Balancing Act’s News Update: Seasons Greetings to our Readers, Clients and Advertisers

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Dear Readers, Clients and Advertisers

2012 has been the year that online content and services really arrived in Africa. The combination of fast-growing social media (from the well-known international names plus the less well-known like 2Go, biNu and Eskimi) and film and music sites (most notably iROKO Partners, Buni TV and Afrinolly) have created the excitement of a different market. Voice revenues remain central to mobile operators but the current financial challenges in competitive markets and the coming challenges of data are robbing operators of past certainties.

The launch of the France Telecom-driven ACE international cable system this week will close the current chapter in undersea cables to Africa. There are other projects being promoted to link the continent to Latin America but in the current investment climate, the odds on them being built are long.

The new countries with international fibre – like Gambia, Liberia and Sierra Leone – may want to control the fall in international bandwidth prices but the road ahead is clear. Prices at volume will fall to around US$100 per meg and even below. More supply of capacity will mean lower prices because what you don’t sell today, you can’t sell tomorrow: fibre systems are time limited. Also, if you don’t reduce end-user prices for data, you won’t have a chance at a larger mass market.

However, unlike the fibre capacity sector, satellite prices in Africa continue to defy market gravity. Despite shifts in the market that have put back into the market a great deal of supply, prices have only fallen slightly. Satellite operators and capacity resellers seem significantly happier than they were 12 months ago and there are a number of new entrants. It will be interesting to see whether the increasingly cheaper, high-end, satellite broadband offers work out for companies like Yahsat. Initial signs look promising but we’ll need to wait until later in 2013 to see.

The new business model starts right here, right now: Everything will be data so if you look to the end of the road, the underlying business that will emerge is a data network on which all other services travel. So the question for the intelligent mobile operator is: how do you manage this transition? Currently mobile operators favor the long, slow retreat in which they “sweat” every last drop from the old model before they discard it and move on.

However, the pace of some of these changes – particularly with the introduction of “real data” with LTE – will quicken and now is the time to anticipate changes early and lead the market rather than follow. Mobile operators elsewhere have introduced Skype services: who will be Africa’s first operator to do the same? If you don’t, your high-end smart-phone and feature phone customers will discover mobile VoIP and free SMS services via things like What’s App.

Two MVNOs have sprouted in, of all places, Cameroon and more should follow: in maturing markets, there are plentiful niches. The business can be taken apart and towers and key parts of infrastructure leased from companies like Helios, Eaton Towers and IHS.

Operators need to stop all the blathering about “dumb pipes” and start working out how to run a profitable data network based on mass data services. It will employ fewer people than the current mobile operators and it will facilitate market entry for services using data rather than trying to control or monopolise market entry.

Content is not something mobile operators do: We have been too kind to mobile operators about content, writing that they have to make their minds up whether they are in or out. In truth, mobile operators have only the faintest idea about content as it becomes more complex than SMS messages. The conversation with one mobile operator about what Facebook was about was really a “road to Damascus” moment for us. You don’t get it, so please stand out the way and simply encourage others to do it.

The content deal that gives operators 70% to 80% of the revenues is outrageous by any standards and at Africa Com it left European visitors shaking their heads. If you don’t start offering better deals to allow content to market on this media, the content operators will all start going where the Internet allows you to have unpaid access to customers. It might only offer you part of the market – smart phones and feature phones – but at least the content owner controls his or her own destiny.

Michael Ugwu, CEO, iROKING noted at a recent event that its Nigerian users had gone from 12th to 6th by volume of views over a six month period. Its free-at-the-point of delivery model has made rapid progress, both at home and with the extensive Nigerian diaspora. Music is a whole lot easier to deliver than film in the still bandwidth-strapped Nigeria. However, paid-for services are understandably making slower progress. This is the future of content: local film and music that people want delivered to them on the device of their choice. Another content sector that has begun to grow is the games sector and we will see more of it in 2013.

The second part of the double head-lock the mobile operators have on the development of content is their control of the payment channel. One content owner we spoke to recently described how it was collecting revenues through the mobile operator and as a result the price it was selling its content at was 20-30% higher than it should be. It’s time for the mobile operators to step back and see the bigger picture. 30% of several hundreds of thousands or millions of people buying content products is better than 70-80% of the current constrained, SMS-dominated market. Growing familiarity with m-payment systems may well lead on to users moving over time to online delivered payment services.

The impact of the early arrival of LTE – Game-changing speeds?: The introduction of LTE by independent operator Smile Communications gives some indication of how the game will change. Up until now, African users have become accustomed to improving speed and availability but 3G and 3G+ both have a maddening ability to cut out, go slow or simply not deliver. On a data only network, Smile is delivering 6 mbps to real customers on something other than a test network using the 800 band.

Whereas video is still in most African countries a stop-start experience as the clip buffers after a couple of minutes, LTE in Tanzania seems to deliver seamlessly and it allows businesses and individuals to have Skype video conversations and conference calling. High-bandwidth industries like advertising no longer have to wait until after hours before sending image-based material.

Suddenly the pace at which LTE is coming over the horizon is speeding up. There are three existing market - Angola, Namibia and South Africa – and a whole rash of tests, both public and below the radar. Ethio Telecom is the latest to announce and in Nigeria there are three to four operators queueing up to offer it next year and in 2014. The greenfield, data only operators have an interesting business case and the mobile operators who have just installed 3G or 3G+ may be in some disarray when faced with pressure to upgrade in the next 12 months.

They may not be the only ones as the most stable ISPs in the market are clustered around the corporate and high-end market, using WiMAX and the introduction of much higher speeds will challenge their “quality and service” mantra. There are upgrade paths to LTE but the bigger question as to whether they will challenge for the much larger household market has not yet been resolved.

Although everybody in the business talks about 2015 being the year when LTE proves itself, our sense of it is that if users see what increased bandwidth means, it will start to take off much more quickly. The larger the number of users, the lower the device prices will go and for once Africa may contribute to setting the pace for this development.

For those who still have no service: Depending on the country 20-30% of all Africans have no voice or data service. Here there has been a dual failure that surely cannot last. Regulators and universal service fund operators have gathered up revenues designed to be deployed to solve this problem and have simply failed to do so.

Mobile operators once pushed relentlessly to the edges of their markets, not wanting their rivals to gain advantage over them. They are now much more cautious about extending beyond a tighter version of an addressable market as they seek to deliver returns in more competitive circumstances.

So it needs to be said loud and clear that if mobile operators don’t want to go into un-serviced areas, they should facilitate the process of others delivering into those places. In Ghana, there is an operator called K-Net that uses Altobridge low cost base stations to deliver services in these areas that it then leases to operators. The technology and businesses models have now been proven in the field and will easily add at least another 10% of the population to the market.

Taking the blockages out of the value chain: Africa’s national fibre network connections continue to expand. Liquid Telecom has connected to Lubumbashi, thus removing one town in DRC from the satellite market.

However, there are still countries and incumbents whose prices are holding back the development of affordable Internet in Africa. Across most of eastern Africa, wholesale STM1s are now selling for between US$7-8,000. The cost in Mozambique? Well, it’s still between US$20-25,000 for an STM1. So you can see that that country won’t be joining the broadband fast-track unless it changes its ways.

We might also add Cameroon, Angola and Chad. The latter has signed a monopoly deal with an Asian-America who is doing a lot of business in the country and he is busily matching the high prices charged by Camtel on the other side of the border. In the snakes and ladders of economic development, fall down the snake that takes you back 2-3 years.

Ever wondered why South African Internet has yet to come down to really user-widening levels? US$15-20,000 for an STM1. And Telkom, that fading jewel that the Government wants to do something with that it will tell us what in March next year is still playing the old incumbent tricks by offering one price to international destinations from anywhere in South Africa.

Things coming up over the horizon: With such a focus on the “near-future”, it would be easy to miss developments that will have a significant impact but that currently sound a little crazy. We nominate three things that may yet have a profound impact on the market. The first nomination is the easy one. There are now 20-30 innovation hubs (physical spaces or networks) encouraging ICT entrepreneurs from several in the noisy, self-promoting Kenyan market to BongoHive in Zambia and ActivSpaces in Cameroon. iHub in Nairobi and CC Hub in Lagos are running very interesting programmes. They are all encouraging both a particular frame of mind and some great new business ideas.

The second nomination will certainly take longer to get adopted but it pioneers the way. Apps Lab in Uganda has been running services to farming communities at scale. It has produced a way (I almost said a model) of delivering services by mobile that may yet be the road that much of Government will travel. See clip:

The third nomination is really out of the Left Field. 3D printing may well be able to deliver a range of products and services in the African context; some commercial, some social. Andrew Dent, Faberdashery is one of the pioneers in the UK, who has also been thinking about and looking at how 3D printing might be useful in somewhere like Africa. See clip:

Next year we will publishing updated versions for two of our major reports: African Broadcast and Film Markets and Data and Data Centre Markets in Africa. We will also be publishing African Telecoms and Internet Markets: Part 4 - Southern Africa.

Just under two years ago we started a Balancing Act You Tube channel to offer video interviews with key industry figures. Whilst we have interviewed a lot of really interesting people, the format of You Tube and the way it operates remains something of a frustration.

In order to address some of these frustrations, we’ve opened a second channel and an associated web site called Smart Monkey TV. Confused? OK, going forward the industry-based video clips will be on the Balancing Act channel and the video clips with a slightly wider audience will be on the Smart Monkey TV channel. So for example, 03B’s Omar Trujillo talking about the launch of their new satellite service will be on the Balancing Act You Tube channel. But stories with a wider appeal – like online music and video platforms, interviews with content producers like film directors and ICT4D stories about using technology for social purposes – will appear on the Smart Monkey TV channel.

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.

A big thank you to all those who have helped News Update keep ahead of what was happening in 2012. 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 637 on 11 January.

All the best for 2013

Russell Southwood
Balancing Act

Isabelle Gross
Senior Analyst
Balancing Act

Sylvain Beletre
Senior Analyst
Balancing Act