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STUDY ABROAD OPTIONS
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THE SMS MESSAGING EXPLOSION - BUT WHAT NEXT? Once again, the end of the year was propitious for the bottom line of South Africa’s two mobile carriers, Vodacom and Mobile Telephone Networks (MTN). Following on the heels of stupendous growth in short messaging service (SMS) usage in 1999, the two operators announced remarkable levels of SMS usage for year-end 2000, with their GSM networks sending out a total of more than 16m messages on Christmas Day and nearly 15m on New Year’s eve. No doubt, the irresistible upward trend in SMS traffic carries far-reaching implications for operator revenue and usage dynamics in the local market, as well as insightful lessons for the soon-to-be-deployed next-generation wireless services networks. The SMS growth spurt in the South African market mirrors a similar trend across the world, with the GSM Association anticipating total monthly traffic of about 10bn messages at the end of 2000. Estimates of SMS traffic show that South Africa is at the forefront of the SMS explosion, a fact all the more remarkable given the largely low-end, prepaid subscriber base predominant in the local market. By Pyramid’s estimates, average SMS monthly usage for South African mobile carriers largely outstrips the usage levels experienced by some of the world’s leading carriers. A few factors have helped spur the adoption of SMS services. First, Vodacom and MTN have had to create opportunity out of necessity. Because of the nature of their market - a unique juxtaposition of first and third worlds - Vodacom and MTN have long been forced to devise innovative solutions to sustain revenue growth. Moreover, the two operators lack the spectrum that would enable them to offer high-end data services and will likely be constrained in the nearly saturated 900 MHz band until the local regulator decides otherwise. While waiting for more spectrum, the operators have had to innovate to differentiate their offering and stem the tide of a rapidly declining average revenue per subscription (ARPS). The companies developed entire service lines (from banking to news) around the SMS platform, spurring increased usage in the corporate and high-end consumer segments. Another driving factor has been the emergence of a handful of third-party content and application providers, such as Itouch South Africa, which have developed applications for the SMS platform and expanded the pool of SMS- based services for corporate and residential subscribers. The cost factor has not been negligible, either. For one, most handsets in circulation in the market are SMS compatible. Moreover, an SMS call occurs in a fraction of a second (a boon for the network) and costs about US$0.10, three times less than the average per-minute airtime cost. Users can also subscribe to news alert services at a cost of about $1.50 per month. While the capacity of SMS to generate revenue here and now suffers no debate, there are legitimate questions as to the extent of its shelf life in light of the deployment of next-generation networks, its cannibalisation of voice traffic and its capacity for shoring up customer retention strategies. To answer the first interrogation (in the South African context), SMS is here to stay, unlike in other markets such as Brazil, where Pyramid forecasts that revenues from SMS will reach near- zero levels by the end of 2005. SMS service has yet to truly penetrate the large and elastic prepay subscriber base, where it offers a better cost for a useful value-added service. Indeed, we are forecasting a rapid and steady rise in SMS and other value-added services revenues from nearly $220m in 2000 to more than $600m by the end of 2005, thanks to eventual SMS interoperability, the multiplication of SMS-based applications and the penetration of lower-end market segments. In the absence of visibility on the business model for next-generation services in the local context, initial indicators suggest that mobile Internet uptake will penetrate the market at a slower rate and will not dislodge SMS in the lower end of the market. To answer the other interrogations, we anticipate that there will indeed be a degree of cannibalisation of voice by SMS, but expect voice to remain the killer application. As of 2000, value-added services and SMS accounted for about 10% of ARPS, a percentage forecast to rise to about 20% within the forecast period. Simply put, SMS offers operators a popular, low-cost revenue stream they will exploit as much as possible. The extent to which SMS can shore up customer retention is less clear, and high-speed mobile data may offer a better potential for service differentiation and churn reduction. In this context, we view SMS as a complementary service rather than a pure rival to 2.5G and 3G. In summary, South African operators should continue to ride the SMS wave even as they build appropriate revenue models for their 2.5G and 3G networks. (source: Pyramid Advisory Alerts for www.AfricaNewsNow.com ) TELKOM KENYA DEAL IS STALLED Negotiations for the sale of a 49% interest in Telkom Kenya have been suspended while some decisions are referred to the Kenyan government. The Mount Kenya Communications consortium earlier beat competitors Malaysia Telecoms and Egyptian operator Orascom in bidding for the equity stake, which is up for sale as part of the process to privatise the state-owned enterprise. So who are Orascom? See next story According to onesource, the price of the stake, a US$225 million payment and guaranteed loans to the value of another US$85 million, is not at issue, although it is believed that an offer by Orascom to increase its offer may have been partially to blame for the delay.Some involved in the deal believe a faction opposed to the privatisation process may have manoeuvred a late offer by Orascom to increase its bid, in order to sink or at least hinder the transaction. The offer of $225 million is considerably lower than that initially expected by the government. (source: ItWeb http://www.itweb.co.za ) EGYPTIAN TELCO ORASCOM BECOMES AN AFRICAN PLAYER Egypt’s Orascom Telecom (OT) is emerging as a significant regional player as it buys up mobile phone licenses in Africa, the Middle East and Pakistan, analysts said. "My strategy is simple," Orascom Chairman Naguib Sawiris told AFP. "If someone wants this area (Africa and the Middle East) and you have blocked this area as OT, he has no entry level but through OT." The 46-year-old entrepreneur is a scion of an Egyptian Coptic Christian business family that owns around 60 percent of Orascom, with most of the rest floated on the Cairo and London stock exchanges. Analysts with Cairo-based EFG-Hermes and London-based HSBC are bullish on OT’s long-term prospects, saying it has positioned itself well to profit from surging growth in mobile phone use in countries lacking fixed line networks.In a shopping spree that began two years ago, Orascom now has licenses and joint ventures spanning 20 countries and serving 2.1 million subscribers, who have jumped 125 percent in the last year. (OT‘s portion of subscribers is 780,000). Orascom, using mainly pre-paid billing and offering good products, knows how to win and keep customers in markets where there are now firms backed by Britain’s Vodafone, France Telecom, MTN of South Africa and MSI of Britain, according to EFG Hermes' Nermeen Amin. Tim Kelly, who follows developments worldwide for the International Telecommunication Union in Geneva, agrees that Orascom "is emerging as an important regional player." In the past month, Orascom consolidated its position in cellular operators in Egypt, Jordan, and Pakistan—its biggest revenue earners—by buying out Motorola’s stakes. But its venture with United Networks Ltd. dropped out of a fierce auction in populous, oil-rich Nigeria when the license price hit 285 million dollars.Orascom got its start in 1998 when it teamed up with France Telecom and Motorola to launch Egypt‘s first private mobile phone network, MobiNil. In early 1999, OT bought a majority stake in Jordan’s GSM operator Fastlink, then aquired GSM licenses in Congo-Brazzaville and Chad.In February 2000, OT acquired 80 percent of Geneva-based Telecel International, which now controls cellular licenses in more than a dozen sub-Saharan countries like Ivory Coast, Zimbabwe, Zambia and Togo. To help fuel its expansion drive, OT raised 320 million dollars in an oversubscribed IPO in London and Cairo last July and raised another 200 million dollars from a syndicated loan arranged with Citibank and Chase. In a report last week on the first nine months of 2000, OT recorded revenues of 1.497 billion Egyptian pounds (3.85 pounds to a dollar), up 42 percent over December 31, 1999, and EBITDA value of 550 million pounds, up 66.4 percent. HSBC’s Manal Ezzedine, contacted in London, said the results were lower than expected and pointed out net losses of 123.6 million pounds. But both HSBC and EFG Hermes analysts said the performance was mainly to do with Orascom’s aggressive expansion strategy; with losses coming from African start-ups, foreign exchange and intense marketing and price-cutting to win the Jordan market. Both said the results did not undermine their view that the company was fundamentally strong and debt levels are comfortable. (source: http://www.gega.net/shownew3.asp ) SA’S CELL C GRANTED CONDITIONAL LICENCE FOR THIRD CELL NETWORK Cell C has been conditionally awarded the licence to operate SA’s third cellular network, Communications Minister Ivy Matsepe-Casaburri announced on Friday. (source:http://www.barney.co.za/news/feb01/cellc16.htm ) Vodacom welcomes competition from Cell C PACONET WINS FUNDING FOR PAN-AFRICAN NETWORK A R110m investment to build a panAfrican telecommunications network has been won by Paconet, in which Johannesburg-based Accord Technologies holds a 39,5% stake. The cash is coming from a limitedlife venture based in Mauritius which invests in funding infrastructurerelated companies in Africa. Chief investors include the American International Group (AIG), with a market capitalisation of $200bn; the International Finance Corporation; the African Development Bank; and Sheikh Mohammed Hussain alAmoudi. Former SA president Nelson Mandela is the fund’s chairman. The fund will invest up to R110m in Paconet for 30% of its equity. The pan-African network will be based on internet protocol, a technology capable of voice and data transmission. Since Telkom holds a monopoly of voice communications in SA, Paconet is likely to earn most of its revenue elsewhere. Accord CEO Brandon Saldesman said Paconet previously offered data transmission services in South Africa but that Telkom cut off its lines last year as it believed Paconet was illegally carrying voice traffic. "Voice over internet protocol is the next hot technology and this uses a dedicated bandwidth for better quality transmissions than the public internet," said Saldesman. The company is negotiating for licences to operate in Botswana, Angola, Swaziland, the Democratic Republic of Congo and SA, and will install its own infrastructure in those countries. Its target customers are international companies with branch operations in Africa. "International voice traffic into Africa is worth R45bn a year and we’d be happy with a bit of that," he said. "This is early days and companies that get in at this point will see substantial profits in the future." (source:http://www.jamboweb.com )
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This page last updated on January 28 2004.
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