While Africa's telecommunications market has experienced vibrant double-digit growth, the rate of new subscriber acquisition has sharply decelerated and intense competition is driving a free-fall in prices, placing pressure on margins.
This is according to global management consultancy firm AT Kearney's latest research report, "African Telecoms at a Crossroad". The research findings predict the African telecoms market will shift from being focused on upper classes and largely voice-centric, to a mass-market with a much more significant share of data services.
"This paradigm shift certainly offers substantial long-growth prospects. However, the transition process period, under way in most countries, might prove challenging given the adjustments required in price levels, cost base, offers and investments," says the firm.
Laurent Viviez, partner and head of African telecoms practice at AT Kearney, presented the report during a briefing yesterday and suggested mergers may be key to operators' survival.
"Escaping fundamental economics is impossible. Only under exceptional circumstances do we see room for more than three mobile operators per country. With prices declining and a surge in capital expenditure requirements expected over the next few years, we anticipate that dozens of sub-scale operators will disappear. In some cases, this will be through in-country mergers, in others simply through shutting down loss-making operations."
The report cites Telkom's recent closure of its Nigerian operation, Multi-Links, as a case in point.
End of a boom era
AT Kearney's report points out that in 2011, growth in mobile penetration seems to have abruptly decelerated, with subscriber growth rates now in single digits in most countries.
Industry observers attribute this to a variety of factors - including a tougher economic climate in some countries, prices still above affordability levels for the more modest socio-economic segments, and penetration rates gradually approaching so-called saturation levels.
"While all these facts are certainly relevant, they are in our view partly misleading. Multi-SIM ownership, which stands at approximately 30-50%, means that real penetration rates are in reality closer to 35%. Also, the abrupt deceleration in subscriber growth in 2011 is to a significant extent explained by the implementation of mandatory subscriber registration in a number of countries."
As a result, says the firm, the African telecoms market still offers ample room for growth from the current real population penetration rate of 35% to what is estimated to be saturation penetration rates of about 60%-70%.
Hope in data, VAS
Further adoption of data and Internet services "still in infancy", suggests the report, will spur the development of telecoms services in Africa.
"Not all is doom and gloom. In fact, data connectivity and valued-added services (VAS) are poised to grow strongly - starting admittedly from a particularly low base."
Mobile data services (including SMS) represent on average 12% of African telecom operators' total revenues. However, notes AT Kearney, the average is skewed by a few tier one markets such as SA and Kenya.
"The market for data and mobile VAS in Africa is expected to grow at 16% per annum to reach $14 billion (about R12 billion) by 2016, representing close to 32% of total mobile revenues."
Equally exciting
AT Kearney says the impact of reported market changes will be substantially different across markets. "We expect markets with already high penetration levels and a large number of players (such as Nigeria, Ghana and SA) to face more challenging times than less competitive and developed markets (like Togo and Zambia)."
However, concludes the report, the next 10 years are set to be "equally exciting".
"Africa will face a digital revolution, enabled by ubiquitous and affordable access to Internet services [and] telecoms operators will play a central road in making that vision a reality."
At the same time, says AT Kearney, telecoms operators will face a challenging two- to three-year transition period that will require much stronger, precise and balanced management.
"Executives of telecoms operators will be faced with difficult, and sometimes contradictory, decisions. Striking the right balance between more aggressively reducing costs while still investing in the business will separate the winners from the losers."
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