What Do The Next 18 Months Hold For African Telecoms?
May 2010 | Industry News
Significant changes could take place in Sub-Saharan Africa's telecoms landscape in 2010 and 2011. There is certainly appetite for consolidation, with the bigger players keen to consolidate their positions in a range of increasingly competitive markets. Meanwhile, protecting and improving margins, rather than simply maximising growth, is going to become more important, although expanding customer numbers as rapidly as possible will not fall by the wayside.
When it comes to maximising profitability in Sub-Saharan Africa's typically high volume, low ARPU markets, keeping costs low and making the most of efficiencies and economies of scale is key. This puts the larger operators in a stronger position, and they are keen to expand their empires.
The expected entrance of Bharti Airtel will probably ensure that other major players keep looking for ways to compete against a company that they are all worried could introduce new strategies that they will not know how to deal with.
There are several outstanding legal challenges to the Bharti/ Zain deal, most notably in Nigeria. Although things could still go wrong with the transaction, on balance we expect Bharti to gain control of the operations reasonably soon. However, even if the deal goes through quickly, we believe Bharti's entrance will not have a real impact on its new markets before the end of 2011. It will take time to get everything in place and for Bharti to create systems to bring the somewhat diverse operations together with more centralised management, procurement and supply systems. Bharti's famed low-cost business model, which has helped it stay profitable in India, will also take some time to implement.
The bigger impact of Bharti's arrival over the next 18 months or so is likely to be seen in the reactions of its future competitors, who may step up expansion and investment programmes. Evidence of this can already be seen in the negotiations over MTN's proposed Orascom acquisition. Although the outcome of the talks is uncertain, with the intervention of the Algerian government having thrown a spanner in the works, the fact that a deal has been broached in the first place is one of the biggest concrete moves towards major consolidation that the African telecoms landscape has seen for a while. France Télécom, too, has been talking again of expansion, and BMI thinks it is a distinct possibility that the group may go for some big acquisitions in the next 18 months. We see Comium's West Africa assets as a good target.
Which Big Markets Are Offering Good Opportunities?
Of the main telecoms market in Sub-Saharan Africa, some present more enticing opportunities than others.
Nigeria is now the largest telecoms market in Africa, and it will only get bigger. BMI is forecasting mobile subscriber growth of 20.7% in 2010 and 17.7% in 2011, meaning that the market will end 2011 with 103.8mn mobile subscribers and a penetration rate of 66%. Given the ongoing saga of Nitel's failed privatisation BMI does not feel able to give an opinion on what may happen to that unfortunate company, but we do expect some consolidation among the CDMA operators over the next two years, as this is a somewhat crowded market. The current attention on excessive cell site construction has made developments in infrastructure sharing more likely, and BMI sees advantages coming to mobile companies that can quickly conclude infrastructure-sharing agreements, to the satisfaction of the authorities.
Probably the most significant single risk for investors in the Nigerian telecoms market is the rather unreliable regulatory environment. The Nigerian Communications Commission (NCC) has done a relatively good job, but following the departure of long-time leader Ernest Ndukwe it is in a state of flux. Tensions between the NCC and the telecoms ministry look set to continue, filling the market with uncertainty.
South Africa was previously Africa's largest telecoms market, but has hit something of a growth ceiling. This has been exacerbated by the introduction of SIM registration, and BMI forecasts essentially flat growth in mobile subscriber numbers for a few years. This, combined with expected below-trend economic growth, makes the outlook a little gloomy for the South African operators, but all is not lost.
The football World Cup in June 2010 presents significant opportunities for mobile operators to get the value-added service market really moving and, if some momentum is maintained after the event, this could fuel growth. However, the tournament will also act as something of an acid test for the networks, who will be handling a big increase in both voice and data traffic. If consumers are disappointed, it will do the operators no favours.
In general, improving broadband services, both fixed-line and mobile, provide significant opportunities in South Africa. BMI is convinced that demand is such that if good services are offered, plenty of people will be willing to pay for them.
In other key markets, such as Kenya, Ghana, Tanzania and Uganda, BMI sees healthy growth continuing. The four markets should see an average 20.3% mobile market expansion in 2010 and 17.1% in 2011. All are pretty close the above averages, although Uganda is set to be the best performer of the four and Tanzania the worst performer.
New Regulations Could Squeeze Investment
Both of these are very competitive markets, perhaps Uganda most especially. High levels of competition appear to be working in Uganda's favour, spurring operators to be innovative and with price competition boosting growth. The main concern here is that margins are extremely tight. This bring the focus back to containing costs, which will favour operators like MTN, Zain and Orange, who have the potential to leverage economies of scale. It will also hopefully encourage infrastructure sharing.
Another worrying factor in Uganda is moves by parliament to curtail mobile money and banking services. Such services have taken off in Kenya, and are starting to do so in Tanzania. They offer a strong alternative growth avenue for operators, and have good growth potential across Sub-Saharan Africa over the next few years.
Tanzania's main risks come from apparently increasing hostility towards foreign investors, which may be starting to discourage new investment a little, and some worries over growth. Donors have begun announcing cutbacks in their contributions to this aid-dependent economy, and this gives BMI some concerns over basic growth figures, which could feed into the mobile market.
Apart From Consolidation and Infrastructure Sharing, Where Else For Costs Saving?
Energy generation is a big cost for mobile operators in countries where power supply is limited. Alternative technologies and particularly solar power is increasingly used, and BMI sees this as a good growth avenue. In several countries operators have been campaigning to make it cheaper to import this type of equipment, and we see its use growing well over the next few years. |
