Africa at MWC Barcelona : Capitalising on the Broadband Opportunity

Slide1MWC 13 : Africa Focus

The Barcelona event featured a special Africa Focus this year . With Internet penetration rates below 10% across SSA it is no wonder Africa is considered the biggest growth Telco growth opportunity of the Millenium.

Disappointingly the CEO panel discussion was rich in highlighting challenges rather than capitalising on opportunities. The Telcos complained ad nauseam about declining margins , high taxes , competitive intensity , spectrum scarcity , Regulatory obfuscation , lack of terrestrial fibre , exhorbitant network opex , civils delays etc.

The Regulator pummelled back with their arguments that Telcos are making profits as evidenced by the amount of the their marketing spend , that network quality is declining even with existing spectrum, the cost of devices remains stubbornly high and rural coverage remains pathetic at best.

However the moaning and groaning did reveal some strategic insights on how best to sustain a healthy vibrant Telco industry that profits all the stakeholders:

1. Africa is the broadband El Dorado but Telcos must show commitment backed by capital and innovative business thinking to generate ROI
2. Regulators do need to avail high bandwidth spectrum esp in the 2.6 and and 800 mhz Digital Dividend to rollout 4G networks
3. There is need for consolidation since there are over 100 tier 2 operators that are sitting with spectrum ( wimax , CDMA ) but are not doing much in terms of coverage or connectivity.
4. Governments do need to do invest wisely the Universal Access Funds in sustainable projects and in partnership with Telcos
5. Industry and Government do need to collaborate out of enlightened self interest which will propel the rollout of broadband wired and wireless infrastructure
6. Telcos must transform and move to lean business models in order to cut costs and improve profitability
7. Investors will channel funds into broadband networks that generate healthy ROI instead of being touted the warm fuzzy benefits of bridging the Digital Divide

To successfully transform , Telcos must harness their core strengths : the fact that they control the pipes that underpin the Internet , offer unmatched customer support capabilities and are at the centre of the value chain that links advertisers and consumers.

Evolving into a truly evolved transformed Telco requires building a lean pragmatic business fully attuned to its existing strengths and exploiting them to become and enabling platform for an expanding ecosystem of players.

While designing new business models, Broadband operators must deploy networks with capabilities, such as mobility, messaging, location, presence, profile and call control, and combine these with internet-style services such as social networking, search, advertising, direct marketing and mapping, thereby enabling richer, more compelling and more personalised services than the Internet players can offer.

Some policy makers are already embracing models where service providers compete via single open access network owned by an incumbent , co investors and Government.

Concerns over the cost of supporting mobile broadband growth traffic at prices that are affordable by rural Africans has necessitated innovative pricing models and leaner telco operating models. We have entered a phase in the development of the African communications industry when producing is not the big issue. It’s time to be creative. It is surprising that Operators are utilizing on average only 35 to 40 percent of their network capacity. It takes some creativity to turn this huge dormant asset into profits.Yield management to maximize revenues must be applied to broadband access.

Besides increasing revenue Yield management can also reduce the need to increase capacity, resulting in savings in investment for providers, which can be passed on to consumers as lower costs. Reductions in costs will also enable users with lower disposable incomes to access services they could

The African broadband market represents a tremendous opportunity, but there are definitely right and wrong ways to go about pursuing it. Operators evaluating broadband ( wired and wireless ) investments must extend their consideration beyond the accepted virtues of the technology and consider how the platform fits into their specific near and long term business model, measuring cost of ownership with potential for harnessing time-to-market advantages to grow subscriptions and generate revenue.

In the long term passive infrastructure may become part of a completely different multiutility business, and not part of the telecoms industry at all. Rather than build duplicative competing access networks, capital has to be freed up via lean thinking to invest in ‘network edge’ assets. Telcos that incorporate network sharing , outsourcing initiatives, and co-opt municipal or open access models will attract investment funding.

Telcos are a capital intensive business especially in Africa’s hyper competitive low ARPU markets . Most investors are wary of broadband data business plans because they don’t trust top line projections after the 3G Spectrum licensing debacles. The lack of a clear commercial strategy to monetise broadband data can sink the Carrier’s hope of attracting sufficient funding.

When evaluating wireless investments , the net profit margin is a critical metric : a fat margin means more money to expand operations, refresh network technologies and marketing and brand building. For a business plan to be attractive a key financial indicator is the number of years for the plan to yield a positive NPV. The dilemma for carriers in a typical 4G type deployment the first years of operation require a balancing act between minimizing the cost of access coverage while maximizing subscriber capture.

The African continent should prepare itself for a surge in broadband growth over the next few years. These factors are include : last mile competition, international gateway licensing, new submarine cables, domestic fibre backbone developments, unified licences, improvements in radio spectral efficiency, increased internet usage from a younger population, and increased availability of global capital.

Sadiq Malik ( Telco Strategist )

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