Data close to overtaking voice revenues in one African market – The whole shape of the business is changing

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For three years or more we have writing about how everything will become data and that Africa will not be any different from elsewhere as this change takes place. Two pieces of news have added significant evidence for this proposition this week. Russell Southwood looks at what it all means for Africa’s mobile operators.

The eagle-eyed Arthur Goldstuck noticed in Vodacom’s results that data revenues in South Africa are close to eclipsing voice revenues. Data revenue rose 27% to R17.2bn and voice revenue were down 6% to R24bn. 

The point at which Vodacom’s data revenues overtake voice revenues cannot be that far away. Falling voice revenues mean that users are increasingly using OTT services like WhatsApp as data services get better capacity and the quality improves. Other interesting stats from the Vodacom South Africa results are that smart devices are up 22.8% to 14.2 million. Average data use is up 50% to 350MB per month.

The question for the rest of Africa is simply how fast will this transition that is prefigured by these results in South Africa take place elsewhere. It is fairly easy to predict that the same thing will happen fairly quickly in North Africa and the “fast lane” African countries like Ghana, Nigeria and Kenya cannot be far behind.

Perhaps understanding the magnitude of what is happening, Voadacom CEO Shameel Joosub told Tech Central that it will team up with other domestic telecom operators to deliver Fibre-To-The-Home, as well as making acquisitions: ‘Payback periods of fixed [connections] are much longer, so you will see consolidation and you will see more co-operation … Co-builds will become more and more important.’ It has so far had a 10% take-up from the 25,000 homes passed.

A new GSMA study has been published that looks at the underlying economic shape of this new, Internet based digital ecosystem globally. The Internet Value Chain, developed by A.T. Kearney for the GSMA, assesses how the internet ecosystem has developed, the impact on mobile network operators and how market positions of major players have shifted. The research provides a factual baseline that operators, policymakers and stakeholders can use to assess the opportunities, competitive dynamics and overall health of the Internet ecosystem.

The value created by the internet ecosystem is increasingly captured by online service providers. In 2015, online services captured nearly half of the revenues of the entire Iinternet ecosystem (47 per cent, EUR 1.4 trillion). Amongst these, a few powerful players are expanding their influence across the internet ecosystem by acquiring players in other segments.

Although internet connectivity revenue is growing, the proportion of value captured by connectivity players is declining. Connectivity revenue grew from EUR 199 billion in 2008 to EUR 508 billion in 2015, but this represents a smaller share of the of the total internet value chain, declining from 18 per cent to 17 per cent, with a continued slide to 14 per cent expected by 2020.

For mobile network operators, connectivity revenues generated by increased internet use are not offsetting the decline in revenues from traditional communication services, and mobile data revenues are also forecast to grow at a lower rate than the growth of other segments.

The medium-term implications of these changes for Africa’s mobile operators are very clear. The future size of companies providing data and Internet connectivity (including voice) will be smaller than current mobile companies. Even if the provide content and value-added services, these will not be large operations.

There are potentially three kinds of successful data operator companies in this kind of context. Firstly, an existing mobile operator that has extensive fibre network assets and is able to convince 3rd parties to use its service. Secondly, there will be privately operated 3rd party fibre companies like Liquid Telecom. Thirdly, there will be shared infrastructure companies that might be set up between operators. With data as a commodity, volume will be everything except for high-price, niche services for corporates.

The internet ecosystem is maturing. Innovation and technical development still proceed at pace, but the largest players in any given segment deliver higher returns and profit margins. They have secured their leadership position and fewer new players are achieving scale. Eleven of the top 15 US websites visited by users in 2009, for example, were still among the top 15 in 2015.

It is often said in the African context that mobile operators should launch their own content plays to compete. However, much content and many services are probably well beyond the strategic grasp of current mobile operators. Another Facebook? Good luck with that one. A video streaming service? How will it be different from ShowMax or Netflix? And so on…

As a report generated by the mobile industry trade association, the conclusions in terms of regulation are predictably unclear or defensive. Take this one example from the summary:”Interdependencies between segments of the value chain are powerful and complex. Decisions based on a narrow view could be seriously flawed, either for a company that may miss broader competitive threats, or for a regulator misjudging the true nature of the competitive dynamics.”

Or for example:”More debate on aspects of competition policy across the internet value chain is required. Strong concentration of returns and the inflows of capital to a few internet segments, the increasing influence of few internet entities through their portfolio approach and the changed competition dynamics indicate the need for debate on the future competition policy framework”.

The simple truth is that the industry is going from its canals to railways moment. As Andile Ngcaba always says, they’re like the guys who used to sell ice blocks when the fridge came along. The business has gone from being minutes sold to data sold and whichever way you protest, that’s what you’re going to have live with.

The full report is here


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