As part of DT’s Africa focus this month, editor James Barton spoke with John Strand, the founder of Strand Consult and a well respected analyst of the African telecoms scene. With many African markets over capacity in terms of the number of operators, Strand believes that consolidation will be crucial going forward...
As part of DT’s Africa focus this month, editor James Barton spoke with John Strand, the founder of Strand Consult and a well respected analyst of the African telecoms scene. With many African markets over capacity in terms of the number of operators, Strand believes that consolidation will be crucial going forward.
DT: Why is the need for consolidation of operators in Africa so pressing?
JS: In a number of African countries, it’s unfortunately the case that a number of politicians have found a steady source of income from issuing new mobile licences.
In Tanzania there are 6 or 7 operators, in Nigeria there are around 8 to 10 operators; if you look at the number of operators across different African countries, it’s definitely too high compared to the economy. It costs a lot of money to run a national network, and in much of Africa ARPU is fairly low despite a relatively high acquisition cost – while the actual cost might be lower than Europe, it’s quite substantial as a percentage of lifetime ARPU.
In Africa it’s also quite common for customers to own more than one SIM, and to use different SIMs on different networks. With all these things taken into consideration, there are too many operators in the continent. Over the past year, there has been some consolidation within the region, but that doesn’t change the fact that the scale of economy in many African countries is not there – the need for consolidation is very high.
DT: Do you see infrastructure sharing as a viable option going forward?
JS: Definitely. There are two ways that consolidation will happen in Africa: classical M&A, where one operator acquires another and thereby removes one player from the market; then there’s infrastructure sharing, where operators jointly create infrastructure while maintaining individual brands. There’s an even lighter model where a government will fund backhauling infrastructure in order to sell capacity to operators – that’s what you’re seeing in Brazil.
In Africa, there are many places where you need better backhaul units – the quality of the networks in Africa is not on the same level as Europe, but telecommunications are very fundamental to Africa. How do you provide the population with digital infrastructure that can provide the capacity which is both required and demanded?
DT: What are the key areas in which operators will be able to lower their costs?
JS: The key area is network sharing, but this isn’t enough in many parts of Africa – there needs to be some classical consolidation, with operators pulling out of markets and selling their business to other players.
Then there’s the possibility of a carrier’s carrier – a mobile operator that has a network, but only does wholesale rather than retail. They provide capacity to other operators and MVNOs – this allows for better utilisation of spectrum and infrastructure. There are a number of African countries where this possibility is being looked into, but so far the model has not been deployed.
Carriers would likely be nationwide to start with but the model could work on a regional basis. The problem with doing this is that in Africa, you’ll run into totally different situations as soon as you cross over a border – different markets need to be treated as such. While a carrier’s carrier could certainly operate across multiple African countries, it would likely need to start out in one territory.
The African continent is currently facing a lot of challenges – there is a lot of political instability in the north, for example, but even in stable countries the mobile market can be in turmoil. In Tanzania for example, considered one of the most stable countries in Africa, the mobile market is almost as crowded as India’s.
There are also countries that have a lower number of operators which are undergoing positive development – in South Africa for example, there’s political stability, a strong economy and growth. Then there are countries which unfortunately have neither strong development nor political stability.
From a mobile operator’s perspective, Africa as a region has the full range of positive and negative aspects that you see across the global mobile industry. Countries that two years ago were considered corrupt and politically unstable are now developing positively, while unfortunately the reverse of this is also true.
DT: What can be done to improve investor attitudes towards Africa?
JS: Telecommunications represent a long-term investment, and so political stability is the key factor – investors are going to be deterred if they don’t think they’ll see a return. The alternative is charging high prices in order to make an investment back in the short term – obviously, this is not the preferable option.
Politicians are thinking about the next election – the short term. Telecommunications requires forward thinking - long-term investment - and politicians need to understand this and adjust their goals accordingly. It can’t be about short-term political ideas.
It’s a question of weighing up what the telecommunications industry can do for Africa, and in turn what the leaders of African countries can do for the telecommunications industry. Political instability will always result in a premium price being placed on the cost of investment – and if political systems don’t understand that, it’s difficult to attract investment as well as more expensive. Investors will minimise their investment and charge higher prices to be sure of a good profit.
Africa is not one region – countries are developing very differently across the continent. Tanzania for example was considered one of the most unstable countries but changed dramatically in a very short time. Kenya meanwhile used to be considered more stable than it currently is – and if Kenya regained stability in the way Tanzania has, it could have an incredible impact on the nearby countries such as Uganda and Burundi.
It’s also fantastic to see the impact South African investment has had across the region. Previous investment from Europe and America took profits back out of Africa, whereas with South Africa the money stays in the region and is reinvested. South Africa is like the Switzerland of Africa – it’s driving a lot of countries in the right direction, but if there was similar political stability in Zimbabwe, the region could flourish.
