African Mobile Telecoms

Are the glory days and gold rush over?

Martin de Koning

The mobile revolution

• 1995: 600,00 mobile phones (90% in South-Africa

• 2009: more than 300 million phones in use an increase of 51,300%

“The mobile phone has had a greater impact on Africa than colonization.” Salim Amin, chairman of A24 Media, Nairobi

What technology can do for Africa

“I think technology is an opportunity not an enemy of the people. Get the mobile phones to people and then see what they do with it. Some will want to do business with it, others will just think. So just connect them and then stand by, because it is not so much about deciding what people are going to do, but giving them the tools to do things.” Wambura, Nairobi

Mobile opportunities…

Let’s start with the good news:

• Low penetration

• Last big growth frontier

• Revenue & penetration growth

• Continued investor interest

Mobile Penetration and growth

• Sub-Saharan Africa is seen as the last big growth frontier for mobile in the world.

• average mobile penetration rate of 50%

looking at larger markets.

• If we include Chad, Niger or Malawi, the continental average is much lower, closer to 30%.

• 300 million people left to be connected!

Usefulness of technology

“The beautiful thing about Africa is that we are early adapters of technology that solves problems. We do not have as many cultural barriers as I see in Europe. In Africa we are hungry for the latest thing. You can give a farmer a phone, and you say you can find out what the prices are at the market, just press here; he will take it.” Sheila Ochugboju

Comparison of penetration rates

• Western Europe 130%

• Middle East and N-Africa 120%

• Central and Eastern Europe 120%

• Asia 90%

• Latin America 90%

• Sub-Sahara Africa 50%

Growth in revenues & penetration

• Penetration increase of 7% in 2010

• Services revenues in Africa grew 3.4% to $ 48.7 billion in 2009; 10% in 2010; 6.5% CAGR anticipated in 2010-2012 time frame

• Growth is still considerably higher compared to developed markets in Europe and the M.E.

Increase in FDI

• Bharti paid $ 9 billion or 10 x EBITDA for Zain’s African assets (without Sudan & Morocco)

• Normally you would expect 6-7x EBITDA• Vodafone spent $ 18 billion on deals in Africa

and the Middle East to date• Bharti will invest $ 600 million in Nigeria alone

over the next 3 years• France Telecom chief has earmarked $ 8.8

billion of investment in Africa and the M.E. in next 5 years

Most technology is African

“There is Africa in almost all technology. The raw materials probably come from Africa, get to China, get processed and come back.” Rafiq Philips, South Africa

However…

• Licensing issues

• Falling tariffs

• Declining profitability

• Shrinking pool of new and loyal customers

• Growth of mobile data and VAS uncertain

• Unpredictable government regulation

Licensing issues

• African governments have issued (too) many licenses. Europe’s average is 4.

• Prime example: Nigeria 11 operators!

• Only top 3 can be profitable depending on market size, # of operators, GDP

• ‘Africa has too many licenses’ says Millicom CEO, Mikael Grahne. Millicom and others may sell off assets.

Falling tariffs & declining profitability

• In Tanzania tariffs for mobile service fell by 80% in the last 18 months

• Zain’s margins in Sierra Leone eroded from 26% to 7% in 1 year as a result of lower tariffs

• Governments are slashing interconnection rates • Lower earnings results in a decrease in network

expansion & quality and investment• Opportunity: sharing assets such as tower

infrastructure but not easy. India will lead the way!

New & loyal customers?

• All the high-revenue customers are covered• Mining for new customers who cannot really

afford the service (already 17.7 % of monthly income)

And are they loyal?• 95% of all customers are pre-paid• Churn of 6-7% per month• Cost to mobile industry in Africa: $ 11.4 billion

per annum

Mobile data and VAS

• Reduce churn by signing up customers to long-term mobile data plans

• Paradox: Need to sell higher-end phones and plans when customers are used to cheap pre-paid voice and texting

• Mobile banking the most promising VAS but success of M-Pesa has not been replicated yet

Technology is a global phenomenon

“ I don’t want to separate African technology. Technology is technology, it works where it works, tech has no borders. With a few adjustments, a technology that is going to solve a problem can be adapted slightly to solve another problem in a multi-world.” Rafiq Philips, South Africa

Good news: low-cost hand sets and smart phones

Mercurial governments and partners

• Government-commissioned body in Ghana recommended renegotiating 70% acquisition of Ghana Telecom by Vodafone

• Shareholder issues quite common in Africa• Unpredictable changes in regulatory and tax

regimes reduce appetite of large investors• Universal access: an unfulfilled opportunity

Lack of assets

• Major players are MTN, Safaricom, Vodacom, Vodafone, France Telecom and Bharti

• Further consolidation likely

• However, lack of good assets

• Last remaining major player is Millicom

Growth of the M-wave

• Growth of M-health, M-agriculture, M-environment,

• Mobile money has a huge potential: now 12 million M-Pesa users transferring money. A total of $ 6.5 billion in transactions since 2007

• M-shopping, M-learning, but also M-voting, M-statistics/information

• New sub-marine cable systems will revolutionize Africa’s access to bandwidth

Cheetah generation

• More than 40% of Africa’s population is younger than 14

• George Ayittey , author of Africa Unchained coined the term “Cheetah generation”

• Young people: dynamic, pragmatic, intellectually agile, urban and restless and Africa’s new hope.

• See business opportunities and are entrepreneurial rather than government and NGOs as a career path!

Young people are changing the game

“Young people are energetic and easily learn new things. In ICT things keep changing and we need innovative young people with fresh ideas, who take on new ideas with optimism, unwavering determination and energy.” Ken Njoroge, CEO Cellulant, started as entrepreneur at age 23; now preparing a listing at local stock exchange

Conclusion

• Sub Sahara Africa still an underserved market. • 300 million people still have no mobile phone,

making Africa the fastest growing market in the world

• Still major investment by large operators• However, gold rush is over; cautios view still

leaves upside potential• Growing population 40% under age14• Cheetah generation will embrace and expand

ICT technology to help close the Digital Divide