African users fear of data – Time for the continent to stop selling its customers shortage
The way almost all African operators are selling data to their customers is the biggest barrier to developing a broadly based consumer data market. African users’ fear that they will run out of data too quickly makes them cautious consumers. Russell Southwood seeks to chart a path out of this dilemma.
There is now no shortage of international data capacity to and from the continent: potentially terrabytes of data are now available for sale. However, international fibre capacity is a perishable commodity. You cannot sell yesterday’s fibre capacity. So the unsold portion of capacity is better sold sooner rather than later because price trends mean that like most new cars it only loses value.
Against this backdrop, all operators have devised pricing offers for consumers that suggest that all operators are short of fibre capacity. For example, if a user exceeds their capacity bundle limit, they incur punitive “out of bundle” charges.
Worse still, almost all the affordable bundles come with a “sell-by” date. If you don’t use it by the end of the day/week/month (delete as applicable), you lose the capacity you’ve bought. What other industry takes away the product you’ve already bought? Only the wealthy who but top-of-the-range bundles get to keep them for a year.
There is no rhyme nor reason to African data pricing. Based on a study we carried out earlier in 2015, there is a bewildering range of prices. Non-competitive countries still charge outrageously high prices as if there is not going to be a widespread consumer market. But there are also significant variations within competitive countries. It would be hard to argue that these prices bear any relation to operational costs.
Part of the problem is transparency as operators seek to make offers that cannot be compared. To rework the famous phrase from film The Godfather, it’s a case of ‘Make Me Offer I can’t Understand”. Also many smaller ISPs no longer publish rates on their website and will tell you that they are all individually negotiated. So much for transparency.
Enter LTE providing much faster speeds. As with 3G, all operators are now launching this as a premium service and will do a price glide downwards over 2-3 years. They justify this by saying that they have to get their money back from their 3G investment. What they need to do is lower prices earlier to create a widespread data consumer market as quickly as possible.
Meanwhile the sheer unreliability of 3G in almost all African countries is holding back the very products that would make data something African users would want to spend on. Take the recent case of an African operator that launched a service in which 3G was to be used for streaming and had to shut down that service after customer complaints.
The customer fear dilemma is at its most acute with 4G/LTE. Miguel Soares, Maketing Manager of Angola’s leading mobile operator Unitel which has launched LTE told me:” :”We are often blamed for having a better network. People tell me ‘my balance goes too quickly’.” This mirrors many conversations I have had with African users about LTE.
There are three issues to be addressed in solving these dilemmas that go from broad business strategy to detailed operational requirements to different approaches to product pricing. The broad business strategy point is that in almost all African countries data – both at wholesale and retail levels – will become a commodity. You can fight it all the way but that’s where the road’s leading. Unless you’re Ethio Telecom, there are market pressures, challengers and new technology that will all make this happen.
For those that are the much-talked about “dumb pipes”, they will have to figure out a business model that works with commodity-level prices. Inevitably, this will be low-price, high-volume. This favours those that currently have a large volume of fibre traffic but also third party carriers like Liquid Telecom.
Given this challenging business space, I am always surprised by how little attention is given to the high-value, niche market of Africans who would buy an ADSL or Fibre-To-The-Home/Cabinet connection with value-added services like video and voice. To achieve this kind of orientation, both mobile operators and ISPs need to have networks that can genuinely delivery their promised bandwidth. Future business opportunities depend on it and you will not get away with saying “This is Africa.” Moving from one business model to another is never easy but unless you can see the destination, you’ll never make it.
At the product and service level which is where we started, operators need to offer services that take away the fear of running out of data or of being punished with “out-of-bundle” rates. Unitel has launched a music bundle called Kisom that is unusual for Africa in that it is an “all you can eat” service with the cost of unlimited data built into the service.
The operator understood its customers very real “fear of losing data” and have designed a service that takes away this major psychological barrier. The service costs either 200 kwanzas (US$1.49) a week or 700 kwanzas (US$5.20) a month.
Levels of brand awareness are high:”People know what Kisom is…but (the perception of the high cost of) data is still an issue. There’s a perception that it’s not included and we have to work on that. Education is really the issue”. For more details of this service and the numbers using it click here:
Without services that encourage African users to feel comfortable about using data, the consumer data market in Africa will be still-born. Now is the time to move beyond selling data as if there was a shortage to products and services that encourage much wider and greater usage.
Response to Issue 804: AfricaCom 2015: Back to the Future – Africa’s mobile operators struggling to transform themselves
Just wanted to say that your Africacom 2015 article was, as per usual, spot on.
As a matter of interest, we have been asked twice in the same year to take a lower revenue share by one of our Telco partners. We're their number one VAS revenue generator, yet they see fit to impose their decision without any consultation nor consideration. We acquiesced to their first request, but stood firm on their second. Like them, we have shareholders and board members who, not always being from the industry, are flummoxed by such behaviour.
The diminishing margins and the Telco's lack of meaningful engagement mean that VAS vendors will ultimately search for alternate means of reaching customers. As non-Telco payments (e.g. PR SMS) become more pervasive, this reality is not to far off.
A VAS Aggregator who wishes to remain anonymous
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