The heat is on for operators in Africa’s mobile space

  

The African mobile telephony space continues to evolve in terms of entrants and tactics, with Bloomberg reporting on how the likes of Vodafone Group Plc, Bharti Airtel Ltd. and other phone companies with more than USD 90bn invested in Africa, are finding that making money from each user in the world’s fastest-growing market is turning into the biggest challenge.

The number of operators has prompted a race to the bottom on call rates as regulators push for a cut in interconnection fees, while the entrance of the likes of Bharti with a low price high volume strategy has precipitated the cutting of rates. In Tanzania, which has seven phone companies, prices have fallen 90% over the past 18 months.

Companies also face among the world’s highest “churn” rates, with users frequently changing operators, and patchy infrastructure, all of which make returns on investment difficult.

“It is hard,” said Peter Uys, chief executive officer of Vodacom Group Ltd., which is controlled by Vodafone and is the largest provider of mobile-phone services in South Africa and Tanzania. “You have to do business in a very different way, you have to build data networks, find other ways to grow revenue.”

Operators have been lured to the continent by its promise. Africa has a mobile-phone population of about 445 million handsets, according to a McKinsey & Co. report. It took 20 years for the size of the mobile-phone population to reach 200 million, and less than three years to get to the next 200 million, according to the report.

The falling average revenue per user (ARPU) that comes with this accelerated growth has driven companies to look at data and other value added services as a way of maintaining margin, with Safaricom, for example, which published its H1 11 results attributing the 15% increase in profit to higher sales driven by data services.

Despite the tighter conditions, investment continues to flow into the sector. France Telecom SA, according to an article in the FT, is planning to introduce a series of low-cost offers under its Orange brand in a bid to double its sales in rural Africa by 2015 from EUR 3.4bn in 2009. “Orange wants to be the champion of rural Africa,” France Telecom executive director for Africa, Middle East and Asia, Mark Rennard said, according to the report.

The push in less penetrated markets such as Mozambique will also see further momentum, with that country seeing Portugal Telecom, Angolan company Unitel and the Vietnamese consortium known as Movitel vying to be Mozambique’s third mobile network licence.

The consumer of course should hopefully come out the winner in all this, as competition pushes the mobile companies to be efficient and innovative in their approach so as to defend/gain market share while providing an adequate return of equity.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.



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