Opportunities and challenges

Mozambique is one of the poorest countries in the world. It is still emerging from the after-effects of almost two decades of civil war that devastated its infrastructure and economy. Many parts of the country are yet to be cleared of landmines and Mozambique suffers regularly from devastating droughts and floods. The combination of these factors has severely hampered the country’s development process as it tries to re-take its place in the global economy.

Despite these challenges though, Mozambique is also experiencing robust economic growth. Due to inflows of foreign aid and investment, the country’s GDP grew by around 6.5 per cent in 2008. This rate of development has invited ongoing interest from investors.

One industry in which this interest has been particularly high is mobile communications. Recent analysis from Frost & Sullivan reveals that Mozambique currently has around 4.5 million mobile subscribers. By 2015, this could reach 30.7 million at a compound annual growth rate (CAGR) of 30 per cent. This number includes both active and inactive subscribers and will be boosted significantly by the growing number of tourists visiting the country and purchasing SIM cards just for the duration of their stay. The churn rate (the number of users that become inactive) is therefore also expected to be high. Last year Vodacom Mozambique’s churn rate was 77 per cent.

Frost & Sullivan’s analysis found that the mobile communications market in Mozambique was worth $300m in 2008 and will multiply six-fold by 2015 to reach $1.8bn. These high revenues will be partly due to the high cost of services, especially data.

Interest in this sector has been peaked by the Mozambican government’s announcement that it will be launching an international tender for a third mobile operator license in December 2009. A third operator was initially due to be licensed by June this year, but the process was put on hold. There was speculation that this was due to political sensitivities, as one of the current operators, Mcel, is state owned. While Mcel is in the process of being privatised, this is happening very slowly. Some local politicians are also stakeholders in the second operator, Vodacom Mozambique.

Some stakeholders argued that there was no space in the market for a third operator due to the levels of poverty and illiteracy in the country. They felt that the potential subscriber numbers did not justify it. When putting the process on hold, the country’s regulator, Mozambique National Institute for Telecommunication (INCM), also indicated that the economic downturn had played a role in its decision, as Mozambique relies so heavily on foreign aid and private investments.

“The mobile communications market in Mozambique was worth $300m in 2008 and will multiply six-fold by 2015 to reach $1.8bn. These high revenues will be partly due to the high cost of services, especially data…”

INCM however proceeded to conduct research that revealed that there is indeed a market for another operator. They found that this was particularly because of the level of tourism in the country and the additional number of subscribers that it will create. Mozambique is likely to be a significant beneficiary of the additional tourism that will come to Southern Africa due to the 2010 FIFA World Cup. In addition, there are growing levels of private investment from companies looking to exploit opportunities in the country’s oil and gas, agriculture and minerals sectors. These companies are now spreading their reach into more rural areas where fixed-line telecoms infrastructure is not in place and mobile operators have to cater to their needs.

Frost & Sullivan anticipates that the three companies most likely to express an interest in the licence are MTN, Zain and Portugal Telecom (PT). MTN is renowned for its success in difficult markets and Zain has expressed ambitions to spread into more African countries. PT already owns an internet service provider in Mozambique and has a presence in the fixed-line sector. As PT is present in most of Portugal’s former colonies, where it is the market leader in all of them, moving into Mozambique would be a logical step. If they do win the license, Frost & Sullivan expects that PT will be very aggressive in its approach, as it has been in other emerging markets. The fact that the company is Portuguese-speaking may also be a significant benefit over MTN or Zain, which would know less about the culture in which they would be operating.

Whoever tenders for the licence, one of their major considerations will be the law of universal access. Mozambique has regulations in place that require operators to make communication available in all corners of the country. This means that any operator will have to invest heavily in infrastructure development. As the SEACOM undersea cable has just landed along the Mozambican coast and the EASSy cable is coming next year, the operator will also have to be prepared to invest in the quality of their network for voice and data. Mcel has already invested in consolidated infrastructure – rolling out a backbone infrastructure that enables scalability of new technologies as they become available.

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Operators in Mozambique are also bound to contribute one percent of their revenue to the universal access fund. The regulator uses this fund to open new bids for more competition in the market for vendors and other industry players. One segment in which competition is particularly necessary is infrastructure deployment, as only one organisation, the parastatal TDM, is involved in rollout countrywide. This is the main reason why services, particularly data services, are still very expensive. For example, a data package for enterprises can currently cost up to $3,000 per month.

Another challenge for any new operator would be to make sure that their network is reliable and that the quality of service is good. Mcel rushed to deploy the first 3G service in the country, but failed to focus on its quality. Vodacom Mozambique has opted for a slower deployment, but is focusing a great deal of attention on the quality of its 3G network. Once its services become active in 2009, Frost & Sullivan expects that it will attract many subscribers who are frustrated with the current offering from Mcel.

The new operator will also need to ensure that it offers services that are both affordable and relevant to the population. While Frost & Sullivan expects voice to remain the main service for a long time yet, there is increasing demand for value added services (VAS) and data. The new operator should consider introducing VAS through offering discounts for bulk purchases and bundling services for enterprises. Mobile banking is one service in particular that is likely to be well received due to its potential to allow money transfers at low cost and in regions where banks are difficult to reach due to poor transport infrastructure. It has the potential to become a key differentiator between operators, as it has in Kenya.

An important approach will be to focus on prepaid services. This not only generates quick turnover, but also avoids the risk of bad debts. For example, Angola Telecom is dealing with millions of dollars in outstanding debts from its customers. The time it takes to recover these debts delays infrastructure expansion and additional capital expenditure. Prepaid services are also much easier for the customer to control usage, especially if they are offered in small denominations.

Perhaps most crucially, the new operator will need to invest in training of local personnel. As there is a serious lack of technical skills in the country, it will be imperative to train local staff on using the latest technologies. One approach would be to do this abroad so that they can see the technology in a fully-operational setting and appreciate what it offers. Building local skills will both reduce the costs of maintaining an expatriate workforce and develop skills that will benefit the economic development of the country.

Frost & Sullivan believes that there is also a need to promote ICT literacy in Mozambique. Vodacom Mozambique has already built computer centres with internet access in schools, as the government cannot afford to do so. Projects like this will increase the awareness of the benefits that mobile communications and access to the internet can provide.

Overall, the company that wins the tender for the third mobile license in Mozambique will face a number of unique challenges. However, should these be met, the potential for growth is enormous.

Silvia Hirano Venter is an ICT analyst with Frost & Sullivan