Season’s Greetings from Balancing Act’s News Update

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Dear readers, viewers, contributors and advertisers

In preparation for writing this seasonal message, I always go back and review the previous year’s. Sadly many of the issues raised I raised in December 2014 remain unresolved. It’s not that a year has been lost because much has happened but Africa’s new all-data industry is taking its time coming into focus. The shock of the MTN fine in Nigeria will perhaps begin to get operators to answer some of the key questions they face.

For example, it has taken one mobile operator three years to launch its VoD platform, whilst all the while sitting on the costs of having bought content rights.

Operators to behave more like start-ups: For the large operators (the mobile operators and some of the former fixed line incumbents), the challenges are enormous. I recently caught up with a mobile operator manager who was telling me that operators need to behave more like start-ups. They need to be agile and responsive, launching new products and services, and adjusting them quickly as the market responds.

But he was quick to make the point that it’s easier to say this than to actually put it into action. Mobile operators in Africa (and probably elsewhere) are large bureaucratic organisations: they know they have to do something to change themselves but it is far easier to do what you’ve always done.

Let me be clear. This is not simply stupidity on the part of those involved although there is more than enough of that on display. Known revenues are “better the devil you know” and in the short-term, they produce adequate financial results.

Another mobile manager told me that without Viber and What’s App, the company’s important international calling revenues would have grown. Instead they have flat-lined and will decrease in the coming years. Doing nothing is not an option but the pain of an all-data future is not yet producing decisive new strategies.

Anyone who knows large organisations like mobile operators will tell you that it is hard to concentrate on getting the whole organization to do more than one or two things at once. Mobile operators are currently faced with more choices than can reasonably be taken all at once and these choices are all tied together.

If you are building a much higher capacity, more reliable network then it needs to be provisioned against some idea of the kind of content and services it will have to carry. If you’ve yet to get in place the platforms to convey the content and services, then you’re faced with a chicken-and-egg situation.

There are already signs that these two parallel tracks have got out of alignment. One well-known mobile operator launched a content service promising a streaming service that would work on 3G. It will come as no surprise to anyone familiar with Africa’s 3G services that it didn't and the service had to be withdrawn and re-launched.

Content vs network companies: But there’s a bigger strategic tension that no-one has yet really got to grips with. I think that in the future, there will either be data network companies or online content companies. This is counter-intuitive and goes against the trend of mobile and fixed companies all trying to find value in content and services. They will find this an extremely hard road to travel.

In terms of value, telecoms revenues far exceed content and services revenues (as represented by media revenues) and unless you buy one of the large Over-The-Top companies, it is likely to remain that way. As a mobile operator if you do content and services, then the revenues are likely to be smaller than for your core network business.

So you will be launching a new business that will be smaller in revenue terms, which will make more management demands and which is notoriously difficult to get right. Fixing a base station is a far easier task than finding a hit TV series for mobile viewers.

All of this would be less worrying if the senior staff in the large operators behaved with some humility about what they don’t know: there is often a staggering level of arrogance and this is the pride before the fall.

VAS on steroids: Worse still, many mobile operators treat content and services as if it was simply “VAS on steroids” and are seeking to set the terms of the revenue share within that old paradigm. A 70-80% revenue share to the operator will not survive in the new world.

Recently I returned from Senegal where I learnt that 52% of subscribers now have a smartphone. Content owners will end up rushing to use the Internet and alternative payment methods if mobile operators do not begin to understand that there will alternatives to going through them.

Network Opportunities: There are still considerable network opportunities including the Internet of things, enterprise ecosystems, Fibre-To-The Home, VoLTE and carrier-grade Wi-Fi. These are all opportunities that can be picked up by companies other than mobile operators. Some of the smarter fixed line incumbents might now try and offer bandwidth that is more reliable than its mobile equivalent.

One of the stand-out moments of the year was when Afrimax announced that it had passed the 100,000 subscriber market in Uganda with a combined voice and data service. At this point, it became possible to imagine an ISP doing voice and date for something more than just the small group of high-end enterprise customers. Smile is now also working to achieve the same in its territories and today iBurst announced that it is selecting a vendor to rollout D-LTE-A in South Africa. These numbers don’t look threatening to the mobile operators but they are the wealthier data customers.

The big changes are only really just beginning and they will take while to get in place. Currently anything from collecting retail outlet data on tablets to giving unique digital identities to those getting donor welfare payments is moving online. Smart cards to pay bus fares are just a few months away in Kigali. Whole categories of services are now opening up to digital delivery.

These things that have started out as initiatives or projects will become how things are done and will begin to transform what can be done. When I started Balancing Act 15 years, it was hard to imagine what is now an everyday occurrence. The key to these changes has often been less about technology but almost always about behavior change. Somehow the operators have to figure out how they will help this new world be born rather than conducting trench warfare to protect past markets.

Over-The-Top Operators as new Masters of the Universe: Several African mobile operators have been discussing ways of attacking the Over-The-Top operators. The discussion seems to have two strands. Firstly, they want to charge customers extra for using OTT services like Viber and What’s App. Secondly, in the regulatory argument that follows announcing this is what they will do, they will argue that the OTT operators will undermine their revenues (and therefore taxes to the Government). Furthermore, they will point out that OTT operators are not paying taxes in Africa. For many reasons, this campaign is unlikely to succeed.

But the OTT operators in Africa have become the new Masters of the Universe (the incumbents in waiting) promising us balloons and drones and much else besides. Yet with the exception of Google (and more recently Facebook), they have almost no staff presence on the continent. The fierce arguments around Internet.org’s “walled garden” seems to veer between a relaxed pragmatism (“we need all the help we can get”) to a nervous suspicion (“they want to take over the Internet”). But all this is against a broader backdrop of questions about tax payment and monopoly position.

As you can see from the points made above, the African Internet and telecoms apace has come a long way and is fundamentally changing. For this reason, we launched another online platform to capture some of these changes. Balancing Act’s web TV channel Smart Monkey TV (which describes itself as Creators and Innovators in Africa at the crossroads of culture and technology) delivers the following that you may find useful:

•    A web TV channel which uploads 10 video clip interviews with people doing interesting things. Amongst those recently uploaded are: Julian Von Plato, PockitTV talking about expanding his streaming service across Africa; Black Coffee’s manager Amaru da Costa on the digital sales success of his last album; and Parminder Vir of the Tony Elemelu Foundation talking about its support to create 10,000 African entrepreneurs. Click: www.smatmonkeytv.com

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•  Digital Content Africa covers film and TV, music, media and social media, digital advertising and other digital content and services. Stories this year have included: Unitel’s “all you can eat” music service; Rancard’s Kofi Dadzie on creating a social graphing product; and PCCW on launching its VoD platform in South Africa. For issues produced click:

•    Innovation in Africa covers start-ups and investment, energy, ICT4D, 3D printing and other forms of innovation in Africa. Stories this year have included: Ghanaian Mobile money aggregator start-up Zeepay clinching US$200,000 angel finance deal; the lessons learned by a West African health messaging service; and smart cards for Kigali buses. For issues produced click:

The web TV channel gets between 10-12,000 views per month. It’s not Justin Bieber in terms of reach but those interviewed report that they have made interesting and useful connections from being on the platform. Digital Content Africa has just over 2,000 subscribers and Innovation in Africa just over 1,000 subscribers. Subscribe now to understand the big online changes that are happening.

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 2015. 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 808 on 8 January.

    All the best

    Russell Southwood
    CEO
    Balancing Act

    Sylvain Beletre
    Senior Analyst
    Balancing Act

    Alice Saywood
    Marketing