Investing in Africa tip five: Maximise mobile data potential

There is substantial opportunity for growth in mobile data services in Africa. Demand for data services is great and the arrival of new undersea cables should remove some of the bottleneck created by Africa’s lack of international connectivity. The fact is that this demand will be met mainly by wireless rather than wireline connections.

To illustrate this, the number of HSPA subscriptions in Africa was 3.09 million at end-3Q09, almost double the 1.41 million subscriptions recorded one year earlier. With fixed broadband scarce in Africa – the rate of household broadband penetration across the continent was just 2.26 per cent at end-3Q09, according to Informa– the demand for data services must be met mainly by mobile operators.

Having said this, there are still slightly more xDSL subscriptions in Africa (approximately 3.8 million at end- 3Q09), but there is little doubt that HSPA is growing faster and is likely to overtake xDSL soon. The vast majority of HSPA subscriptions in Africa are being used for broadband access with a USB modem and PC.

Although Africa’s mobile broadband market is dominated at present by a few large markets – South Africa alone accounted for about half of Africa’s HSPA subscriptions count at end-3Q09 – there is evidence of strong growth elsewhere on the continent.

At end-3Q09, MTN Nigeria had about 300,000 HSPA subscriptions and Kenyan operator Safaricom about 200,000, according to estimates by Informa. The size of the Nigerian market and Kenya’s burgeoning role as a business centre for the East African region, has aided this growth.  But HSPA networks are being launched by operators across the continent – in Uganda, where only Uganda Telecom operates a HSPA network at present, Orange and MTN are expected to launch their own services by end-2010.

East Africa in particular stands to benefit from the new undersea cables. The Seacom cable, which was activated in mid-2009, was the first to reach the East African coast and its arrival has led to a 60 per cent reduction in wholesale bandwidth costs in the region, according to estimates by Informa.

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Source: Intelligence Centre

Although data revenues are still significantly lower than voice revenues, there is no doubt that the strongest growth over the next few years will be in data rather than voice. Mobile voice revenues in Africa will rise from $44.41bn in 2009 to a peak of $48.49bn in 2012, before falling back to $46.63bn in 2014, according to forecasts by Informa. Meanwhile mobile data revenues in Africa will rise from $4.45bn in 2009 to $10.64bn in 2014.

And whilst the retail prices of mobile broadband prices in the region are still quite high, there are signs that those prices are coming down, due in part to lower wholesale costs. This is a development that should encourage an increase in take-up of services. So for operators looking to make a mark in Africa, mobile data is an area in which there is a case for becoming more aggressive on pricing.