Africa’s race for data – making sense of the transition through everyday services today
There’s a growing acknowledgement that the all-data future is upon us but much less idea what the road looks like between here and there. MTN has announced that it will launch Triple Play at some point in the near future and become a “services company”. Russell Southwood looks at the sequence of changes that will need to be made by any successful operator.
In business terms, the mobile operators’ lot is not a happy one. In most of Africa’s big markets there is now an intense level of competition. Average Revenue Per User (ARPU) is down below the US$10 mark and amongst those who are really hurting, at around US$2-3. So the priority for mobile operators in making the transition to data must not be to see it as the new Eldorado that will add to voice revenues. You will be a lucky if it can be a defensive strategy that helps maintain the existing low levels of ARPUs in key markets.
Why so? Thus far the data products offered – which have largely been versions of bandwidth packages – have been aimed at the salary boys with laptops. Although prices have in some markets fallen considerably, there’s still much of a premium spring in their step. If everything follows past patterns, this will be the same with LTE data packages. The salary boys will get soaked again for high prices (“They can afford it and they’re not paying themselves.”) and in 18 months to 2 years the prices will cascade down to something approaching reasonable.
But the data market the operators will need cannot be developed this way. The existing market is a high-value and niche but is crying out for something really transformational. If the cascade in data prices always ends up at the bottom, then why not turn the problem on its head? Start with low prices and create a genuine mass market for data.
I can already see the blood draining from the Product Managers’ faces so I need to explain why it’s necessary to cut out all that cascading tactical pricing nonsense. In broad terms, all African mobile markets have two pieces: the niche, high-value customers (often post-paid but by no means always) and various stripes of mass market using greater or lesser amounts of voice and SMS.
In a country like Kenya, Nigeria or Cameroon, the middle ground between these two pieces of the market is capable of affording higher levels of ARPU, whether voice or data. In Liberia, the niche will remain largely a niche: education and income levels will make a transition to data extremely challenging. Different circumstances which will come back to in a future article.
The mobile operators are all sitting on absolutely humungous amounts of unsold data capacity in the new international pipes that have been built. Prices for this capacity will continue to decline to the sub US$100 level, however much operators try and control things by rationing its introduction. Every day that passes means that you can’t get money for yesterday’s unsold capacity. So the dash for data needs to produce significant growth in wholesale revenues.
So what follows is not a deeply worked out strategy for the dash to data but something more like a first draft. The overall objective must be to deliver as soon as possible a range of data bundles between US$5-10 per month and accompany this package with smartphones that are in the US$50-70 range.
Put the foot on the accelerator for maximum growth in both the volume of data and the number of users. Encourage all the international and local social networking brands because these are the “must-have” products, which have been persuading people to use data, sometimes without realizing that’s what they’re doing. Also think about those social networking products like Flickr and Pinterest that require people to transfer photos to the cloud.
Wireless access in Africa has come on by leaps and bounds in the last five years but operators and their partners need to make near universal Wi-Fi access in urban areas a driving business priority. There should be almost nowhere where people gather that they cannot get a signal.
Ideally these signals need to be bundled in such a way that there is access to packages that offer the equivalent of universal roaming. People need to be able to turn to this access whether they are in a matatu or a market and not feel constrained by artificial limits: bring an end to capacity bundles and people will not hesitate to do things using data.
The first step along the road to data is the introduction of video on phones using LTE. You Tube is already widely used despite the fact that bandwidth has not kept up with it. It should be made the key application to drive LTE as a mass market product.
The next stage on this road is leaving behind old revenues. One of the operators who spoke at Africa Telecoms Forum last week said for the first time that SMS will be phased out as a service. Instead actually encourage people to migrate to services like What’s App and offer simpler e-mail applications that run from address books.
The last step in this transition is either offering bundled data voice services or reaching deals with existing operators like Skype and Fring. It’s important to make this not a plan B or C service but something users want to turn to first.
Finally, whatever people say about mobile being the dominant device in Africa, there will be an increased desire amongst Africa’s middle classes for things like high speed DSL or fibre to the home to deliver TV packages as well as voice and Internet.
So how does the money thing work, I hear you asking yourself? Well if currently someone is paying US$5-10 a month, the aim is to get back approximately that same amount (or slightly more) from these customers by getting them to pay for data rather than voice or SMS. Timescale? 3-5 years so this is not some theoretical future discussion but something you need to be doing now.
Video briefings on:
TV White spaces:
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