African regulation for the coming digital future – getting beyond the mobile paradigm for more competition

31 March 2017

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African telecoms regulation is at a crossroads. A combination of changing business models and a downturn in economies across Africa is impacting on the competitive dynamic in all markets. Incumbent mobile operators are slowing down innovation and the transition to digital. Russell Southwood looks at how regulation has to change to get to Africa’s digital future.

I’ve visited two African countries recently – Benin and Kenya – which are at very different ends of the competitive market spectrum. But both serve to illustrate the kind of dead ends regulators now find themselves in.

In Benin, MTN and Etisalat are effectively a de-facto duopoly. The problems with the Nigerian economy means that third mobile operator Glo has no money to invest and did not bid for the 4G licences that the duopoly players successfully obtained.

Benin’s fourth mobile operator Libercom is a complete mess, financially and in management terms. President of anti-corruption agency Fonac, Jean Baptiste Elias, denounced the mismanagement of the cellco, a subsidiary of Benin Telecoms, saying there were ‘unjustified’ expenditures and the ‘dilapidation’ of the existing limited resources of the company. The agency explained that the number of Libercom management positions ‘increased from 26 to 54’ over a period when the cellco’s customer base and revenues dwindled, whilst ‘several officers appointed to these new posts were reclassified to higher categories’.

In Internet terms, Benin has above average prices, often below average quality of service and the old incumbent Benin Telecom has a monopoly on the fibre wholesale network that has affected all the usual things like quality of service and investment in proper redundant networks. There is a proposal to float off the wholesale activities but as yet there appears to be no clear plan.

The telecoms regulator which has recently had a complete shake-out of personnel is rumored to be considering licensing another mobile operator. However, the country has only just under an 11 million population and being the third or fourth or fifth operator in a market of this kind is a deeply unattractive prospect.

Some mobile operators are hoping that a “last one standing” approach will allow them to consolidate either duopolies of the kind above or in some cases (Kenya and Senegal) something much more like a de-facto monopoly.

A report by Analysys Mason for the Kenyan regulator CA that was leaked at the end of February is said to recommend the separation of one of Safaricom’s business operating units M-Pesa and to insist it share its network and towers. Being extremely patriotic, Kenyans reacted with almost universal horror at this idea. The regulator itself responded by saying that it did not want to punish success. Also, because the Government is still a significant shareholder, it’s hard to get it to address these issue because it benefits from the very high level of profits this de-facto monopoly generates. So the elephant in the room will continue to trample smaller players under foot. And all the while Safaricom’s CEO is saying that any change will scare off international investors.

(There is a significant myopia in Kenya about the impact of de-facto monopolies. In the advertising field local agency Scanad has a similar de-facto monopoly position, controlling almost a similar market share of advertising revenues.)

The danger is that there are increasingly fewer mobile operators who are in any position to compete with the top one or two players. At the big end, for all its protestations that it will not quit the continent, Airtel has yet to produce net profits that it will show transparently in its accounts. In my opinion, it will end up leaving the continent.

Millicom is clearly selling off its African “opcos” on a one-by-one basis because there is no buyer for the whole lot. At a smaller level, Glo’s ambitious pan-continental plans are stuck in the treacle of Nigeria’s messed up economy and its inability to raise funds. At an even smaller level Africell has swallowed Warid in Uganda and appears to be having problems turning it into a successful company and the Ugandan Government has repossessed UTL. And the list of small and very unsuccessful mobile companies is very long.

So the mobile sector is not producing insurgent competitors and this is having a very direct impact on the speed of innovation in terms of the transition to data and all things digital. Three years ago Safaricom started looking at Fibre-To-The-Home and an offer driven by content. It launched its Big Box device that flopped and had to be relaunched. It is still not attracting large numbers of users. Safaricom has finally decided to start rolling out Fibre-To-The Home to try and satisfy the growing data demand but three years have passed.

Why is this happening? As one industry insider familiar with what happened told us:”Customers are demanding more data capacity. Voice and SMS revenues are going down and data revenues are increasing. But they can’t make revenues from data as fast as they need.” The lack of data-ready networks means that it’s hard to contemplate unlimited data packages.

In the similar case of a large South African mobile operator I asked the same question: why is everything taking so long?:”You have to take the plans to four sets of people: core transmission, metro fibre, FTTH for enterprise so you talk to the enterprise unit and you talk to Customer services for home products. It’s very much Balkinized in the operators and it takes time.”

These are just two of half a dozen examples of how large, now very bureaucratic incumbent operators are not making the innovations they need to. I spoke recently to a highly intelligent staff member from one of these mobile operators who admitted (and wished it was different):”We won’t do the things we need to until someone else does it and we will then follow them.”

If that’s the context, what’s the bigger picture African regulators need to focus upon? If everything (including voice) is increasingly becoming data and ever larger parts of African business, Government and civil society are dependent on data to do what they do, what is needed?

The objective must surely be to have a fibre network that can deliver a high quality of connectivity to the maximum number of people in the country at the lowest possible price point. The income levels of users in Africa are not the same as countries in Europe and the USA. Not many mobile operators have built the kind of network I have described.

With this overarching strategic objective in mind, African regulators need to look at their competitive landscape and ask: do we have players who have a business model that will deliver this objective as quickly as practically possible?

Perhaps the business model needs to be different from what a mobile operator currently does. Why not encourage large-scale data operators to bid for licences and give them access to spectrum? Why not encourage them to provide IP voice products? The more ambitious ISPs like Afrimax and Smile show that they can get interesting numbers and compete with mobile operators, even if at a modest level. Encourage these kinds of operators to offer unlimited data bundles.

At the heart of Africa’s data future will be one or more fibre networks. If the current situation is that there is only one effective network, then price and quality of service need to be regulated. But there are many things that can be done before reaching that point.

Countries like Kenya have allowed power utilities like KPLC to license their fibre, creating competitive pressures on wholesale fibre operators. Insisting on the sale of dark fibre gives small and medium sized players a better chance of getting to market on competitive terms. Ensuring that monopoly or de-facto monopoly infrastructure is shared in ways that ensure a level playing field for all players again widens the market. Things like Google’s Project Link are proving a useful stimulus with new models of wholesale pricing. Why not encourage others to follow suit?

The business model needs to change so that the small and medium players are actually encouraged to provide widespread Wi-Fi hot-spots and to offer their customers a variety of IP voice products. ISPs need to get out of their comfort zones and start offering proper home products. Also regulators need to encourage operators like Sliide who offer free data to customers based on their ability to share advertising revenues with their customers. Mobile operators need to have more competition on their existing data services. Regulators need to have as a core objective creating a competitive dynamic that will lower data prices and increase the number of data users.

The mobile operators are becoming platforms for the new data content and services. Because mobile phones (particularly smart phones and featurephones) are primarily used to access these services, mobile operators are the main route to market. The mobile operator then has a choice: are we just a data platform or do we also invest in and run this new content and services as well?

And here’s where there’s another competition issue. If you’re a start-up with a digital service and you go to a de-facto monopoly operator like Safaricom, what happens? Well, the revenue share you get (70/30 or 80/20 to the operator) may be less advantageous than the one the operator has given one of its own projects. There is a clear conflict of interest here that no-one is really talking about. Worse still, the same thing happens all over again with operator billing and Safaricom’s grip on the m-money market.

And of course, a mobile operator can see all the start-ups’ user data and can use this to plan their own offer. Surely not, you say. No, I’ve seen it happen. So African regulators need to start paying more attention to the terms for access and revenue share for its new digital players, both homegrown and international.

OTT services are not a threat to the market but a development of it. Huge numbers of Kenyans’ now have family groups on Whats App. There is no turning back the clock on this development. Therefore regulators need to ensure that their users have access to these kinds of services without restrictions being placed on them.

Africa’s digital future should not solely be a prize for well-off, urban dwellers. The push to enfranchise rural citizens digitally all too often seems to have no momentum behind it or be largely rhetorical: for example, free Wi-Fi hot-spots that potential users find almost impossible to access. There are at least a dozen companies who are pioneering different business models for rural access in Africa. Regulators need to open up spectrum and licences for those who will cover the uncovered and ensure that mobile operators will interconnect with them.

Finally, the new digital future needs reliable market information. Too few African regulators collect Internet user and subscriber numbers and do data bundle price comparisons.

And sometimes when they produce user numbers, they are wildly exaggerated: Digital agency CEO Joe Otin, The Collective told me:”It’s one of the biggest and most frustrating things we face in the digital communications field in Kenya. We don’t have consistent numbers.” The number produced by the regulator is 87% of the population using the Internet: not many people I met believed that number. African regulators need to agree common methodologies for measuring things like users, data bundle prices and data quality of service.

Marshall McLuhan used to talk about the danger of seeing the future through the rear view mirror of history. African regulators need to beware finding themselves yet again regulating for a world that is beginning to disappear.

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