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Africa provides positive tone for telecoms industry |
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 05/10/2009
Tom Harden
In the build-up to ITU Telecom World 2009 in Geneva this month, Onda Analytics believes that a range of exciting opportunities await the investment community regarding Sub-Saharan Africa. Throughout the week at ITU Telecom World 2009, we will be discussing the outlook for African telecoms with other delegates. Submarine cable projects and operator privatisations are just two of the issues currently worthy of comment.
Submarine cables will enable new revenue streams
While the take-up of mobile voice services in Africa is well documented, wireless broadband can play a similar role in advancing African connectivity in the future. To enable growth in broadband usage, additional international connectivity will be required, through submarine cables.
The number of new submarine cables currently planned on both the east and west coasts of Africa highlights the advances the continent is making. Much has been made of the crippling effects of poor connectivity in African countries in the past. While industries dependent on telecoms have developed strongly in parts of Asia in recent years, African countries have remained effectively “offline”. Countries such as India or the Philippines have successfully grown a large call centre industry in the past two decades, and it may seem an obvious move for English- and French-speaking African nations to develop such industries. Beyond call centres, there are many other potential sectors that could benefit from improved connectivity, including important industries such as healthcare. Crucially, enhanced connectivity not only enables increased productivity at a macro level but can also induce new revenue streams for network operators and their partners, who benefit from demand for data connectivity. The submarine projects currently active or planned across Africa are shown in Figure 1.
Figure 1: Current and future deployments of submarine cables in Africa [Source: cable consortia data, press reports]
The opportunities for increasing connectivity on the east coast of Africa have been extensively discussed by industry analysts in recent months; the opportunities on the west coast also merit attention though. The existing capacity of SAT-3 is expected to be added to by GLO-1, MaIN One and WACS over the next two years. If these projects come to fruition, alternative operators that have faced high prices for SAT-3 will find themselves in a far more competitive position.
Investors should consider the impact of cables on telecoms revenues within a country. With WiMAX networks being rolled out and further 3G upgrades due over the next two years, wireless operators will be well placed to offer high-speed broadband services. New data revenue streams will emerge, as has happened in Western Europe over the last 18 months. A key difference though is the far weaker position of incumbent fixed line operators in the broadband market, with underinvestment in copper networks having been commonplace.
Giving privatisation another go
African regulators have increasingly become aware of the importance of competition in their telecoms markets. While many African governments have opened their doors to foreign MNOs, they have often paid little attention to the national fixed line incumbent. The marked underinvestment in fixed incumbent assets in Kenya, Ghana and Nigeria, to name but three countries, has resulted in their respective governments seeking new investors for these assets. France Telecom and Vodafone have acquired the incumbent operators in Kenya and Ghana respectively, with both showing signs of a successful turnaround. On the other hand, Nigeria’s incumbent NITEL has famously struggled. The government is now seeking to privatise the operator once more.
Ghana Telecom’s most recent privatisation (having seen previous attempts) was to Vodafone in 3Q 2008, buying a 70% stake for USD900million. As part of the deal, Vodafone agreed to invest USD700million into the operator. In its first year of operation Vodafone has launched novel promotional deals and implemented a general rebranding. However, beyond these softer marketing changes, growth in subscribers and network infrastructure has been harder to assess.
France Telecom bought a 51% stake in Telkom Kenya in December 2007. France Telecom invested USD100 million in the fixed and mobile operator in 2008 and it is expected to spend a similar figure in 2009. Its mobile subscriber base grew from 130,000 in December 2007 to 700,000 in June 2009. However, this growth is dwarfed by leading Kenyan MNO, Safaricom, which added over 5 million subscribers over the period to reach 14 million subscribers in June 2009.
The privatisation of NITEL should benefit from the experience of previous attempts to privatise it, along with the experience of other African countries. The Nigerian authorities have previously been said to be nervous to sell a key national asset to South African investors such as Telkom SA or MTN, as Nigeria attempts to assert itself as the dominant African economy, to accompany its position as the most populous country. It should look to the experiences of Ghana and Kenya, where the incumbents have seen network investment and a new approach to providing services since bringing in experienced foreign ownership. Investors should also consider the potential upshot for other network operators in Nigeria. A stronger NITEL could be a benefit to many players through a stronger wholesale proposition. In fact, these parties are among potential suitors.
Emerging opportunities in Africa and beyond
The submarine cable and privatisation activities in Africa highlight two important themes. Firstly, there is significant telecoms investment activity on the continent at this time. Secondly, these activities are likely to generate attractive indirect opportunities for operators in Africa.
Tom Harden will be available for meetings at ITU Telecom World 2009 to discuss telecoms investment opportunities, both in Africa and in other parts of the world. tom.harden@ondaanalytics.com
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