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Issue no 738 19th December 2014

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  • Dear readers, viewers, contributors and advertisers

    It has been another action-packed year in which the pace of change in the industry has not left much time for reflection. However, there are now some very substantial issues the industry has to get to grips and this is perhaps slowing done some of the things that should be happening more quickly.

    The big change has been that in the more advanced markets in Africa, there are now substantial numbers of mobile Internet users and they are beginning to drive the uptake of online content and services. We published a major market research study that looked at some of these countries and the results are available for free if you go to www.balancingact-africa.com and look in the right hand column.

    Africa needs cheaper data delivery costs than elsewhere globally: Everything will soon be data, including voice. In order to have as wider data market as possible, the costs of delivering data to the customer need to come down in order for the price to the customer to come down. Being a dumb pipe is an entirely honorable calling and indeed as one OTT operator was heard to observe, it would be good if operators could fix their networks before imagining they could get involved in content.

    The African voice networks that were the success story of the 2000s were a supreme act of improvisation. There are places in Liberia where diesel is still delivered by boat and wheelbarrow. The next stage of development is to create data networks that will last and deliver to ever-wider numbers of the population. Hamilton Research has calculated that currently 44% of Africa’s population lives near to a fibre network:

    Getting to the point of having cheaper and more resilient data networks is not something that is going to be easy. Shared infrastructure networks will be an essential component of the things that can make it happen.

    But also if Governments are serious about wanting an “Information Society” they need to provide incentives in the form of lower taxation and lower spectrum costs for 4G. They need to understand that achieving record revenues from 4G spectrum can only translate into higher data prices for users. Governments also need to ensure that wholesale energy transmission supply is improved. We can all breathe a sigh of relief with oil at US$60 a barrel but it’s not going to stay there in the medium-term.

    Over a hundred VoD platforms and still they come: We have tracked the steady rise of both African Video on Demand (VoD) and Music on Demand platforms. There are now over 100+ in each category and not a week seems to pass in which a new one emerges. To follow this fast-changing space, you need to be a reader of Digital Content Africa, one of our new fortnightly e-letters. To become a subscriber, send a mail to info@balancingact-africa.com with Digital Content Africa in the title.

    Meanwhile MTN said its own VoD platform was weeks away from completion in November. Still no sign of it. Vodacom talks of launching in 2015. Both of these platforms have been under discussion for over two years. Unfortunately as one ex-mobile operator employee told me:”Mobile operators globally are not good at launching in-house products. None have won out in a big way. Over-The-Top makes sense for the first time ever.”

    The sad truth is that the networks are not yet ready for wave of bandwidth demand these platforms could unleash. It’s not that it’s not possible to deliver this kind of bandwidth in Africa: at the beginning of the year I was raving about LTE on the Smile mi-fi modem in Uganda and Nigeria. I had a similarly good LTE experience on Vodacom’s mi-fi device in November in South Africa. The issue is whether the network would break if there was something like affordable 4G access. The upside is that at the right price African’s are already spending US$2-4 a week/a month on pirate DVDs depending on their income levels. Don’t you want a piece of that?

    Smartphones for everyone:
    I had a “road to Damascus” moment talking to Rick Fant, Mozilla about the smartphone deals it arranges for operators with Chinese vendors: there have been places in Asia where these phones are selling for US$35. In Kenya, Safaricom has already stopped selling feature phones, arguing that many are almost identical in price and features to low-end smartphones.

    Mobile operators need to accelerate the process of increasing the number of people with a smartphone and help users make better use of them by offering services they want to use. Things like What’s App will cut some SMS and voice revenues but will accelerate smartphone use that will drive mass data use.

    Change the payment terms, create a data ecosystem: For all of the above to succeed, the mobile operators have to change the terms of the revenue split with content and service providers. 70-80% of revenues going to operators as a matter of course is no longer recognizable as global best practice. This is already acknowledged by some operators who are offering a small number of people like successful music stars a 50:50 split.

    The same is true for things like operator billing because for the data ecosystem to be successful, there needs to be a way of taking relatively small sums of money from a lot of people without most of it ending up in operators’ pockets. The successful operator of the future will understand the content and services narrative and seek to engage positively with it. Millicom’s COO Raul Martinez makes a good fist of showing what needs to be said:

    Online becoming more everyday: For years, e-commerce in Africa was something more talked about than actually done. But this seems to be the year in which it has begun. There are now somewhere around 2 million e-buyers in Nigeria spread between the two main companies involved, Jumia and Konga:

    There will be those whose reaction is “Oh, but that’s only 2 million out of 180 million” but that’s not really the point. Yes, we’re at the bottom of the curve but given the poor state of retailing in Nigeria, the soil is very fertile. It’s striking that this customer base has been built on a mixture of digital ordering and cash payment without the mobile operators being involved.

    This growing feeling that the market is on the brink of being born has drawn in international investors from outside the continent. Jumia is Rocket-backed and it now has investment from both Millicom and MTN, a good sign in the light of my comments above. One of the tragedies of the year was the murder of One Africa CEO Carey Eaton.

    Tiger Global was one of his investors and is also a major backer of iROKO and several other African online companies.

    At the other end of this story of ICT applications becoming more everyday are things like UNICEF’s collection of health data from rural clinics that is not a pilot but an everyday part of the health system. Government is always slow moving but these kinds of implementations can improve life and offer efficiencies.

    New technologies offer cost savings: 2014 was the year TV White Spaces projects sprung up like mushrooms supported by companies like Google and Microsoft. Higher visibility has led to some sustained opposition. However, the basic proposition remains sound: lower cost technologies should be encouraged in Africa because as I have said above, data delivery costs needs to be lower.

    Besides TV White Spaces, the technologies that have come across our radar that bear further examination are: shaped Wi-Fi for backhaul; Xlabs Mesh Wi-Fi; Parallel Wireless’ 4G micro base stations; and NuRan Wireless’ low-cost base stations (used by Rhizomatica in Mexico).

    The blockage here is that mobile operators will tend to focus on one or two vendors to get the best deal and not have to train people on more than one or two sets of equipment. Of course, there are the little projects done for CSR purposes but they don’t affect the overall buying policy. This makes it hard for these kinds of technologies to be adopted.

    2015 should be the year that regulators put operators on notice, particularly if licences are being renewed. If you don’t intend to roll out somewhere nationally, then that area should be freed up so that some other company can get a licence.

    Some things never change: Comoros again demonstrated how not to privatize the incumbent and introduce competition. By contrast, Africa’s smallest country Sao Tome successfully introduced a second operator, Angola’s Unitel. Orange finally gave up in East Africa and Portugal Telecom’s Africa assets are finally in play. But despite significant losses Airtel, Expresso and LapGreen are plodding on. I expected them to have gone to a good home by now but some things take a little longer. And one of Nigeria’s larger fibre networks, Multilinks, has still not found a buyer.

    Next year we will publishing: an update on data centres (African Data Centre Markets is now mid-way through the research stage), Africa Mobile Data and a look at the investment and deals market in Africa. 

    Balancing Act’s web TV channel Smart Monkey TV is getting between 11-12,000 views a month and delivering 10-15 video clip interviews, many of which cover things that Balancing Act Telecoms readers will be interested in Please join the party and subscribe, by clicking on the link below and pressing the red “Subscribe” button below the monkey:

    This year we have carried out many different research and consultancy projects - both large and small - for a range of clients including operators, equipment vendors, investors and policy bodies. Because we operate discreetly, you may not be aware that we offer these services. If you think you have needs or requirements of this kind, talk to us about them. In what will be a year of great change, we will have both data and ideas to help you change your circumstances.

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     A big thank you to all those who have helped News Update keep ahead of what was happening in 2014. Without your help, we would not have been able to bring you your weekly dose of information and new opportunities.

        News Update will return in the New Year with issue 739 on 9 January.

        All the best

        Russell Southwood
        CEO
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        Sylvain Beletre
        Senior Analyst
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