Investing in Africa tip one: Be innovative on pricing

The first in our series of tips for potential investors in the African telecoms market. Here Informa Telecoms & Media reveals that operators that employ a lean, efficient business model will be best-placed to run a profitable operation on low tariffs.

Mobile tariffs in much of Africa are high compared to those in some other emerging markets. For example, Zain Kenya’s lowest tariff is about $0.04 per minute, for on-net calls. Compared to India, where Reliance Communications offers tariffs that are as low as $0.01 per minute, for both on-net and off-net calls.

The fact that tariffs in Africa are relatively high is reflected in ARPU levels. In 4Q09 blended monthly ARPU across Africa as a whole was $10.49 – but in India blended monthly ARPU in 4Q09 was much lower, at just $2.73, and falling.
According to Informa’s principle analysts, Nick Jotischky and Matt Reed, operators that employ a lean, efficient business model, like that pioneered by operators such as India’s Airtel, which is known for its extensive use of outsourcing to keep operating costs down, will be best-placed to run a profitable operation on low tariffs.

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However, it has to be said that mobile tariffs have already come down in many African markets in the past couple of years as competition has intensified, often because of the debut of new operators. And usage in Africa has increased over the past couple of years too, from 131 minutes per month per subscription in 4Q07. But Africa’s MoU is half that of India’s, which does suggest that there is potential for substantial further growth.

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Source: Intelligence Centre

African operators are probably best advised to avoid getting into the kind of price wars that are taking place in the Indian market. ARPU in India has halved over the year to end-2009 and operators’ profits are being squeezed. Rather, African operators should aim to demonstrate more of the innovation in pricing that is already evident on the continent through plans such as Zain’s One Network, which allows subscribers to pay local rates when roaming, and MTN’s MTN Zone, a dynamic tariff plan that charges lower rates when the network is not busy. Kenyan operator Safaricom also operates a dynamic tariff scheme called Supa Ongea and says that the discounts available through the plan can bring the cost of on-net calls down to as low as about $0.01.

AfricaCom 2010, takes place in Cape Town, November 10-11