Straws in the Wind – Africa’s mobile business model takes the slow road to change battered by financial circumstances

10 February 2017

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Africa’s mobile industry is under significant financial pressure and this may yet be the forcing ground for wider changes. What the mobile operators are selling is changing from voice and SMS to data and this demands a different mindset. But it will also be a more challenging road than the super-profits of the mobile voice era. Russell Southwood looks at the straws in the wind that provide some clues to what’s happening.

If I want to make call to an African colleagues, 80-90% are now either on Skype or What’s App. The latter is causing the most significant changes in behavior because it has a good mobile app for smartphones: you can see which of your contacts are on What’s App and what their status is. You can send them the equivalent of an SMS without paying SMS rates. This the context of the change the mobile industry in Africa is going through.

So what are the straws in the wind?

Overall levels of mobile industry profitability: Financially, this is probably the worst year the African mobile industry has experienced since its inception. The MTN Group has issued a statement saying that it expects to report a loss on Headline Earnings Per Share. Although this situation has been caused by the US$1.05 billion regulatory fine in Nigeria, it reflects wider industry woes.

Airtel has been selling off its smaller operations in Africa and was forced to issue a statement saying that it will not be exiting Africa. It has entered into negotiations with Tigo in Ghana to merge their two operations. The key part of the statement was:” Africa is now generating positive free cash and is PBT positive in constant currency”. Unfortunately we do not live in a world of constant currencies as anyone who does business in Nigeria will tell you.

Reliance Jio is keeping Bharti Airtel under pressure in India and is doing so by making a “land grab” for data users. Under this pressure, Airtel has announced that it will be launching VoLTE to compete with Reliance Jio. If the technology is moving towards data as voice in India, how long before that migrates to Africa?

This week saw another step in Millicom’s slow sell-off in Africa with Senegalese money transfer company Wari buying its local subsidiary for US$129 million. A company of this kind will have a very different mindset about the business. If it’s a platform for the biggest money transfer company in the country, how long before it grows a mobile finance ecosystem to go with it? And how long before it encourages other content and service operators to make use of the platform it controls? Who else might buy a failing mobile operator? A bank?

The financial turmoil in the mobile market also opens up space for a newer generation of African ISPs who might yet be capable of becoming consumer players. Companies like Afrimax (which partners with Vodacom), Smile and Liquid Telecom show the potential for this kind of data only play.

The war to control the African financial transfer market hots up: Although Safaricom has a de-facto monopoly over mobile money transfers in Kenya with mPesa, the market is not standing still. This week the Kenyan Government and Mastercard launched the Huduma Card.

It is a prepaid card with chip and PIN technology that will connect all Kenyans to the formal financial sector by providing a secure, reliable and flexible payment option. The Huduma Card, powered by Mastercard, is currently being issued by Commercial Bank of Africa (CBA), Diamond Trust Bank (DTB), Equity Bank and Kenya Commercial Bank (KCB), with no bank charges being allocated to citizens when registering for the smart card.

Kenyans will be able to pay for an array of Government services such as the National Hospital Insurance Fund (NHIF), National Social Security Fund (NSSF) amongst others. Citizens issued with the smart prepaid card will automatically be enrolled in vital government services such as the National Social Security Fund and the National Hospital Insurance Fund, ensuring all Kenyans benefit from these initiatives.

Previous attempts to create such a card to use on matatus failed because Government did not impose a single operator. This card has a much better chance of success because it is backed by a number of banks and government and it is a top-up card.

Money transfer is a key market for a data platform future in Africa and it is too important to be left to new monopolies. The danger of the Wari/Millicom deal is that it will simply create an mPesa-style monopoly in Senegal. The opportunity is that it could turn the tables on the de-facto voice and data monopoly operator in Senegal, Sonatel.

The game moves to the Wi-Fi hotspot: Every African city now has a growing number of Wi-Fi hotspots, some free at the point of delivery, others charging. If you want to send a text or make a call, these are the places to be for What’s App users, particularly the free Wi-Fi hot-spots.

A recent global study showed that the majority of mobile data use was through Wi-Fi hotspots. Most people will pay the mobile operator premium if they’re desperate but given a choice it will be a Wi-Fi hotspot. Ah, I hear you say but these are global users. But how in a price conscious set of markets as you find in Africa do you expect them to act differently?

Challenger UK mobile operator Three is now offering a Wi-Fi Calling product that “will switch seamlessly to Wi-Fi” when there is no mobile signal. How long before someone finds a way of switching automatically to Wi-Fi when it detects a Wi-Fi signal? This leaves the mobile operator with the road and other operators with the hotspot.

Interestingly Aruna Sundararajan, a representative from the Ministry of Electronics and Information Technology announced an intiative to roll-out WiFi hotspots in 1050 Indian villages at a cost of US$62 million. The project will extend nationwide after the initial six-month-long stretch. The plan, Sundararajan told CNN Money, is to "provide basic development services to rural areas using digital technology".

Devices at the right price for Africa and with the right content and services: A study by Counterpoint Technology Market Research covering Q3 2016 showed that Chinese handset vendor Transsion (responsible for the Tecno brand) has taken third place in the market edging aside Samsung and Huawei. How has this happened?

It provided dual SIM card phones and smartphones that were much cheaper than the other high profile brands in market. It also mounted high profile campaigns in the market to establish its credibility. But along with all this marketing and phone features came a bundle of Africa-specific content and services, including music.

The steady transition from featurephones to smartphones is already well under way. The more Africans who own a smartphone, the more they will use data services like music and make calls and send texts using What’s App. It won’t happen tomorrow but it will be a steady change that will eat at both domestic and international voice and SMS revenues.

Indeed none of what is being pointed at above will happen in an afternoon but the smart African mobile operator now needs to get ahead of these changes rather than fighting a trench-by-trench incumbent’s war against them.

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