Global telecoms companies face contrasting fortunes from their investments in Africa.
This is according to the International Data Corporation (IDC), which has found global telecoms operators will see constrained profitability in their African operations, but for varying reasons in different regions.
"Africa is the next frontier for growth for most global telcos; however, investors need to be more abreast of local nuances per region before setting expectations on return on investment," according to Oluwole Babatope, research analyst for telecoms and media at IDC West Africa.
In SA, two global telcos have had vastly different experiences with their investments in the country's mobile sector: Vodafone's majority stake in Vodacom, and Oger Telecom's majority shareholding in Cell C.
"Both telcos are experiencing contrasting fortunes with respect to profitability. While Vodacom has been able to establish its presence as a leading telco, Cell C has struggled to find its feet in a matured and very competitive South African market," says Babatope.
Africa Analysis MD Dobek Pater agrees, saying the difference is that Vodafone's investment in Vodacom as well as in Safaricom in Kenya have been "very good, profitable operations, whereas Cell C is not".
Babatope says it is important to note the challenges encountered by Oger Telecom in SA are completely different from the experience of Zain, Etisalat or Bharti Airtel across other African markets.
"Oger telecoms is playing in one of the most, if not the most, matured telecom markets in Africa, and as a late entrant is struggling to compete with Vodacom and MTN, which have had good head starts with respect to investments in infrastructure and subscriber market share," says Babatope.
"The scenario is quite different with other global telcos in other parts of the continent, where markets are not so matured and there is also lack of public infrastructure like power and roads. These telcos have had to invest massively to build infrastructure which cumulatively in the long term diminishes the prospects of a better return on investment."
The IDC has found companies like Etisalat have struggled to remain profitable in West Africa. Similarly, Bharti Airtel entered 15 African markets in 2010, after acquiring Zain's subsidiaries on the continent, but is now considering selling some of its African subsidiaries largely due to concerns around sustainability and profitability.
Pater says SA has different challenges for global players because its mobile market is mature and the fixed-line space remains competitive.
"South Africa is also a fairly sophisticated market, especially in the enterprise space. This means a global telco catering to enterprises may be able to offer little in terms of new products or services that are not already offered locally."
Attitude shift
Pater says in general, global players are now more circumspect about their African investments. "The original attitude was more along the lines: 'If Africa is the future growth continent, any opportunity to set a foot in the door should be good and beneficial.' I think more consideration and proper due diligence is being given now."
He believes this is due to two main factors: "Firstly, some of the perceived opportunities turned out not to be beneficial after all. Secondly, the obvious opportunities are fewer now and one needs to dig a bit deeper to find good opportunities."
Babatope says Africa remains a key investment destination for most global telcos because most other markets around the world, especially America and Europe, have attained maturity.
"Saturation in the consumer space is high, average revenue per user (ARPU) is declining year-on-year, and competition is cut-throat in the enterprise segment."
Cell C up for grabs
Telkom last month confirmed it had abandoned its plans to buy Cell C, leaving the door wide open for a global player to make an offer for Dubai-based Oger Telecom's majority stake.
A disagreement over Cell C's value was the final nail in the deal's coffin and for now Oger still owns 75% of Cell C. Oger has been open about the fact that it would sell the controlling stake if it was offered the right price. What this right price would be is debatable.
"It looks as if at R22 billion, Oger has considerably revised downwards its view of what Cell C may be worth (and in the past it was for a much smaller operation)," says Pater.
He believes there are still a few interested operators from outside of SA and the company presents an interesting investment opportunity; however, it hinges on what price the 75% stake is ultimately purchased for.
"Cell C has built up its customer base considerably, although the real value of these customers may be quite a bit lower than what one would expect from 22 million subscribers. This is evident in Cell C's revenue versus that of MTN, for instance. However, the Cell C subscriber base does provide economies of scale now and an opportunity to grow its value," says Pater.
Babatope says one of the challenges that remains with Cell C is not market share but rather the quality of its subscriber mix.
"Their subscriber mix is skewed towards low ARPU subscriber and have low penetration in the postpaid segment. This has informed their latest promotion offering to buy out postpaid customers from existing contracts in the bid to improve their subscriber mix."
Share