African telecoms near saturation

The African telecommunications market is turning into a high-speed consumer goods market as competition increases and prices drop.

This is the view of Mohammed Sheikh, director for corporate strategy, Zain Africa, who spoke at TM Forum's Management World Africa conference, held in Sandton, last week.

“Good, fair competition is acceptable, but competition where someone enters the market and cuts prices dramatically damages future levels of investment,” he said.

Sheikh explained that African governments are reacting to the downturn by increasing taxes and rolling out new telecoms licences to open up the market. He claimed this could have potentially harmful affects on mobile operators.

However, Martin Creaner, CEO and CTO of the TM Forum, disagreed. “Over five years ago, the market had a huge demand for mobile connectivity, but very little competition, and it was like shooting fish in a barrel.

“Currently in Africa, there's a mobile penetration of 70%, meaning for every 100 people there's 70 mobile phones. The feeling today from mobile operators is that the low hanging fruit has been harvested, but it just means that telcos now need to think smarter and become more innovative.”

Creaner explained that an incumbent mobile operator that ruled an unchanged market for 20 years now has to deal with significant market changes every 20 months.

“They have to adapt in this new, rapidly changing market with new technologies such as 4G. The playing field is now suited to embrace competition, but has also become more complex, with new and different regulations being deployed across the continent.”

Creaner said that in two years' time, the market could become dominated by a few large network providers, a consolidation of medium-sized telcos, and many niche specialist players. “What the world needs is a diversity of service providers and a conglomeration of network infrastructure. It's the services that sit on top of the networks that will become the real value differentiator.”

Sheikh pointed out that Zain is bullish about African expansion this year, and also hinted at Bharti Airtel's $9 billion offer to buy Zain's African cellular assets. “We've invested $12 billion in Africa via acquisitions, network expansion, and developing new network technologies. We've started a combined 2G/3G network in Ghana. The idea is that we have to create value through services as opposed to cutting cost to the bone.”

One of Zain's most successful services is Zap, a mobile payment service targeting 70% of Africa's unbanked population. It enables a person to pay for their electricity bill or transfer money into other accounts. In addition to creating fibre hubs that connect to Seacom, Zain has partnered with Ericsson to use its network infrastructure.

“What we've learned through the turbulent times of 2009, and what we are looking to do in 2010 and beyond, is to increasingly embrace the challenge of sensibly investing in Africa, but also looking at our cost structure and sharing our assets,” said Sheikh.