Seasons Greetings from Balancing Act

19 December 2018

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Dear readers, viewers, contributors and advertisers

 

If 2017 was a tough year, 2018 has not exactly been a bed of roses. There are still macro-economic pressures in key markets but there have been positive developments.

Four mobile operators now have a Digital Playbook

After several years of not being clear about what they wanted to do about digital content and services, at least three of Africa’s major mobile operators – MTN, Orange and Vodacom - now have a clearly articulated digital playbook. To show how central this is to its core business, MTN has now set itself a target of getting 100 million digital subscribers.

A fourth operator – Airtel – now has new investor in Singtel. Its CEO International Arthur Lang was quoted as saying in another context:” ”Even taxi-sharing companies can get you a pizza…If Singtel today only provides communication service, we need to rethink.”

Part of that digital playbook is the understanding that currently data prices are too high to allow mass markets to develop. So this year there has been a steady flow of content + data bundles: for example, you buy a music streaming service and it’s “all you can eat” with no data charges. MTN’s purchase of South African music streaming service Simfy (which it will run as an independent company) is an important acknowledgement of the need to get the US$1 a month discretionary income spend. Mobile operators have been slower to offer similar content + data bundles for video streaming services.

Another part of the digital playbook is rolling back the rotten deals that came out of SMS VAS services, where the content owner only got 20-30% of the gross revenues. If you’re not getting at least 50/50, you need to re-negotiate.

As part of this commitment to the data future both MTN and Orange have signed up to distribute KaiOS’s low-cost featurephone which does most of what a smartphone can do without a touch screen. The clear aim is to migrate lower end customers to a more daily digital life.

For better of for worse, Africa’s mobile operators are still key to the development of digital content and service markets. They are either players – like MTN buying Simfy - or they are channels of distribution.

But just at the point when some of the mobile operators have understood how digital changes the market and are behaving differently, a number of African Governments and regulators are mounting a rearguard action against these changes.

Uganda has taxed both OTT services and mobile money and Benin has taxed OTT services. Tanzania has set a high financial bar for the registration of blogs and is fighting with the owner of one of the most successful of them, Jamii Forum. In Nigeria, necessary restrictions on dodgy SMS practices are hitting the success of music streaming services.

African Governments and regulators need to remember that digital services and content is a new industry and that the companies involved are contributing to the development of the continent. Facebook has invested in fibre infrastructure in Uganda. Google’s Loon balloon is piloting with Telkom Kenya. Its metro fibre network assets are now part of CSquared, a joint venture with Convergence partners. Last year Opera committed to invest US$100 million in Africa. The sums may not be as large as at the beginning of the mobile revolution but this is real new business bringing much-needed jobs and skills.

 

Regulation Model stuck as market changes

With the market changes described above, African regulation is now “stuck” in many countries. Getting out of being “stuck” will involve confronting three linked set of difficult issues: opening up markets by lowering the financial bar; creating more competition for the MNO or state-owned incumbents, particularly on data; and cracking the lock on spectrum.

So what does a “stuck” market look like? They are countries where there is a dominant player and as the saying goes, nothing flourishes in the shade of the baobab tree. Often these struck markets – for example, in Kenya and Senegal – are where Governments still retain a significant shareholding in the dominant player. Kenya shows that politics trumps effective regulation in its attempts to deal with Safaricom’s dominant status.

Other examples would include: Angola, Cameroon, Chad, Ethiopia, Djibouti, Mali, Namibia, Togo, Swaziland and Zimbabwe. Nigeria and South Africa may not be entirely “stuck” markets but they contain significant elements of market blockage.

In issue 923 an operator I spoke to told me: “Three operators have national fibre networks that connect at least 50% of the country’s districts but they are not interconnected. If you need a route, you buy from two different providers. Operators could offer deals where each operator provided back up when one link when down (back-to-back deals) but the market is not yet mature enough. The proposed new telecommunications Act also talks about shared infrastructure but the market is also not yet mature enough for that.” So where was that? Mozambique.

The current financial pressures have often meant a consolidation of operators without any consideration of what follows. Kenya is now in the slightly absurd position where one operator makes super-profits and the other two make losses: indeed Airtel (and its predecessors) has never ever made a profit.

At the end of August (Issue 940) I wrote an article saying that MNOs were not innovating in their own backyard over things like financial services, network roll-out and providing low-cost data. Regulators and Governments need to see the bigger picture. When dominant operators exist – whether they are state-owned or the new MNOs - it is important to offer easier market entry to keep a practical level of competitive balance in the market. Easier market entry means offering spectrum to those who will go places or do things that current MNOs seem reluctant to take on.

New international cables, national links and cheaper satellite capacity

One of the brighter spots in 2018 has been the completion of two major international fibre projects. The first of these has been the completion of Liquid Telecom’s Cape Town to Cairo fibre route that now connects 660+ cities and towns.

The second of these has been the opening of two new cables – SACS (Angola Cables) and SAIL (Camtel) - across the Atlantic to Brazil with onward transit to the USA. These should drive the sorts of falls in wholesale prices that have seen major market changes in West and East Africa.

As might be expected, the addition of another 72 Tbps of capacity into the international wholesale market will have a downward pressure on prices. This pressure will be felt most strongly by countries nearest to Angola and Cameroon. Good news for consumers and enterprise buyers, less good news for cable owners.

The internal country and cross-border links to support the arrival of this amount of bandwidth is likely to be provided by the Central African Backbone (CAB) project. For eight years not much has happened with this largely Government-led project. However, two significant developments have taken place this year: in June Congo-Brazzaville has tendered for the construction of new links to Cameroon and Central African Republic and in January the latter got a US$21 million loan from the African Development Bank to complete its end.

In 2017, there were three different international cable projects designed to add capacity to Eastern and Southern Africa. All seem to have stalled as the players were either not able to find the capital or agree on how the project would deliver.

The steady roll-out of cross-country links continues. Vodafone Wholesale, a subsidiary of Vodafone Ghana, is to be applauded for building a second fibre optic network link (announced in August) that connects Ghana to landlocked countries within the West African sub-region, including Burkina-Faso, Niger, Mali, Cote d’Ivoire and Togo. Northern Nigeria is almost a separate landlocked country so it was pleasing to see BCN get the NW Infraco licence to roll out more network and metronets there.

Finally, High Throughput Satellite (HTS) is finally bringing down satellite bandwidth prices to a level that will allow a range of new business cases. From our conversations with both buyers and sellers in the industry it looks like things are starting with 2-3 times the bandwidth for the same price.

It will take time but this should radically affect the edges of the existing addressable market, particularly for rural areas. And on the further horizon I’ve had several conversations (on which I will write in 2019) with new projects wanting to launch satellites of varying sizes including nano satellites. The latter project is promising fibre with a small premium prices.

4G, 5G and Fibre To The Home (FTTH) – Getting the bandwidth out there

Bandwidth demand continues to tick up through a combination of 4G and FTTH. There are now many obvious countries where FTTH is available and scaling up like South Africa and Kenya but almost any country has potential. Earlier this month I wrote about Legend that has now passed 200,000 homes in Abuja and has 2,200 subscribers. Its long-term target? 15-20,000.

In less likely place, Isocel is rolling out FTTH in Benin’s capital Cotonou. When spoke to its founder Robert Aouad in June he told me:” The residential customers will get at least 10 mbps for US$40-45 per month and corporates will get 20-30 mbps at US$200 per month.”

4G roll-outs continue across the continent both from MNOs and ISPs. Some MNOs are charging a premium price for 4G but the more sensible (like Safaricom) are simply offering it to customers at the same price as 3G.

But 4G delivery is feeding both faster bandwidth speeds through hot-spots and direct to customer home services through a new breed of LTE ISP. In April I spoke Teolis, one of two new LTE providers in Togo. And in the same month I spoke to Arc Informatique founder Mohsen Chirara - who after a twenty year – finally had access to a technology agnostic license, with which he will roll-out an LTE service.

Being an LTE ISP has not always been a happy road. The Vodafone-franchised ISP came and went along with others. Pioneers like Smile Telecom are very quiet these days. So the jury is out on how well the LTE model works for ISPs….

5G will just add another twist to the upgrading of bandwidth. In the short to medium term it could well be a cheaper way to deliver fibre-like speeds to the home and corporate premises.

Finding new low-income business models

Creating a mass market for data still means that there needs to be business models that can deliver free and low-cost data. There are people in coverage areas who still don’t see the point of the digital life and need to be persuaded and there are those who’d like to take part in the digital life more frequently but can’t afford it. There are also those who have not yet got coverage. The search for business models to reach all of these people needs to intensify.

There are a number of companies that are seeking to deliver to these customers and are experimenting with low-cost offers or ad-supported access. After a visit to Nairobi in September 2018, I wrote about three of these companies: POA! Internet, Surf and Moja Wi-Fi. POA! Internet’s CEO Andy Halsall says:”In rural areas, it’s all about price and availability. Outside the towns and off the main roads there is little or no 3G or 4G”.

He is delivering 35GB a month to users in low-income areas in Nairobi. Facebook-supported Surf is offering a combination of low price and ad–supported access to work out what works best in different circumstances. Currently it has 1,000 Wi-Fi hot-spots covering most of Kenya’s main cities.

Erik Hersman’s Moja is a Wi-Fi modem with a hard drive attached that can deliver content and software. It has 350,000 active monthly users who while away their time on their matatu commute watching video and doing their social media and emails. It’s a free service for as Hersman sees it:”80% of people who have smartphones don’t pay for connectivity. We don’t target the people who pay”.

This kind of innovation may or may not work: the market will decide. But without business models like this, not everyone will be able to afford the ticket for the digital party.

In terms of our own news, Balancing Act said goodbye to Sylvain Beletre and hallo to Matthew Dawes as our new Head of Research.

In Q1, 2019, we will publish a report of direct interest to Innovation in Africa’s readers: Sub-Saharan Africa’s Digital Landscape and its Top Ten Markets – data prices, smartphones, digital content and services and e-commerce. We will also be updating and rewriting 4G/LTE in Africa: number of subscribers, launches, trends and projects with a new section on data prices. If you would like details on either of these reports, simply drop me an email on: info@balancingact-africa.com

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. Just email me on: info@balancingact-africa.com

News Update will return in the New Year with issue 957 on 4 January 2019.

All the best

 

Russell Southwood
CEO
Balancing Act

Matthew Dawes
Head of Research
Balancing Act

Alice Saywood
Marketing
Balancing Act