AfricaCom 2015: Back to the Future – Africa’s mobile operators struggling to transform themselves

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Chart below: AfricaCom 100 - 2015 survey extract.

804 - Africacom 2015 

Africa’s biggest annual meet-point and gabfest is always a good point to take the pulse of the industry. Shocks and changes seem to be coming faster than ever. The mobile incumbents are publicly saying many of the right things but a close up look reveals a sharp contrast between aspiration and reality. Russell Southwood had his ear to the ground throughout the event.

One of the developments that seemed to set the tone of this year’s event was the MTN fine in Nigeria. Nearly everyone I spoke to at some point mentioned it. There was some sympathy and a sense that in many ways that the fine was wrong. But a significant number of people said that they felt the fine was a good thing. The most obvious reason given was that operators should obey the law and they could not be surprised when they were fined when they did not.

The logic of this position was sometimes extended to say that the much more modest Quality of Service fines had been paid but the issue of quality had not been addressed. But rather more worryingly for MTN, there was also a significant degree of “schadenfreude”: industry people – both Africans and others – were happy to see the “arrogant” MTN humbled and with the look of fear in its eyes. But MTN is not alone in feeling pain: Airtel struggles to make its African operations profitable and Millicom is not currently doing well.

Tucked away on the Digital Entertainment stream, there was a presentation from
Dr Hanlie Smuts, General Manager, Product and Digital, MTN SA that seemed to lay out the carrier’s manifesto for changing itself.

She talked of their task being “managed evolution from the traditional telco model”, something she called “transformation”. The company needed to focus on the networks needed for growth of traffic and increased revenues. They needed to get a deeper understanding of the digital ecosystem. She claimed that they could now launch partner services in three weeks:”We really want to be in the collaborate space.”

The claim of three weeks to market drew skeptical responses from those I talked to. As one person said:”It takes them three weeks just to get an Exco meeting organized…” Whatever their aspirations, they are still seen as a bureaucratic and the slow-moving company, the very reverse of innovative.

A couple of very reliable sources told me that MTN wants to become a global media company and brand its services globally: this is hubris of the highest order and I can only say rather glibly, good luck with that one. Almost at the same time I had described in great detail to me how a major mobile operator had signed an expensive exclusive content deal (with a large up-front payment). It now understands the mistake it’s made and wants to get out of it. As one industry inside said to me:”They’re like rabbits trapped by the headlights.”

There’s a real dissonance between this public rhetoric and what the CEOs of the leading mobile operators actually say to each other when they don’t think anyone’s listening. CEOs of two of Africa’s largest mobile operators were heard expressing regret that they missed a major opportunity in not blocking Facebook when it first came out. They then went on to discuss how the five major mobile operators should get together to block Facebook and offer VoLTE. They were unaware that a West African regulator was nearby and rapidly backtracked when his presence became known: oh, no, they protested, they were not suggesting a cartel.

So how do we judge both the effectiveness and the reality of their operators’ transformation rhetoric? Let’s look at what’s actually happening in digital content and services that is a key area that they have to get right if there is to be an African digital future.

Three things are holding back the development of digital content and services: price, access and the revenue share. Data prices are in the more competitive countries down to European and American levels but most Africans do not earn European or American salaries. Prices have to come further down for African users to forget their fear of their bundle running out. Unitel’s “all-you-can-eat” music service Kisom where data is rolled into the price is a good start.

The networks are still not capable of bearing the kind of traffic the digital future will generate. One operator launched a streaming service saying that it could be run over 3G and within two weeks under pressure of customer complaints had to pull the service. There’s a faint feeling that everyone’s giving up on solving this. Both Google and Vodacom (Video Play) have added download to play later functions with 48 hours to watch. This seems to assume that the network issues are not going to be solved in the short to medium term. That brings us to the revenue share.

On the opening panel in the digital entertainment stream, Neeraj Gala, Director for Products and Innovation, Airtel Africa said you need to understand our pain. There are high taxes and government restrictions that make it very expensive to operate.

As last year, he said he was unable to discuss the revenue share with digital content and services operators but that they wanted to make things more transparent. Fellow panelist Marc Herson, 2Go had no such inhibitions and said they got 23% from Airtel. He also said that MTN had written to them to say they were cutting 25% off their “rev share” and backdating it six months. No discussion…

He described how he did a scheme for them that added a large amount of data bundle users at no charge to them. Gala announced that Airtel launching a website so people can sign up to have their service on Airtel (see below). But although he implied the percentage “rev share” would be better, it was unclear whether it would be or by how much.

Websites as a way of doing business (or avoiding doing it) seem to be a popular theme. Another carrier has a website where you submit innovative ideas through a website. As if there were not enough websites, Atul Madan, Senior Vice President and Head Digital Services, Mahindra Comviva sang the virtues of its Mooditt site, where you could…yes, you guessed. Submit you content…So this is how carriers will innovate the future? In this regard, they seemed to have learned from the Over-The-Top operators who are even harder to contact than individual members of the CIA.

There was a revealing moment when Gala from Airtel said the more content they sold, the less their own share of voice and data revenues: in other words, he saw what his customers spent as a “zero sum game” rather than there being parts of the market where revenues might grow.

I should pause at this point to say a big “thank you” to Neeraj Gala for this was the second time he has allowed himself to be grilled by me on a panel. Very few operators justify their rev share practices in public forums and I have a deep respect for him in doing so.

Effectively the mobile operators are advancing towards the future through a process of digging trenches to protect their existing business model. Until they can demonstrate that the transformation rhetoric matches their actions, Africa’s digitial future will be postponed.

804 - Africacom 2 - 2015

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