3G licence prices in Africa: how are they set?

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Last week, Moussa Benhamadi, the Minister of Post and ICT announced that 3G services will be launched in Algeria in 2011. This announcement follows several other recent announcements by sub-Sahara African countries about their intentions to offer 3G licences. Gabon's government for example launched a tender last July inviting operators to build and operate a 3G mobile network. Burkina Faso and Côte d’Ivoire are also aiming in this same direction. In many sub-Saharan African countries, 3G licences have yet to be allocated.  Isabelle Gross looks at the prices of 3G licences already issued on the continent and how these examples can provide some guidance to regulators and ICT ministries in the process or thinking about offering 3G licences.

The Tunisian government has just awarded a 3G licence to the incumbent operator Tunisie Telecom for an amount of US$80 million. As of June 2010, the country had roughly 11.5 million mobile subscribers with a market share of 49% for Tunisie Telecom. Therefore, the cost of the 3G licence reported to Tunisie Telecom’s subscriber base equates to an acquisition cost of US$14.2 per subscriber. In the event that the take up of 3G services would only reach 10% of Tunisie Telecom’s current subscribers base, the acquisition cost would go up to US$142 per data subscriber, an amount that the operator can still hope to recoup in a couple of years.

In 2006, Morocco issued 3G licences to Maroc Telecom, Meditel and Maroc Connect (rebranded today as Wana) for an amount of US$40 million each. At the time, the total number of mobile subscribers stood at about 16 million. When the total cost of the 3G licences (US$120 million) is reported to the mobile subscriber base, the acquisition cost of the 3G licence translates into about US$7.5 per subscriber.

In March 2007, the big three mobile phone companies in Nigeria, MTN Nigeria Communications Limited, Celtel Nigeria Limited (now rebranded Zain Nigeria and soon to be rebranded by Bharti-Airtel, the current owner) and Globacom Limited alongside little-known Alheri Engineering were each issued 3G licences at US$150 million each raking some US$600 million into the government’s coffers. At that time the mobile subscriber base stood at 32 million in Nigeria and the cost of acquisition of the licence was then around US$19 per subscriber.

 Kenya issued the first 3G licence to mobile operator Safaricom in 2007 at a price of US$25 million. Following pressures from the other mobile operators, the Communications Commission of Kenya (CCK) has recently reviewed downward the price of a 3G licence. According to Charles Njoroge, CCK Director General, “in line with our policy where we have from time to time adjusted license fees for various services to attract more players for the benefit of consumers, CCK recently reduced the initial fee for access to additional broadband spectrum form USD 25million to USD 10 million”. With four mobile operators in the market, CCK can expect to collect US$40 million for the issuance of 3G licences. Kenya which counts about 20 million mobile subscribers has now the lowest acquisition cost per subscriber for a 3G licence with a cost that stands at US$2 per subscriber.

When Egypt decided to issue 3G licences, the National Telecommunications Regulatory Authority (NTRA) set the bar much higher. The value of a 3G licence (for the incumbents Mobinil and Vodafone Egypt) was set at 20% of the price of the 2G/3G licence awarded to the third operator in 2006. Since the winning bid was reportedly worth EGP16.7 billion (US$2.89 billion), the cost of a 3G licence upgrade went up to around USD578 million for Mobinil. With around 8 million subscribers, the cost of acquisition of the 3G licence for Mobinil was around US$73 per subscriber. With only 10% of the subscriber base buying into 3G services, the acquisition cost could have potentially jumped as high as US$730 per subscriber for Mobinil.

The examples above show quite some disparities in terms of 3G licence prices. The acquisition cost per subscriber is nearly 37 times higher in Egypt than in Kenya while Nigerian mobile operators paid nearly ten times more than Kenyan operators. What were the criteria used to define these prices? – the potential size of the market for data service or the relative wealth of the overall population? Nigeria with a population of around 160 million inhabitants is four times bigger than Kenya (with a population of around 39 million) but Egypt’s population (80 million) is only half that of Nigeria. If we look at the GDP per capita (PPP method), Egypt stands at US$6,123 followed by Nigeria at US$2,249 and Kenya at US$1,730 (IMF figures for 2009). Although Egypt is not the biggest country per inhabitants in this group (to evaluate the size of the potential market of data subscribers), it has the highest GDP per capita and therefore potentially more disposable revenue to spend on data services than Nigeria and Kenya. On the basis of the above criteria, small and not well-off sub-Saharan African countries will need to think carefully at the price tag that they have in mind for their 3G licences. If they were to set the bar too high, there will be likely delays or worse not interest from the telecoms operators’ side.