Tough market conditions force African operators to innovate

By Matthew Reed

The telecoms market in West and Central Africa remains vibrant, but the message from last week’s West & Central Africa Com conference, organized in Abuja, Nigeria, by Informa Telecoms & Media, is that business is getting tougher for operators as a consequence of slowing growth rates, increasing competition and falling ARPUs, and the global economic slowdown.

According to Christian de Faria, vice president for West & Central Africa at MTN Group, the slowdown in the subregion “is still not too acute,” and the Nigerian market is still growing very fast. But there is nevertheless some evidence of a slowdown: Minutes of use, rather than subscription numbers, are falling, with airtime consumption in some countries down 10-15% year-on-year, according to de Faria. In some cases, it is also more difficult to obtain finance.

In an attempt to maintain growth rates, operators in the subregion are looking to develop new markets and services. With urban markets becoming relatively mature, they are seeking to add new subscribers in underserved markets, usually in rural areas. Another option for operators is to develop added-value services that will encourage subscribers to spend more on basic voice and text-message services. Operators are also trying to cut costs through measures such as site sharing.

Zain Nigeria has found that the market will not allow it to raise prices and, as a result, it needs to cut costs. This is partly because of the devaluation of the local currency, which makes imported network equipment more expensive, according to CEO Bayo Ligali. The operator recently commissioned Ericsson to run its network through a managed-services agreement, an arrangement that should reduce Zain’s operating costs and will, according to Ligali, “allow Zain to focus on what it does best.”

Etisalat Nigeria, which launched services in October 2008, faces particular difficulties because it is taking on three established GSM operators in Nigeria (Glo Mobile, MTN and Zain), according to CEO Steven Evans. There should be a differentiated regulatory approach in Nigeria for new entrants such as Etisalat, he said. He advocated the introduction of mobile number portability and asymmetric termination rates, both of which should benefit Etisalat as a new and small operator. Evans also argued for site sharing and national roaming agreements.

But in the rural markets that all operators in the subregion need to reach in order to maintain growth, network development is relatively expensive because of poor infrastructure, a widely dispersed population and low consumer spending power. Operators need to change their business models and be innovative if they are to succeed in rural markets, said de Faria.

MTN Nigeria’s strategies for reaching rural areas include low-denomination air-time cards, community phones, low-cost base stations, site sharing, alternative technology and handset subsidies, according to CEO Ahmad Farroukh. But it is difficult to make a viable business out of operating in rural areas. MTN’s existing rural networks are underused, and the average monthly income in rural Nigeria is just NGN5,000 (US$34).

MTN is also implementing rural initiatives in Cameroon and Ghana, said de Faria. In addition, the operator is developing low-cost handsets with vendors in China and lobbying for reductions in the customs duties levied on imported handsets in West and Central Africa.

Other operators are pursuing innovative strategies in rural markets too. Most rural Africans do not have access to grid electricity supplies or even to generators, so they cannot recharge their handsets easily. In order to tackle this problem, Intercel Guinea has installed handset-charge points at its base stations in rural areas. What’s more, Intercel offers rural dwellers hand-cranked and solar-powered handset chargers.

Vendors are also developing new systems for rural markets. India-based VNL is offering a low-power, easy-to-assemble miniature base station that can work on solar power. Netherlands-based Intivation has an array of solar-powered handsets, although they are relatively expensive at about €35 (US$48.50) each.

Another option for operators is to introduce value-added services. In the subregion, MTN Nigeria, Glo Mobile Nigeria, MTN Ghana and Zain Ghana offer mobile broadband services based on HSDPA technology. MTN has launched its MobileMoney service in Ivory Coast in recent weeks and plans to introduce the offering in Cameroon, Ghana and Nigeria shortly. MTN has also launched DVB-H mobile TV services in Ghana, Ivory Coast and Nigeria.

And the widespread use in the subregion of advanced handsets such as the BlackBerry indicates good prospects for value-added services, at least among more-affluent city dwellers. Even at Abuja’s GSM Village, an informal market under an overpass in the city center, where stall holders sell and repair handsets, upscale Nokia E71, Nokia E95 and iPhone devices are on display alongside basic models.

In addition, mobile content in the subregion should get a boost from the 2010 soccer World Cup, which will be hosted by South Africa. MTN will launch a mobile portal for the event. Mobile music also holds promise, as the subregion – particularly Nigeria – has a thriving local music industry. It also has a high proportion of young people, and individuals are more likely to have a mobile handset than any other entertainment device.