Africa’s three major mobile operators now have a digital playbook – highlighting the continent’s digital services sector

20 July 2018

Top Story

Three of Africa’s mobile operators – MTN, Orange and Vodacom - now have in place a “digital transformation” strategy. In plain English, this buzz word means that they have an idea of how they will replace formerly lucrative voice revenues with digital content and service revenues. Russell Southwood looks at what they’ve got planned.

According to the latest GSMA report – The Mobile Economy: Sub-Saharan Africa 2018, penetration (excluding duplicate handsets) was 44% against 66% globally. The market will reach peak users some time soon. The GSMA says that there will be 50% penetration by the end of 2023 and 52% by the end of 2025. 33% of all Sub-Saharan African subscribers have smartphones and that figure will rise to 67% by 2025.

The foundations of the old mobile business model – voice revenues – are under threat and data produces low margins and requires higher levels of capital investment. Until recently, mobile operators in Africa have struggled to produce internally consistent business strategies that explain how they will dig themselves out of this hole.

It has also meant that the OTT (Over-The-Top) operators have been blamed by the mobile operators and many regulators for creating this set of circumstances by slowly bleeding away voice revenues through data voice apps like WhatsApp, Skype and Viber.

However, voice is only part of the digital services economy and there are wider and more profound consequences: it’s much more than just lost voice revenues, there’s a whole digital landscape out there. In a talk at the Apps Africa Innovation Awards in November last year, Herman Singh, Group Chief Digital Officer explained that users used to go on their phones and mostly use telco-provided services  Now they use only 20% of services (and falling) that are telco-provided and users are going off elsewhere on their phone to get what they want. “Voice, data and text will decline. Do we just hand over to the OTTs? We need to become OTTs ourselves. The opportunities in the space are awesome.”

So at the heart of MTN’s fight-back against the OTTs is copying the business strategy of the OTTs themselves:”The trick is building a big community and keeping them on your platform as long as possible. That’s the secret to making money in this space.” Through its investments in Jumia in Africa and Snap in Iran, it wants to build a single app that will do all the digital things users want access to. In Africa, this is Jumia One:”There’s everything on one app. You never need to leave the app.”

He identified three key services that users can send each other in digital form: music, movies and games. Based on the latter, MTN has already built itself a US$100 million gaming business. MTN has chosen to build future new revenues by getting into digital services:” We’re a telco talking about e-commerce. This is not our core business. We got into it because no-one else wanted to get into it”.

Orange has a similar but slightly different strategy to build a new business model. It plans to focus on 1. mobile financial services; 2. Energy; 3. Content and 4. developing its B2B services. Again there is a focus on building a platform that will gain user attention and revenues. According to Thomas Chalumeau, Senior Vice President Strategy and Development, Orange Middle East and Africa:” What we want to do is increase the users of Orange et Moi (My Orange) and by doing this increase the overall audience for all digital players”.

Also, like Safaricom, it wants to build the volume of financial transactions on its platform and in doing so build a significant revenue stream from servicing these transactions. According to the latest GSMA report referred to above, there were 135 live mobile money services across Sub-Saharan Africa by the end of 2017. The bulk of these services were in West (57) and East (51) Africa, with far fewer in Southern and Central Africa. The report also says there are now 120 million active mobile money accounts.

Part of Orange’s strategy will be done through building partnerships with digital content providers:” We will chase revenue share agreements with digital partners. So for example, TV services are a simple way to monetize networks and we partner with Canal+ and irokotv” It has also invested in Bizao that facilitates easier access to APIs for both mobile companies and digital services operators.

Specifically on the increased CAPEX required for new data networks needed to achieve all this, Chalumeau said:”Globally Africa is the continent that needs most (infrastructure). We are interested in both passive and active infrastructure sharing and will accelerate discussions with partners. We want to build a stronger agenda in this area”.

Again Vodacom – the third of the large African operators - is taking a leaf out of the OTT operators’ playbook. According to Zunaid Mahomed, Vodacom Group Digital and Fixed Services Officer: “We have embraced a version of our digital service operating model where we are able to provide services, not just to traditional Vodacom telco service customers, but to all customers. Most of our Vodacom-branded digital service portfolio is available to all digital audiences. While the service is telco agnostic, there will be instances where Vodacom SIM users get a better experience”. This same “anyone-can-use-it”, platform agnostic approach is also echoed in the music streaming platform of Safaricom, Songa, which is also Vodafone-owned.

It is focusing on Vodacom branded services (like

Vodacom Soccer, All Out Rugby) and in some instances working with existing brands like Deezer:” This is dependent on where we are able to scale, where partners have a real advantage as well as our ability to link our network, which creates the unique ability to reach new audiences (e.g. our VideoPlay service provides a network award download feature to download videos when there is spare capacity). It’s a partner model that means “we don’t necessarily want to own content or services.”

Again its has a strong emphasis on video (“with users and usage growing significantly on a monthly basis”); music (growing but hard to get paying subscribers); and games (a dedicated portal and free data days promotions). Also like MTN, it is investing in harvesting more advertising revenues from having large numbers of users on its platforms.

The growth of digital services is upending previously solid industry sectors. In early 2017 Senegalese mobile money transaction company Wari announced it wanted to buy the Senegalese subsidiary of Millicom branded as Tigo. The matter is currently in an arbitration court but as CEO Kabirou Mbodje told me at a recent event:”It could be another telco (if we don’t get Tigo). We’ve acquired a bank already and financial institutions in the USA and Europe.”

All three strategies have common threads but are expressed differently in the detail. Both MTN (e-commerce) and Orange (energy) want to grow new businesses. There’s also some greater degree of understanding at group level of the need to share infrastructure at a country level: not all the infrastructure required for the bight new digital dawn can be built by one operator. Becoming a key transactions platform – both for content and services and financial – is key to their efforts to remain central in the market.

The new digital services sector in Sub-Saharan Africa that these three opoerators are betting on is growing but is less visible than its telecoms and Internet counterpart. For example, Jumia has 4.2 million customers for its e-commerce business. MTN’s mobile games business has a US$100 million turnover. In the mobile money field, there are an estimated 2 million plus mobile money agents.

Whilst there is considerable excitement about some of the African start-ups involved in the new digital services sector, it tends not to be seen as a new and vital area of business activity. However, the companies involved in it – whether African or international – are beginning to attract investment into the continent. The sums attracted may be smaller than those invested in telecoms infrastructure but they do bring investment and jobs. Mobile news platform Opera announced at the beginning of the year that it will invest US$100 million to develop its African services. Over US$25 million has been invested in irokoTV. A third of all venture capital invested in African start-ups in 2017 – US$65 million – was invested in Fintech services.

There is even infrastructure investment from the OTT providers: After creating two metronets (one in Uganda and the other in Ghana), Google (and its partners) have committed US$100 million to develop infrastructure. Facebook has partnered with Airtel and BCS to lay 800 kms of fibre in North West Uganda.

But the digital transformation dream is still busy being born. I write this sitting in Lagos where yesterday I spoke to two successful content providers, one for music and the other for TV channels. Both were complaining that the regulator NCC (in a bid to stop the blizzard of SMS marketing and accompany consumer abuse) was restricting how much could be charged for VAS services. (Despite these restrictions, I’m still receiving over 15-20 SMS marketing messages a day on my local phone). Inevitably these price restrictions have hit those wanting to sell music and TV streaming services and made it harder for these popular services to be successful. And we’re talking services that have millions of users.

The other thing that’s not changing much is the percentage revenue share these digital service providers are getting. The TV channels provider is getting 25% of gross and can only console himself with the thought that “it’s early days.” The music streaming company is getting 50% of net and is never told what the overall gross figure is. Furthermore the operator they are partnered with started charging a percentage to cover data when it is not a service bundled with data. So although there is now much greater clarity with the major operators at group level, not all the staff in their opcos seem to have got the memo yet.

______________________________________________

ANRTIC

ANNOUNCEMENT

Opening of market for Internet Access and Service Providers in the Union of the Comoros.

As a part of the market liberalization of the Electronic Communications sector in the Union of the Comoros, the regulatory body, ANRTIC, welcomes all firms and individual wishing to set up as an internet access and services provider, to send a declaration of interest for installation and operation of the following activities, in line with the Comoros Communications Act (2014):

  1. The provision of internet services in the framework of independent (standalone) networks;
  2. The provision of internet access to the public using facilities provided by Comoros Telecom and / or TELCO S.A .;
  3. The provision of closed-user-group internet services to specific customers (banks, hotels, Universities, hospitals etc), using facilities provided by Comoros Telecom and / or TELCO S.A .

ANRTIC Moroni - Oasis Grande Comore

Contact ANRTIC: contact@anrtic.km

Tel: 00 269 337 08 92 or 00 269 334 13 76


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