Social networks in Africa, Public Tool and Business Boon”.X [3].
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New Technologies, New Services

This ‘pioneering’ strategy to win over new fringes of the population is likely to come to a halt after the very strong growth of the last few years. Mobile telephony has reached a turning point in Africa. The operators now have to rely on quality and the diversity of services offered to maintain their position and their profitability. They are consequently relying on the appearance of 3G and the increasing use of smartphones. Presently limited to technologically and economically advanced countries like South Africa, Egypt, Morocco (where the first 3G licence dates back to 2006) and Tunisia, 3G is moving ahead on the rest of the continent. A first-time 3G licence was awarded in June 2010 to the Senegalese operator Expresso. Its use is largely confined to professional circles for the moment.

In any event, the increase of submarine cables laid between the continent and Europe will substantially increase bandwidth, which has until now been somewhat limited. In the first half of 2012, the 17,000 kilometre-long ACE (Africa Coast to Europe) fibre-optic cable will connect France to South Africa via 19 West African countries, enabling them to gain access to broadband. Nineteen African operators joined forces to carry out this 700 million dollar project. Also in early 2012, the West Africa Cable System (WACS) from the South African operators MTN and Vodacom will be commissioned on the West African coast from South Africa. Currently, only ten West African countries, from Senegal to South Africa, are connected via the fibre optic cable SAT3 to Europe. The east coast of Africa is also in the process of being equipped with the submarine cables EASSy, Teams and LION 1 and 2.


The undersea cable projects in Africa


Parallel to this technological leap, operators are out to develop fresh offerings. Top marksno doubt go to the money transfer system initiated by Safaricom in Kenya, with its M-Pesa service costing one-tenth of the hugely popular Western Union system widely used by expatriates for sending money home. M-Pesa was launched in March 2007 and brought in 6.5 million clients within two years – with up to 10 million by early 2011. Its success quickly encouraged copycat systems: Maroc Telecom offered its Mobicash system; in West Africa, Orange entered into partnership with BNP Paribas; and the South African leader MTN also offers all its clients the MobilMoney service in partnership with Standard Bank. Annie Cheneau-Loquay, a researcher at CNRS, stated in a report published by the French Ministry of Foreign Affairs in 2010 on “Innovative ways of appropriating mobile telephony in Africa” that “Africa is well ahead of Europe in this area with this true innovation in terms of operating financial services on themobile”.

After having leapfrogged the stage of landline telephony, Africa is now priming itself to do the same with the desktop computer, moving directly to Internet onthe mobile, turning it into a highly versatile tool that serves for communication purposes, as an Internet portal, documentation centre for students, payment card, radio, television, and more.


Translated from the French by Christopher Edwards.
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Photos Credits :
- Abaporu / Flickr ;
- Steve_Song / Flickr.
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Key Data


Source: ITU World Telecommunication / ICT Indicators Database
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