Competition knocks African telcos

There is a growing concern about the emerging competitive environment in Africa's telecoms space.

This follows the liberalisation of most African economies and the aggressive foray of multinational telecommunications companies onto the continent.

This was raised by delegates at the Next-Generation Telecoms Africa 2011 Summit, in Nairobi, Kenya, yesterday.

The delegates were in agreement that mobile operators across Africa are reeling from cutthroat competition that has seen call rates slashed by as much as 90%, in countries such as Nigeria, Uganda, Ghana, Kenya and Tanzania. This tumble has been accelerated in recent months by the arrival of international operators.

Bharti Airtel, in particular, is shaking up markets, following acquisitions in 16 African countries and its moves to replicate the low-rate strategy that has made it the dominant mobile operator in Asia.

Delegates also pointed out that in SA, where mobile penetration is the highest in Africa at 98%, prepaid users pay up to R2.85 per minute, or more than 33 times the Airtel Kenya rate.

Even on special packages, they added, where South African prepaid users can pay rates of as little as R1.50 per minute, the Airtel tariffs are still less than 15% of that amount.

Overall, tariffs in Kenya are now running at around 20% of the equivalent rates charged by Vodacom, MTN and Cell C in SA, and often at a lot less than that, it was also established.

Against this backdrop, the conference's keynote speaker, Bob Collymore, CEO of East Africa's largest company and mobile operator, Safaricom, called for a setting aside of price wars in the interests of maintaining and further building a strong mobile industry across the continent.

“Let's avoid direct price competition. It hampers investment and may lead to poor services, as the cost of maintenance remains constant,” said Collymore.

But in Tanzania, the delegates also noted, some service providers are now subsidising call rates as they go all out to bring in the numbers, setting call rates on some networks at levels lower than the interconnection charges fixed by the regulator.

While the short-term benefits of cheaper rates may be appealing to users, some industry players warned strongly at the summit about the lack of sustainability of this strategy.

“Regulators should step in to ensure all players, including users and vendors, enjoy the current growth rates, now and in the long-term,” said Malik Melamu, MD of Vodacom Lesotho.

The rationale of drastically bringing down rates to align with the disposable income of Africa is misguided, he noted.

“Price reductions, as a result of competition, should be planned and gradual,” said Melamu, giving the example of India, where the prices dropped in 2009, but are now steady, with no significant cuts in the last three quarters.

In Africa, Melamu explained, mobile service providers now face sharply reduced profits and the implication for governments is also coming to bear.

Kenya's revenue authority estimates it may lose up to Sh2 billion ($2.5 million) this financial year, due to the tariff reductions.

However, it is also generally accepted that competition has led to improved services and expanded value-added services to end-users, at more affordable rates, it was noted.

“As new technology comes in, service providers need to find ways of reducing their costs by adopting greener solutions, power-efficient and scalable technology,” said Akli Mokrane, chairman of ITU-D.

However, Mokrane is also in support of regulators to manage competition in a sustainable way.

Offering differentiated services also promises a way out of the rates race, said analysts at the conference, with companies now giving a new push to value-added services such as broadband, mobile money and mobile data.