SENEGAL: A POTENTIAL THIRD MOBILE OPERATOR WAITING IN THE WINGS?

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Senegal's mobile market is a duoploy between Millicom's Sentel and Sonatel's Alize brand. But there are rumblings in the undergrowth that a third operator is expressing interest. Another company in this already tight market would certainly set the fur flying. Russell Southwood assesses the current state of the market and looks at what ground might be open to a new competitor.

The current market leader is Sonatel's Alize brand with 500,000 subscribers. After a political dispute delayed its launch, Sentel has 280,000 subscribers. The latter is consciously aimed at the lower end of the market. All of its subscribers are pre-paid. It achieves an ARPU of USD11 whereas Sonatel achieves a higher level because it has post-paid subscribers. As Matjas Sawodnick, D-G of Sentel puts it: "We worked on getting middle-range users. We don't have post-paid."

Its primary investor the Luxembourg-based Millicom has positioned itself as a low-cost operator and appears to be doing very well from that position. According to the ITU's recent African Telecommunications Indicators it was making a 42% profit as a share of revenues. It has five operations in Africa: Ghana, Mauritius, Senegal, Sierra Leone and Tanzania.

Both companies cover most of the country's population. Sentel currently has coverage of 75% of the population and that figure will hit 80-85% in a few years time. Such a relatively high level of population coverage in African terms means that there is not a great deal of market left to acquire.

With a mature market, both carriers are moving into value-added services like SMS, conferencing calls and roaming. For example, Sentel offers an e-mail to SMS service and vice-versa that has attracted over 5,000 users. But as Sawodnick observed: "This is not yet an important part of our revenue. It's below 5% of overall revenues. But 40% of Senegal's population is under 15 and it has considerable potential in the future."

At present there's a 5-10% difference between the two operators, depending on which tariff is used for the comparisons. It is believed that Sentel is planning price reductions in the near future. Overall Senegal has relatively low mobile prices in African terms.

With the end of Sonatel's monopoly, Sentel is in an unusual position. It is the only company of any scale that might give Sonatel a run for its money. There are clearly some attractions to becoming the SNO and having an international gateway which would allow it to compete directly with Sonatel on international prices.

Many parts of the market are becoming saturated but there is probably still growth to be found in some niche markets: for example, wireless local loop and international data gateways. Sentel might be able to challenge through making local partnerships. But these are serious strategic questions for the company: does it go for opportunities provided by local circumstances or stick to the formula that it knows works best?

Several of the larger continental mobile operators have looked at the market and rumour has it that the latest to be taking a look is Celtel. The most optimistic projection of total potential users is somewhere in the region of 870,000 with a higher level of population covered. On this basis, a successful third operator might expect to take 10-15% of the overall market after a very hard fight. But one of the really successful "can-openers" on this market must surely be price. It's only really possible to go lower than Sentel and such a strategy would be difficult but not impossible. If as the two existing operators claim, the rates are really very low then it makes it difficult to find much margin except by foregoing early profits to buy market share.

Another route would be to challenge Sonatel for high-end users but again this would probably require some price-cutting as after branding, service and network quality, what can a mobile company offer? Sonatel and Sentel are no slouches on branding, service and network quality.

A third operator might look to deploy a technologically more sophisticated network. The promoters of CDMA are claiming that they can cut the cost of network investment by a third which if true would give a third operator some room to make a reasonable return and add a possible minor stream of data traffic. Is this the basis for a successful third operator?