Capital pressures forcing African mobile operators to unlock the value of their assets- Translation: selling stuff off

16 April 2021

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Maturing growth and the particular demands of the mobile data market should make MNOs to think harder about what it means to be a mobile operator. Russell Southwood looks at the strategic choices they face in the light of two recent mobile money announcements.

A few years ago I used to write a lot about the key strategic choices facing mobile operators: either they concentrated on the voice and data connectivity platforms or they took on being a number of things – media, content, finance, e-commerce, etc – and sought to realize value on top of the platforms they operated. Like the aging uncle at a family gathering telling the same story every time, I realized no-one was really listening and shut up. But over the last month there have been two announcements about MNO mobile money operations that force me back to this issue.

In March and April Airtel announced that it had raised US$300 million; US$200 million from TPG’s Rise Fund and US$100 million from Mastercard. The valuation was US$2.65 billion. In 2019 Airtel predicted that its data and mobile money segments are expected to contribute 52 per cent and 37 per cent of total subscribers, respectively, in FY24 from 30 per cent and 15 per cent in FY19. Although data is hard to come by, there are not many African countries in which Airtel Money is the market leader. Mobile money markets tend to monopoly and regulation of these monopolies has not really happened.

Meanwhile in mid-April MTN started ‘coat-trailing’ that it was open to offers for its mobile money business at a valuation of about US$5 billion, slighter under twice the valuation of Airtel Money. MTN Chief Executive Officer Ralph Mupita said:“No decision has been made as yet, but listing will be an option considered if that will be the best approach to unlock value.”

Airtel Mobile Commerce BV (AMC BV) says that as the holding company it will use the investment to reduce its debt and invest in network and sales infrastructure in the respective operating countries. The deal will close in two tranches — $150 million invested at first close, with $50 million to be invested at second close.

I hear the terrible noises coming from the sucking wound that is the need for continuing capital investment. 4G required extensive network overhaul and 5G will require more. There will be those who say that they will wait until 4G has paid for itself before they do 5G. People say that every time there’s been an upgrade (3G, 4G) but experience tells you that’s not how it works. Once someone is in the market with 5G, every else will have to jump into the pool with them.

On the consumer side, there is the continuing pressure to lower data prices to extract the maximum value out of the market: see In Brief story below about data prices in Tanzania. The only issue here is how quickly those reductions can and will be made. The imperative here is to keep lowering the cost of delivering data, whether its mobile data or 5G fixed mobile data to the home.

So let’s step back and review things a little more strategically: what was a mobile company? It used to be a vertically integrated company providing voice, data and mobile money. Then it sold off its towers, increasingly bought wholesale capacity from third parties and among the more ambitious got involved in building businesses on top of the voice and data platform.

What is a mobile company now? It becomes much harder to describe it. There are ‘hardware’ elements it still owns: for example, dominant national fibre networks like MTN in Nigeria and the distribution networks to deliver its services. Then there are the ‘software’ elements like the value of the brand and its ability to orchestrate services its customers will want. And of course, the biggest value they possess are the customers themselves. They might no longer feel they “own” the customers but what they have they have some possibility of holding on to.

The key challenge is what is the balance between these elements? African consumers have phones because they want to do things, not because their operator has the largest fibre network. How much is owning and controlling the fibre in the ground central to delivering the new generation of services? Should they own and operate data centres and sell to third parties? How does servicing corporates fit with what are essentially consumer businesses?

Should mobile operators deliver all of the services that their customers want? If they did, they would simultaneously be a version of a bank (with savings and loans and perhaps insurance thrown in for good luck), an e-commerce company, a social media platform and a streaming platform for video and music. Some have chosen to simply make it easier for those companies to get on their platform, whilst others have chosen to try and be some or all of these things. Each one of them involves quite different ecosystems of suppliers.

The balance sheet for those seeking to compete with services on top of their platforms is mixed. Vodacom chose three services: video (Video Play), music (MyMuze), gaming (PlayInc) and sports. All have millions of users and millions of sales: the overwhelming majority of revenues come from South Africa. It is also looking to its partnership with Alipay to help it create a “super-app”. This segment of the business has shown modest growth to the end of last year. Three years after launching its own its e-commerce platform, Masoko, Safaricom announced in November 2020 that it was dropping it and partnering with Jumia.

MTN has pulled out of the Middle East to focus on Sub-Saharan Africa. It is also trying to create a massaging “super-app” Ayoba. The Google Play Store shows 10 million plus downloads but active users are more likely to be in the 2-3 million range. I know it’s a work in progress but that’s a blink of the eye alongside Facebook or WhatsApp numbers. MTN was one of the investors in Jumia but has announced that it will sell its shareholding.

In July last year Orange launched a digital only bank in Cote d’Ivoire. We await with interest the number of customers it has acquired.

All these MNOs might reasonably argue that these services that they’re running on their platforms will take several years to develop. But how in the long-term – if these businesses are successful – are they going to run them alongside everything else they do? Will they spin them off or is there some strange conglomerate that combines them all successfully together?

In Brief

Twitter has opened an office presence in Ghana. In its, Twitter gave a number of reasons why it picked Ghana as the place for headquarters in Africa. It said Ghana is a champion of democracy and supports free speech. It also praised the country’s acceptance of online freedom and open market, adding that Ghana’s appointment to host The Secretariat of the African Continental Free Trade Area also played a role in the decision.

In a time, when good internet connectivity are getting more important than ever, having a reliable and speedy internet connection is crucial. In its Q1 2021 Mobile Network Quality Report, MyBroadband shows that MTN has by far the best mobile network in South Africa. With a total of 349,575 tests, conducted by 13,272 unique users, the telco ranks before its competitors Vodacom, Telkom and Cell C and Rain. The test shows that with 64.29 Mbit/s, MTN doubles the Download speed offered by Vodacom (32.76 MBit/s) and more than doubles the upload speed with 25.42 MBit/s compared to Vodacom’s 10.94 MBit/s. The average download speed Trend shows that in the last 3 years, download speeds have increased by 75% from 20 MBit/s to 35 MBit/s.

Vodacom Group and the African Union Development Agency (AUDA-NEPAD) will offer the mVacciNation digital toolbox - a mobile technology platform that manages vaccination appointments and stock availability - in African Union member states to accelerate the Covid-19 vaccine roll-out.

Kenyan agency banking startup Tanda is expanding its operations regionally after securing funding from early-stage African tech investor HAVAÍC, Zedcrest Capital, DFS Lab, Victor Asemota and three other investors. Tanda has also secured key strategic partnerships with Mastercard and Interswitch which will further accelerate its growth. The company’s expansion comes on the back of successfully pioneering and proving the viability of the interoperable agent and merchant model in Kenya, a model that has only been validated in West Africa prior to Tanda.

Angola’s leading cellco Unitel and Ericsson have signed a three-year frame agreement for the supply of Ericsson Radio System solutions as well as core solutions and related services, with the aim of transforming Unitel’s existing 2G/3G/4G RAN and core infrastructure as well as preparing for future 5G services in Angola. Ericsson adds that the radio and 5G-ready core expansions will enable Unitel to meet increasing data demand from users.

South Africa: MTN has launched new capped fixed-LTE packages under its MyMTN Home and MyMTN Business plans.

Airtel Kenya has upgraded around 600 mobile sites with 5G technology as it aims to launch commercial services in the next couple of years. Business Daily cites the company’s Managing Director Prasanta Das Sarma as saying that the upgraded sites are located in Nairobi, Mombasa and Malindi.

The Tanzania Communications Regulatory Authority (TCRA) has announced it has suspended the new data tariffs offered by the country’s mobile operators, following criticism from customers that they are too high. The Citizen reports that telecoms firms revised their prices for voice calls, SMS and data services in order to align their tariffs with new regulations published by the regulator which came into effect on 2 April 2021.