LETTER FROM SENEGAL – WHAT WILL HAPPEN WHEN THE MONOPOLY ENDS? – "ONLY GOD KNOWS."

Mergers, Acquisitions and Financial Results

After what seems like an interminable wait, the end of Senegal’s monopoly with Sonatel is almost in sight, ending at the end of July this year. So what will happen when it ends? As one major player observed with a wry smile: "Only God knows."

Most people when asked this question gave the classic Gallic shrug and start by saying they had no idea. But behind this initial insouciance, most people have pretty clear ideas about what they would like to happen. The only question really is whether it will. Although people are gearing themselves up, there’s not any discernable sense of urgency about it because most don’t believe change will happen quickly.

The role of the regulator (ART) will be crucial although it is not widely respected by the private sector. It is not an independent organisation but a government agency responsible to the Presidency. And so with its 27.67% share in Sonatel, the Government has the last word. If the regulator were more independent-minded, it might for example it could address the ant-competition issues raised by Sonatel’s internet operation, Sonatel Multimedia which has a de facto monopoly with 80% of the market but has chosen not to.

Not surprisingly, some remain sceptical about whether things will have really changed. As one insider told us:"It’s not the beginning of liberalisation. That’s not possible without clear rules from the regulators. It’s frustrating because there are opportunities out there".

But Sonatel remains the elephant in a market full of much smaller animals. With the exception of South Africa’s Telkom there cannot be an incumbent on the continent with a stronger position in its market than Sonatel. It has strength in fibre infrastructure: there are five "boucles" (rings) within the country and connections with Mali and Mauritania. Very shortly it will connect with Gambia: the project is four months from completion and it will deliver 63 E1s. Through Mali it will soon be able to extend its fibre links to Burkina Faso and on from there to Cote D’Ivoire and other countries to the south of Burkina Faso. (see issue 202).

The use of the fibre link between Mali and Senegal has been held up by the rather slow negotiations on price between Sotelma and Sonatel. Sotelma likes to portray itself as the injured party having to suffer the possibility of high transit costs but both have been as bad as each other in trying to keep prices as high as possible.

Sonatel has future plans to extend to Guinea Bissau and Guinea and is having dscussions with Guinea’s incumbent Sotelgui about connecting the country via Kegougou. It is unusual in that it has two international fibre links; one to Portugal and another to Brasil and Argentina, both of which can be used to obtain competitive international call prices. From June it will simplify its international tariffs and lower its international prices by 33%. Along with its relationship with its parent France Telecom, this all reinforces its position as the dominant regional hub in West Africa, particularly for francophone Africa where France Telecom already owns a number of companies.

"Sonatel says it is "experimenting" with VoIP but it already makes up 25% of its total international traffic and it has made deals with grey market operators. Nevertheless there’s still a large market out there beyond the operators that Sonatel has made deals with. Currently Sonatel is probably buying international outgoing minutes at 11-12 cents but will actually be selling the same minutes to the customer for 29-33 cents a minute (off-peak/peak) from 1 June. However if Sonatel continues to lower international call costs it can probably control the scale of the grey market.

It now has 30,000 256K DSL customers and 1 mb costs FCFA1000 a month. By the end of the year will be testing the delivery of audio-visual services by DSL.

It still dominates the high-value end of the mobile market with 500,000 subscribers (64% market share) against Sentel’s 280,000. All of the latter’s subscribers are pre-paid. A significant mobile player is looking at entering the market as the third operator but there’s not a great deal of room in what is an almost mature market and the elephant has already got most of the cream. And in the fixed line market it still holds a monopoly. But you have to take your hat off to the company as it has high service levels and prices that are amongst the lowest in Africa. As another major player told us:"Senegal has leadership in ICT on the continent through its leadership of NEPAD. It has become a reference point in sub-Saharan Africa".

However anyone with 100% of a market can only lose when competition comes along. So how do you find the Elephant’s blind spots when you hunt it in the newly liberalised markets? Well it would seem that you have two choices: either stay out of its way and develop a business that’s not large enough to cause it to lose its temper. Or you can take it head on and get out of it’s way when it gets mad by staying light-footed. The size of its staffing must be a weak point in a fiercely competitive environment.

The big question is whether there will be a company that will step up to the position and become the SNO. An SNO could eat away at the more specialised corporate sectors. It’s probably impossible to compete with Sonatel in the area of infrastructure. The view from within Sonatel is that there is not enough demand to support competitor infrastructure. However with the right interconnect agreements that wouldn’t matter.

If it got an international gateway it could compete with Sonatel but it would all be price-driven, low margin business. However an SNO might be good at focusing on multinationals needing fibre and satellite coverage across several countries. Will it get access to SAT3 IRUs at a reasonable price? Who can say? No-one seems yet to have even considered the question.

The third mobile operator will be a much harder play. As one person closely involved told us:"Senegal has two mobile operators with low price levels compared to other countries. The regulator has always had the French example in mind and seen the problems caused there by three operators". That said, at least one serious player is interested. Being third entrant always has its difficulties but that has not prevented operators becoming effective niche players.

With growth tailing off in the market, value-added mobile services will be a strong focus. For example companies like furniture retailer KochB are already sending out bulk SMS to their customers and prospects. Most small companies will be able to afford the FCFA20,000 for 343 messages.

In the internet market, there would have to be a great deal of consolidation before anyone achieved enough scale to take on Sonatel. Growth is flat and Sonatel has a lock on the high-value broadband customers. That said, there are interesting opportunities to develop wireless local loop.

If nothing happens after the end of the monopoloy, then there will be pressure from within the private sector. There has been talk of setting up an ISP association to lobby government even if the current ISPs only control a tiny share of the market. As major player told us:"If things move too slowly, we will definitely take measures to lobby the government."