Profitability challenges are forcing some global telecommunications companies to reconsider their plans for Africa.
This is according to global technology research and consulting firm International Data Corporation (IDC), which has found a number of major players have encountered serious challenges around the profitability of their investments on the continent.
"The poor level of infrastructure - particularly in relation to electricity supply - is one of the key challenges telcos encounter when it comes to deploying and maintaining top-quality network operations in Africa," says Paul Black, director of IDC's telecoms programme for the Middle East, Africa, and Turkey.
"This issue has consistently affected the profitability of telcos due to the increased levels of capital and operational expenditure they must undertake in building and maintaining a passive telecom infrastructure."
He says some global telcos have also failed to adapt and implement strategies that have succeeded in other regions.
"The majority of global telcos have been unable to localise their global strategies to suit the unique operating environments of the African market," according to Black.
For example, Bharti Airtel entered 15 African markets in 2010 after acquiring Zain's subsidiaries on the continent, and has since expanded into two more markets. However, after five years of operations, the telco is considering selling some of its African subsidiaries, largely due to concerns around sustainability and profitability.
Another example is Etisalat's struggles to remain profitable in West Africa. The Etisalat Group entered into an agreement in 2014 that saw Maroc Telecom acquire its subsidiaries operating under the Moov brand in Francophone West Africa. The deal also included Prestige Telecom, a company based in the Ivory Coast that provided IT services to Etisalat's operations in Benin, Central African Republic, Gabon, Ivory Coast, Niger and Togo. The move was spurred by the steadily declining revenue Etisalat was pulling in from its international subsidiaries, with all of its West African operations, including Nigeria, contributing just 7% to its overall revenue last year.
The IDC says Orange is also in talks with Bharti Airtel to acquire four subsidiaries in Francophone and Anglophone Africa, in Burkina Faso, Chad, Congo Brazzaville, and Sierra Leone.
"The operational challenges facing telcos in Africa have driven growth in the continent's third-party telecommunications infrastructure management business, and IDC expects the pressing need for telcos to reduce their costs and increase their levels of control to sustain growth in this space," says Black.
"In order to increase the likelihood of success, telcos wishing to pursue growth and expansion in the African market must focus on developing enterprise products and services that appeal directly to the wants and needs of the local market, and to small and medium businesses in particular.
"Telcos looking to enter Africa should tailor strategies that have succeeded in other regions to the specific operating environments they encounter in Africa, while the mobile virtual network operator route should also be considered as a potential entry strategy," Black concludes.
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