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Africa's Data Dilemma

Iain Morris
12/8/2015
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When Nigerian authorities unnerved by terrorism this month slapped a $3.9 billion fine on MTN, the country's biggest telecom operator, for not disconnecting unregistered mobile phone users as instructed, other African telcos will have taken fright. Reduced from an original charge of $5.2 billion in November, the fine still equated to about 1.5 times what MTN made last year in post-tax profit. In penalizing MTN so heavily, Nigeria may have inadvertently dealt another blow to a regional industry that already bore some bruises. (See Eurobites: MTN Shares Suspended After $5.2B Fine.)

Across the entire continent of Africa, service providers are facing a sandstorm of difficulties, including tough regulation, local currency weakness and a lack of the fixed-line infrastructure needed to prop up the mobile data networks of the future. The imposition of more punitive measures in one of the region's biggest markets will only add to investor concerns.

Happy Texting
Text messaging is widely used in Africa, but the availability of Internet messaging services on lower-cost smartphones poses a threat to this business.
Text messaging is widely used in Africa, but the availability of Internet messaging services on lower-cost smartphones poses a threat to this business.

No doubt, Africa is currently witnessing a surge in the usage of mobile data services driven by the availability of lower-cost smartphones, making it an enticing prospect for equipment vendors flogging next-generation network gear. Yet this data boom has still not translated into substantive sales and earnings growth for many of the region's players. "Monetizing data is an issue," says Tracy Kivunyu, a research analyst with Africa Alliance Kenya Investment Bank. "You have to have a high-quality network to support the data traffic, subsidize handsets to ensure that smartphone penetration grows and provide content."

In many cases, growth in data revenues has simply not been sufficient to compensate for a decline in the mainstream voice and text-messaging business. Because increasingly few Africans lack mobile phones, many operators can no longer rely on subscriber growth to fuel a sales increase. Instead they need to get existing customers to spend more on services. But the unfortunate reality is that subscribers are spending less.

Evolution of ARPU over the 2005 to 2015 Period, African Average
Note: Estimates based on 35 African markets. Source: Xalam Analytics.
Note: Estimates based on 35 African markets. Source: Xalam Analytics.

While this trend is not unique to any region, it is perhaps more pernicious in Africa than elsewhere. Operators in North America, Europe and much of Asia have been relatively successful in shepherding customers away from usage-based tariffs and on to contracts that place a floor under monthly expenditure. At the same time, they have been able to ensure that a collapse in the value and usage of traditional voice and text-messaging services would have almost no impact across a large segment of the customer base. African operators, by contrast, look hugely exposed.

MTN Group Ltd. , for instance, still identifies more than 80% of its customers as prepaid users, who only make payments when they are actually using services. In the case of Bharti Airtel Ltd. (Mumbai: BHARTIARTL), which operates in 17 African markets, only 0.6% of customers are not on these kinds of tariffs. This leaves those operators and others like them extremely vulnerable to falls in per-minute pricing, forced down by competition and regulation, and to a drop in actual service usage.

So far, a decline in minutes of use by voice customers has not been an industry-wide problem, according to a study carried out by Xalam Analytics, Heavy Reading 's Africa and Middle East research unit. Indeed, Xalam's research shows that minutes of use have continued to rise overall. The trouble is that prices have tumbled under pressure from competition and regulation. "We have seen over the last quarter that our competitors have been very aggressive both on voice and data," said Sifiso Dabengwa, MTN's erstwhile CEO (forced to quit in November after MTN was hit with the original $5.2 billion fine), when discussing the Nigerian business during a recent earnings call. "There is no reason that we would expect that will change."

Evolution of Average Revenue Per Minute for Sample African Operators
Source: Xalam Analytics
Source: Xalam Analytics

In 12 of MTN's 17 African markets, average revenue per user fell (ARPU) in local currency terms between the third quarter of 2014 and the same period this year. And due to currency weakness, only two countries (Liberia and Sudan) registered growth in dollar terms. Airtel Africa, meanwhile, saw ARPU drop from $4.7 to $4.3 per month over the same period in constant currency terms, even though minutes of use soared by 20%. In the case of Vodacom Pty. Ltd. , which has networks in five African markets, ARPU shrank from 71 South African rand ($4.9) per month in the July-to-September quarter of 2014 to ZAR69 ($4.8) in the same period this year. Two years ago, the figure had been as much as ZAR78 ($5.4).

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spc_Dunphy
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spc_Dunphy,
User Rank: Lightning
3/24/2016 | 11:29:11 AM
Share of wallet
Even at these much reduced rates African consumers spend a higher % of their disposable income on mobile than their  Western peers. They are willing to do this because they perceive the value to be high but they also know that its expensive and suspect they are being exploited by the ooperators (and Government). The reality is that low-income countries need low-cost networks that work in the harsher environment of Africa, which is not the case today. Prices are simply falling to more sustainable market levels and operators and OEM's need to start to build networks for Africa rather than implementing western technologies on the cheap.
nasimson
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nasimson,
User Rank: Light Sabre
1/23/2016 | 7:32:34 AM
ARPU obsessed
Instead of lamenting on declining ARPUs, the African telcos should focus on avenues that add to the life of their customers and also to their businesses. These are numerous:

m-Education, m-Health, mobile money, m-Agri, m-Verification, m-Advertising, connected supply chains ... there is simply too much to work on.
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