African development continues apace

At the start of 2006 it was clear that the African market was making an appearance on the radars of international companies. The following three years have been characterised by increased investment into the African continent, and the telecommunications industry can be seen as the perfect showcase for this activity.

The prominence of this industry and the international attention it has garnered could be put down to the simple fact that it is critical to the broader industrial development of Africa. Without the enabling technology provided by the telecommunications sector, the ability of any industry segment to be a viable competitor on the world stage is severely curtailed.

In the past, the regulatory environment for communications in Africa has proved to be cause for concern as many governments adopted measures tantamount to protectionism. This trend has changed dramatically as the benefits of ensuring an open market have been proved time and time again. In some cases, the other extreme is true and regulators allowed too many operators into the market as they enjoyed the financial gains earned from pricey license fees. This practice is now less common, although it is still something to be monitored. The greatest challenge resulting from this trend is the lack of available spectrum for operators. This has occurred in markets such as Ghana, Nigeria, Tanzania and the Democratic Republic of Congo. Operators, regulators and infrastructure providers alike are now challenged to overcome this issue.

The implementation of international best practice in terms of regulation continues to gain momentum and most operators have started the process of change in their respective markets. Importantly, this is true of the satellite market as well and there are a number of regional agencies working together to achieve the harmonisation of regulatory frameworks. This example is being followed at a national level by various regulators and there are hopes that the entire process will be almost complete by 2015, in line with the Millennium Development Goals.

Improved regulation has paved the way for the progress made in the various undersea cables destined to bring the African continent closer to the rest of the world. A shining example of the promise of these cables is the SEACOM project, which was completed earlier this year. The landing of the cable in countries such as South Africa, Tanzania and Kenya was watched from a global stage and the success of this project shows what is possible when the true spirit of international cooperation is followed.

This is just the first of many cable projects underway for Africa. Angola has a noteworthy project that will connect six of the country’s coastal provinces and the length of the west coast of Africa is to be serviced by two additional cable projects. These cables are not only to support the existing SAT3 cable (which was recently upgraded), but are destined to eventually replace the aging infrastructure, which has a lifespan of about fifteen years.  The Uhurunet and Cable One projects are examples of this. The much publicized EASSy cable looks set to reach conclusion in 2010 or 2011 and the TEAMS cable is also expected to make landing during this period.

While the significance of these cables cannot be underestimated, it is very important to emphasise the greater importance of ensuring that there is sufficient terrestrial infrastructure in place. This is the only way to realise the full potential of the additional bandwidth capacity brought to bear by the undersea cables. At present this is lacking in most of the African continent and there are various reasons for this. One of the most important is the fact that governments are faced with other resourcing priorities, such as education, sanitation and healthcare (although there is growing recognition that effective telecommunications would be of significant help to these sectors). This leaves the telecommunications industry a little way behind in attracting government investment. The current high cost of project finance is another obstacle, as is a lack of project management expertise necessary for the successful completion of these projects.

Whilst there is greater momentum towards completing these projects, they are definitely still a work in progress and additional emphasis is required to ensure their completion. Innovative partnerships between the public and private sector are only one example of how African companies and countries are addressing this challenge.

Partnerships, strategic alliances and merger and acquisition activity have been making headlines this year. The most notable event in this regard was the unbundling of Vodacom shares by Telkom and the listing of this company on the Johannesburg Stock Exchange as Vodafone increased its shareholding in the African operator to 65%. Vodacom’s listing was a great success and despite some operational hiccups in the form of the decision to pull out of the DRC and an inability to reach CAPEX goals, the company looks in fine form.

MTN is another Pan-African operator which continues to capture news headlines. The talk of a possible merger between the operator and India’s Bharti Airtel was a global news story for many months. Although the deal failed to materialise, this type of negotiation serves to demonstrate the increased international interest in the African continent and the synergies that exist between emerging market operators.

Other examples of international interest in the telecommunications market in Africa include the increased investment by France Telecom. It has a direct stake in a national operator and is also present in more than ten African countries through its Orange subsidiary. Frost & Sullivan expects this level of interest to continue to grow.  Vodafone is likely to expand its presence on the continent with direct investment and Vodacom’s footprint expansion will be worth watching.

The market looks set to continue its development well into 2010 as the FIFA World Cup comes to South Africa. The tournament is expected to have an incredible impact on the continent and this is just the first of many landmark developments that are expected to touch the continent in the next five years. While the past five years have provided unprecedented levels of exciting developments, Frost & Sullivan expects this is only the beginning, as the market will truly take off in the next five years.

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