Seasons greetings from Balancing Act – The highlights of 2019

19 December 2019

Top Story

Dear readers, viewers, contributors and advertisers

2019 was the year that Balancing Act’s News Update reached its thousandth issue and in January the company will be 20 years old.

ICT thrives on things that are “about to take off” or will “transform the business landscape”. It talks in the language of “future perfect” where what will arrive – real soon now – blurs seamlessly into what is supposedly already in place. A smart city and 5G will be with you shortly. The Fourth Industrial Revolution? Coming up right away…African Governments are also usually much better at announcements than getting things done.

However, the truth is that the fundamental change of the kind that benefits lots of people takes time and it may be five to ten years before the results are obvious. For example, the idea that mass music and VoD streaming in Africa was just around the corner is a long way from the reality of the pioneers who are really only establishing “base camp” in the market.

Key markets are still in poor shape. Nigeria’s economy is still bumping along the bottom. Kenya’s over-borrowing has yet to be resolved. Angola has spent the last three year in deep recession. And so on…But there are still growth opportunities despite significant consolidation amongst mobile operators.

The next generation of international cables - heading for sub-US$5 per mbps

A second generation of international fibre cables for Africa is being built by PCCW (and its co-investor), Facebook and Google. The appearance of the OTT operators in this list signals that telcos and MNOs are no longer the dominant customers or indeed the instigators of new cable projects. According to TeleGeography, the international capacity deployed by these companies rose 14-fold between 2012 to 2016 and continues to grow.

Google says it will have 20 times the capacity of the last cable built to the continent, a feat achieved by using optical switching at the fiber-pair level, rather than the traditional approach of wavelength-level switching. It will be built by Alcatel Submarine Networks and because it is fully funded by Google is expected to be operational by 2021. Details of Facebook’s cable are less clear but it will be called Simba and Facebook will be partnering with MTN and Vodacom.

The impact of these new cables will be that wholesale capacity will be available at volume for below US$5 per mbps within three years.

Alongside these announcements, there is a steady flow of new terrestrial connections. Liquid Telecom has announced that it will put together a fibre cross- link between the countries of East and West Africa. There hass also been a steady flow of cross-border links being put in place. These are expanding the choices countries have when buying wholesale bandwidth.

One example will suffice to make the point. DRC is connected to the world through links that go out through Lubumbashi (to Zambia) and through Goma (to Rwanda). However, its main international link (via its western coast from Muanda) remains unreliable. The quality has been sufficiently poor that companies still retain and use significant amounts of satellite capacity Recently the incumbent of neighboring Congo-Brazzaville opened a link to Kinshasa from Brazzaville just across the river: it works and capacity is competitively priced. It has yet to be licensed so users are adopting something of a “wait-and-see” attitude to date.

Satellite having its fibre moment – underpinning the new rural roll-outs

Before going on to potential future satellite projects, it’s worth looking at the “here-and-now” impact of High-Throughput-Satellite (HTS) technology. One satellite operator we spoke to late last year said prices would remain the same but customers would get 2-3 times as much bandwidth. Antenna typically cost less as the size is smaller and this has led some resellers to focus on SMEs and high-end domestic customers.

Beyond HTS are the many different projects that – if they come to fruition – will potentially bring connectivity from the sky at a significantly cheaper price. Many of these require huge amounts of capital to build but several of those who are behind them can access the level of capital required. The most far advanced on the continent is Google-birthed Loon ballons which are being trialed by Telkom Kenya (shortly to be merged with Zain). Also coming soon is SES’s mPower service which is expected to launch by 2021. It will deliver hundreds of megabits to 10 gigabits anywhere in the world. Each satellite has a total; capacity of 330 gbps and it claims it will have the capacity to target individual customers. To quote the PR spiel it will deliver “cloud-scale connectivity through a ‘virtal fibre’ network for application-aware services on a global scale.

These lower satellite prices make rural roll-outs significantly more attractive as satellite bandwidth has – until recently – been a significant OPEX barrier for MNOs.

FTTH, 4G, 5G – Demand for data continues to increase

Long viewed by telcos as an unattractive, high-end niche service needing lots of capital, FTTH roll-outs are beginning to happen in countries where you would not imagine them. Vivendi’s local subsidiary GVA is rolling it out in partnership with Canal+ in key francophone countries. Congo Telecom is rolling out an attractive FTTH offer for customers in a country not usually know for being ahead of the pack. CSquared is talking of dynamizing this market by offering wholesale FTTH to potential service operators.

4G roll-outs have reached almost all Sub-Saharan African countries but the number of handsets and bandwidth users still make it a relatively small market of high-end users. But delivering 4G has begun to change MNO network delivery as more fibre is needed to keep everything moving.

In terms of users, data pricing remains an issue: some MNOs are still selling it as a separate, premium service and where this is not the case, heavier bandwidth use is still beyond the reach of most customers. The downward price migration that has already happened with 3G needs to be rolled out with 4G. Commodity retail pricing will produce tomorrow’s mass markets for data, not selling premium selling.

And 5G? The fundamental business case anywhere in the world for 5G still looks a little blurry beyond the usual buzz words (IoT, smart cities, self-driving cars, etc). But 5G will happen in Africa because one MNO will launch it and the others will have to follow. The most compelling business case so far is as a fibre-substitute for FTTH roll-outs but others may yet emerge in Sub-Saharan Africa.

Data pricing – will this be the year we get Africa prices?

South Africa’s Competition Commission delivered a report that found the market was dominated by MTN and Vodacom and that their data prices were excessive. It proposed that their data prices be cut by 50%. This being South Africa the lawyers will have their day in Court but everyone except the two MNOs knows that these prices are too high.

We compile data prices across all Sub-Saharan African countries and you’d expect – with some exceptions – that there would be an obvious logic where prices reflected say the GDP per head of the country.

There is no logic but it is clear that if the MNOs thought of themselves as data carriers, they would set prices to ensure maximum use. Those prices would also be set to reflect incomes across the mass market: those with money would use enormously more data than they currently are and those with less money would increase their data use a great deal: living the digital life cannot be built on current prices.

Platforms, Platforms, Platforms – who will be the regional challenger to Facebook?

There has been a flurry of platforms designed to engage new data users with low cost or free offerings.

Upstream’s Zero-D platform - which provides free access to internet essentials - is moving towards100 million users in Africa. MTN’s WeChat-like platform dream Ayoba announced it had crested 1 million users and will grown to 2 million next year. Reverse billing based, free internet access platform Moya Messenger has over 1 million users in South Africa. BRCK’s free-wifi on transport platform has several million users in Kenya and Rwanda and announced that it will be rolling out in South Africa.

The big question is how many million users do you need to be a regional or global contender against the global platforms like Facebook and Google? The answer is probably tens of millions as brands and ad agencies are both keen to see the international OTT platforms get a bit of competition.

African Governments have continued to shut down the internet when the going gets tough and to censor content producers. A digital economy which brings skills and create jobs will not be built on the back of internet closures. Nowadays, every time an African country closes the internet, it loses significant amounts of money which it may never get back.

VoD streaming –waiting for the breakthrough moment

In October this year, I spoke to David Gillaranz, Group CEO, Digital at MTN who had many interest. When I asked him about VoD I was a bit taken aback by the answer:”This has been more experimental. I’ve seen VoD bundles working more in a conversions type of market (in places like Latin America). It works better with a home bundle and Netflix. When it comes to VoD standalone for mobile, it’s quite tricky. We’re still learning. We have a product called Shortz and that has given us some insights and we’ve experimented with it”. MTN has been on this road for over 5 years and it’s still experimenting.

The omens for the success of VoD this year have not been good. Kwese TV (which had a VoD platform as a key part of its offer) went bankprupt, owing US$600 million. The other notable casualty was Cell C’s Black that cost the company nearly US$50 million by its own account. I remain willing to believe that MNOs can make a success of content businesses but the evidence thus far is not compelling.

One of the panelists on the VoD session I ran at AfricaCom this year- Siddhartha Roy, Hungama Video – was saying that the average monthly data use by Jio subscribers was 9GB. By contrast, Safaricom counts someone as an active data subscriber if they use over 100 MB a month. A VoD revolution (indeed an Internet revolution) will not happen until real data prices come down to the level that will encourage this volume of use by users.

Building networks a different way for a data future - OpenRAN and SRV6

MTN’s big rural roll-out (see below) is using OpenRAN technology from Parallel Wireless. OpenRAN enables a shift to open, software-based, and virtualised network architectures to overcome these deployment challenges, while also delivering network agility and much lower deployment and maintenance cost.

There are two big network shifts happening. Firstly, instead of each standard generation (2, 4, 4 and 5G) requiring an upgrade in equipment, the new generation equipment will enable these kinds of shifts to be made using software. Secondly, the networks will move towards IP provisioning throughout the network for both voice and data. (Well over 90% of the business calls I make to Africa (or within Africa) are now either on WhatsApp, Skype or Zoom.)

The standard for this new all-data network is currently being hotly debated. SR6 works with MPLS but those behind it have signaled that they will not support it into the future. The replacement is billed as SRV6 but its introduction is hotly contested. In a rare moment for continent, an African company actually has somebody participating in this discussion and I will summarize the issues in a future article.

What do I think this might mean? It’s about the shift from single vendor, multi-million dollar equipment packages (often with management service contracts) to equipment you can “buy out of the catalog” and plug and play. It’s about upgrading using software rather then hardware. It’s potentially the disruptor that will bring down long-term capex costs so that every iteration of G does not require a complete rebuild.

Rural roll-out may be going mainstream

MTN has announced that it will roll-out 5,000 new rural base stations and the contracts have been announced A combination of cheaper satellite prices and vendors with much lower CAPEX for each site mean that what was once good Corporate Social Responsibility PR is now waiting to be heard as more solid business case.

This announcement is linked to the announcement above in two ways: firstly, the base station cost reductions may turn out to have things that can be used to lower the price of base stations in other settings; and secondly, MNOs who have allowed themselves to be almost in the hands of a duopoly of equipment vendors in Africa (Huawei and Ericsson) might also now begin to think harder about how their CAPEX can be reduced by more agile, IP vendor sourcing.

Africa’s regulatory crisis – how to open markets to competition and innovation?

Almost no-one’s talking about it but Africa’s regulators have got themselves into a dead end and don’t quite know how to get out of it. The most visible signs are that the number of MNOs operating in more competitive markets is shrinking and that there are still about half of the countries that have not even gone through a proper liberalization of their markets. The most notable exception is Ethiopia which is taking a high-speed run at both privatizing its monopoly incumbent and introducing new MNO licenses. It promises to be a large and very interesting market if the Government sticks to the commitments it’s made.

So what do you do if your country has one MNO that dominates the market? Or a duopoly that feel no pressure to offer lower prices or innovate? The key is probably opening up the market to a diversity of data operators.

Firstly, simplify the application processes: make it an administrative fee application process for licences that can be removed if not actioned within an agreed period. Secondly, open up much needed spectrum to these smaller entities. Offer them a Pay-As-You-Go payment approach and use spectrum sharing to open up new business models in unserved areas.

Corruption and patronage – it never seems to go away

The year has been scarred by some particularly egregious examples of corruption and patronage. There are networks of patronage through local shareholdings that are granted by government, regulators and operators. Angola and Cameroon are the most egregious examples although the former under its new president seems to want to change things.

In Cameroon, former Camtel D-G David Nkoto Emmane was put under investigation for two corruption allegations and forbidden to leave the country. On 14 December 2018 the Cameroonian Government sacked Camtel D-G David Nkoto Emmane and the Chair of the Board Victor Nfon Mukete by Presidential Decree. The latter is a 93 year-old senator, former Minister of Information and father of Colin Ebako Mukete. Mukete Jr is the Chair of MTN Cameroon in which he has a 30% stake. Nkoto was replaced as D-G by Judith Yasonde Achidi who was appointed by presidential decree on the same day as the sacking. She is the wife of the first anglophone Prime Minister of Cameroon , Simon Achidi Achu. He served in government from 1991-1994. Before becoming D-G, she was the Commercial Director at Camtel.

In Angola, General Manuel Joao Carneiro was awarded a new MNO license. The General has been linked with a small Angolan operator called Mundo Startel, one of Telecom Namibia’s failed international investments. Angola’s President cancelled the awarding of the license at the last minute and will re-run the awarding process.

In Niger, The Government picked a fight with two MNOs (Airtel and Orange) over taxes and made tax demands (described as a tax adjustment) that were 50% and 70% of their current turnovers. Orange decided to pull out and the sale of its subsidiary went to one of the local minority shareholders and his co-investor. According to a report in Le Monde in 2016, Mohamed Rissa Al has been accused of customs fraud and he was arrested with 10 billion CFA francs in foreign currency before being released without charges.

Following the publication of the Panama Papers in April 2016, it was revealed that Rissa had opened a Seychelles based company called Trenson LLC on 7 August 2008 and was both the director and legal guardian of the company. Seven months later the company’s name was changed to Trenson Investment & Trading Ltd. The activity of the company was listed as the transport of travelers in Niger.

Finally, Ericsson admitted paying bribes under the terms of the US Foreign Corrupt Practices Act and will pay a fine and a criminal penalty of just over US$1 billion. It paid a US$2.1 million bribe to get a US$29 million contract with Djibouti Telecom. Those bribed were named as Djibouti Foreign Officials 1 and 2: both were described as a high-ranking government officials in the executive branch of the government. The third person named was the CEO of Djibouti Telecom at the time the deal was struck in 2011.

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 1008 on 17 January 2020.

 

All the best

 

 

Russell Southwood
CEO
Balancing Act

 

Alice Saywood
Marketing
Balancing Act