Seasons Greetings from Balancing Act

18 December 2017

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Dear readers, viewers, contributors and advertisers

2017 has been one of those years where the gap between what is actually happening and what seems to be talked about has been widening. In financial and economic terms, it has probably been the worst year for the industry since we started in 2000.

Problems with the fundamentals: After a decade of above average performance driven by global demand for commodities, Africa is now suffering from the slow growth and uncertainty in the global economy. There are unfixed problems in three of the largest Sub-Saharan economies (Angola, Nigeria and South Africa): the first two have overvalued currencies that have led to dollar shortages. One telecoms supplier to Angola was advised of an unusual way of getting paid. He needed to buy in Kwachas enough maize to fill a ship, sail it to South Africa and sell both the maize and ship for dollars. Not all African economies are in such a serious state but the levels of indebtedness in Ghana and Kenya give cause for concern.

Poor state of telecoms market: Indebtedness issues are also mirrored at a commercial level in many countries: for example, Nigeria’s 9Mobile not only owes the banks large sums of money but also companies with which it has interconnection agreements. This debt overhang on interconnection exists in many markets and it will only take one big company to go down for the equivalent of a collapse in the banking system to happen.

The growing use of What’s App is beginning to make a serious dent in many mobile operators’ voice revenues and although data revenues are beginning to grow very quickly, they are not completely replacing the lost voice revenues. Worse still, there is a continuing market pressure to lower the cost of data because Africa is not Europe and to get a wider mass market in mobile data, #pricesmustfall.

Both Airtel and Millicom are very slowly unwinding their portfolio companies on the continent. Industry rumor has it that the merged company AirtelTigo in Ghana is up for sale and Airtel also wants to pull out of East Africa. It may be one of the bidders for 9Mobile in Nigeria (to be decided before the end of the month) but the only logic must be to create a more viable merged company to sell.

Independent ISPs in many countries are in a very poor shape financially, particularly those focused on household customers. The challenger ISPs have demonstrated there is a high-end consumer niche but have not hit the numbers they need to survive financially.

Getting on the new business model programme: Three of the continent’s major mobile operators – MTN, Safaricom and Vodacom – have all started to articulate in strategic terms what a data future looks like for their business. At AfricaCom, Dr Kamal Bhattacharya, Chief Innovation Officer at Safaricom, said "Africa needs to find a way to convert data into capital that can then enable people to develop and grow more businesses that contribute to the local and a greater economy."

Safaricom is busy trying to build its own digital ecosystem by investing in a series of companies including e-commerce and logistics. To understand how tough it is for these pioneers, watch Shola Adekoya, CEO, Konga describe what he’s learnt over the last 4 years

Herman Singh, Group Chief Digital Officer, MTN spoke at the Mobile Apps Africa Awards. One of his arguments is that MTN needs to create an app with many functions. In this way, the user will stay on a platform it owns. Walled garden anyone? He seems to be saying loud and clear, if you can’t beat the Over-The-Top operators like Facebook and Google, maybe you have to join them.

I long for an African mobile company that says unapologetically that it wants to create a high-quality network that will deliver data at Africa-affordable prices as the enabling platform of the continent’s future. Sadly, as parts of the old industry structure collapse, African regulators seem too voice centric to address how they will encourage the market in this direction: it’s time to get beyond the mobile paradigm.

Stop Playing Buzzword Bingo: In the absence of clear business strategies to turn digital and data into dollars, everyone seems obsessed with repeating an ever-lengthening list of industry buzz words: digital transformation, lean and agile, Internet of things (IoT slips gently off the tongue) replacing cloud, machine learning, artificial intelligence, bitcoin, blockchain, pivoting, smart cities and the fourth industrial revolution.

Let’s take one of these, the Internet of Things, formerly known as M2M (machine-to-machine). There are two versions of this opportunity in Africa. It’s either a relatively modest number of small data transactions between things (almost like data is for ATMs) or it's a total transformation of society with every last piece of machinery reporting in, including cars. But in a continent that finds it so hard to change leaders (Happy retirement, Mr Mugabe), how easy is it to believe in something that involves significant changes in human behavior before the technical dividend?

New opportunities requiring focus: There are good old-fashioned data opportunities out there but they require focus: FTTH/X; growing the SME customer base; metronets; data centres; and low-cost rural operators.

FTTH/X requires companies to focus on building networks that can deliver high-volume data connections. In any given African country there will always be 100,000-1 million people who have enough money to pay for household connections that will deliver video streaming. Not everything can be done on mobile….The number of countries rolling out these services has increased significantly this year.

CSquared (the joint vehicle of Convergence Partners and Google) has ambitious plans to roll out its business model to more African countries and is looking to get into providing long-distance fibre

POA!, Surf, Zenzeleni and Tizeti are all tackling different parts of the low-cost provision of bandwidth and we’ll see more in this space in 2018.

Akami, AWS, local caching for Google and Netflix are all contributing to the growing levels of business for independent data centres.

Closer to home, our Web TV service Smart Monkey TV has got 1914 subscribers. You can watch the key players who are grappling with turning digital content and services into dollars. Please join the party and subscribe, by clicking on the link here and pressing the red “Subscribe” button on the right at the top: the most successful of those interviewed get thousands of views and others get hundreds.  

For those wanting to follow the development of Africa’s digital content and services market in detail, you really should subscribe to our fortnightly e-letter Digital Content Africa, which has just over 2,200 subscribers. For those interested in start-ups and Innovation, you need to subscribe to our fortnightly e-letter Innovation in Africa which has just over 1,300 subscribers. Click this link to subscribe to either.

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.

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Balancing Act
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A big thank you to all those who have helped News Update keep ahead of what was happening in 2017. 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 907 on 5 January 2017.

All the best

Russell Southwood
CEO
Balancing Act

Alice Saywood
Marketing
Balancing Act