Expanding horizons: LTE in Africa establishes foothold

The story of mobile communications in Africa has always been one of growth. Ten years ago, when three quarters of Western Europeans were already using mobile telephony, cellular penetration in Africa was less than six per cent. The industry had yet to develop the low-cost devices and low-ARPU business models that would help to kickstart uptake in the region. In 2013 things have improved enormously but, despite African penetration having now hit 72 per cent, the potential for ongoing growth remains enormous. Today, however, the growth story centres on mobile broadband.

GSM subscriptions on the continent are forecast to decline from 2015, after reaching more than 750 million at the end of next year, according to projections from Informa’s WCIS+. Within five years the total number of African GSM subscriptions will have fallen beneath 400 million, as mobile broadband services gather momentum.

WCIS+ forecasts for the end of this year put African WCDMA subscriptions at 100.6 million, around 12 per cent of the continent’s total subscriptions. But while the market as a whole is expected to grow by almost 44 per cent over the five years to the end of 2018, WCDMA is expected to surge by more than 600 per cent over the same period, to reach 708.1 million subscriptions—almost 59 per cent of the total African user base.

During the next five years LTE, which will have yet to exceed two million African subscriptions by the end of 2013, will grow to reach 72.8 million subscriptions.

For this growth in mobile broadband to be achieved much needs to happen on the African continent. Regulation, consolidation, device availability, spectrum allocation and continued innovation in both operational and business models will all play their part in advancing the African mobile communications sector.

What qualifies as mobile broadband in Africa may well be different from what qualifies in other markets. Igor Leprince, senior vice president for Middle East and Africa at Nokia Solutions and Networks, in a thinly veiled reference to the Shift plan recently introduced by Alcatel Lucent, which sees it moving away from legacy network technologies, suggests that definitions are contextual.

The 2^nd annual LTE Africa conference is taking place on the 11t^h-13^th November 2014 in Cape Town, South Africa. Click here to download the brochure for the event.

“Some of our competition have abandoned certain technologies but that’s not what we’re doing,” Leprince says. “To me WCDMA is mobile broadband, and this is the technology most African mobile broadband users are currently using. For us even GPRS could be called mobile broadband in some countries in Africa.”
Indeed there are still seven markets on the continent— Algeria, Cameroon, Chad, the Comoros Islands, Eritrea, Guinea-Bassau and Yemen—that have yet to launch WCDMA, almost ten years after the technology was first deployed in Africa. Cameroon in particular offers some interesting insights into the kind of issues affecting the African market as a whole.

A long-term duopoly, Cameroon’s two incumbent operators, MTN and Orange, have been held back from 3G deployments by a regulator keen to introduce a third player to the market. Vietnamese operator Viettel won the third licence in December 2012, and has pledged to launch with 81 per cent geographical coverage with a GSM/WCDMA network next year.

While the absence of 3G in the market made the licence an attractive one (rival bidders included pan-African operator Airtel, Monaco Telecom and Korea Telecom), the regulator’s decision to focus on the appeal of the third licence rather than the needs of the market illustrates how regulation can be problematic in Africa, says Thecla Mbongue, a senior analyst for Informa who covers Sub-Saharan Africa.
“The authorities wanted to make the market more attractive to Viettel but the other operators have been there for years and their networks have been 3G-ready for a very long time. So I don’t understand why the authorities would want to deprive the population of a 3G service,” says Mgbongue. “And they’re still delaying. Viettel won the licence in 2012 but was given a launch deadline of early 2014.”

Levels of competition across Africa vary wildly. Of the 55 markets tracked by WCIS+, six are monopolies and nine are duopolies. There are eleven markets, meanwhile, that have five or more operators—with Uganda home to eight players and Nigeria to 11. And this doesn’t take into account operators of non-cellular technologies like WiMAX. MTN Cameroon, frustrated at the restrictions affecting its plans for 3G deployment, launched a WiMAX offering in June this year.

Some governments in countries with modest numbers of operators can look to other African markets where the market is more crowded and identify a revenue opportunity associated with introducing further competition—both in terms of licence fees and taxation. But some specialists in the region warn that competition might not necessarily be enhanced by introducing new players and that high operator numbers could cause problems as “In the smaller markets the first two operators make money but the third struggles,” says Igor Leprince. “In bigger markets there may be space for four operators in the long term. But if you look at Nigeria, how is [a market of] that many operators going to be sustainable given that they all have to go to 3G and LTE? That will involve significant investment in backhaul and network technology; so how do all of these operators have prospects? That’s where we have a different view from the ministers who see that the maximum number of players in the market is the best thing for that market.”

Furthermore much of the subscription growth created by the entry of new players in competitive markets is likely to be accounted for in part by multiple SIM ownership. This might help paint a positive picture for the government in terms of national penetration, and for the operators in terms of subscription figures, but overall user numbers and revenues do not necessarily grow accordingly.

Thecla Mbongue argues that a thirst for subscriptions is causing operators to focus their competitive efforts purely on price when they could, and should, be looking to differentiate on other parameters, such as quality of service. QoS is a topic of constant discussion in the African mobile market, with complaints from operators about their access to reliable power sources a staple of the debate at the region’s industry events. But Mbongue suggests that some operators’ relentless acqusition strategies are directly and negatively impacting service quality.

“To improve QoS operators need to invest faster than they acquire subscribers,” she says. “But that will mean that they have to sacrifice their margins, which they don’t want to do—especially when they belong to the big groups. They might not say it in public but they are all just trying to acquire as many subscribers as possible so they can say they’re among the largest players on the continent.”

Any operator brave enough to put QoS at the heart of their strategy could stand to reap rewards, she suggests. Given the widespread problems with QoS there are enough users who would pay a premium for permanently higher grade quality for a profit to be made. Price cuts, especially for on-net minutes, have such a deleterious effect on service quality that users are often unable to take advantage of the changes in price because their calls do not connect, Mbongue says.

And yet the advent of LTE in the region could increase the number of operators still further. Daniel Jaeger VP for Africa at Alcatel Lucent says that one of the emerging trends worth watching is the decision by African regulators to use LTE to bring newcomers into the market. Instead of focusing on voice (given that VoLTE is not yet commercially available), some early LTE operators in Africa are moving towards a pure data play. Jaeger namechecks two of Alcatel Lucent’s own customers, Smile which has launched pure LTE networks in Uganda and Tanzania, and Ghana’s Surfline, which will launch in 2014. He adds that Alcatel Lucent is in negotiations with “several other operators” that are looking at similar models.

Smile’s chief operating officer, Tom Allen, takes an opposing view to Igor Leprince on » the competitive benefits of greenfield licences for LTE, which is perhaps not surprising as this is core to the firm’s operational model.

“We don’t see ourselves as the fifth operator coming into a market, we see ourselves as the first LTE operator,” he says. “There may be some people who think it’s never going to work but when we break the model and prove we’re right then I think it will open the doors to lots of new entrants in LTE in Africa.”
Incumbent operators may not be sufficiently motivated to fully exploit the potential of LTE, he says. “If you give LTE licences to the incumbents they’re likely to only do bits and pieces with it because they’ve got a lot to protect,” he says. “You need a new entrant to stimulate and break the market and force the pace.”

Any player considering a pure LTE model might also look to provide wholesale coverage to traditional mobile operators to bolster their retail connectivity play. In Rwanda the government signed a deal earlier this year with South Korean operator KT Corporation that will see a JV created to build and operate an LTE network that will cover 95 per cent of the population within three years. But the JV’s licence will be wholesale only and the market’s existing mobile operators were “invited to invest in the project” at its inception on the undesrtanding that they will resell LTE connectivity.

“This kind of model could help Africa to avoid what is happening in Europe where, due to marketing reasons, too many networks are being built in parallel,” says Daniel Jaeger.

A similar model was being considered by the previous government of Kenya, although the government elected in March this year is reconsidering the plan, according to NSN’s Igor Leprince. “It is being considered, but I have my doubts. When I talk to operators in Kenya about this, they always have a smile on their face,” he says, suggesting that discussion might be as far as the project gets.

Certainly early LTE operators with an ISP-like model could be challenged by the cost of PCs and laptops in Africa, which remain too expensive for many in the region. African mobile broadband will be almost overwhelmingly smartphone-based and even smartphones have yet to drop to the price point that will stimulate growth on a grand scale.

Irrespective of whether or not the creation of new licences and new operators is right or wrong for the region, the presence of KT in Rwanda and Viettel in Cameroon illustrates that there is still enthusiasm for investment opportunities in the African communications sector. Viettel also has an operation in Mozambique, where it focused on providing coverage in rural areas, rather than the cities which were already hotly contested.

Greenfield opportunities may not be the only driver for continued investment as Africa is a market dominated by a small number of international players whose appetite for further expansion remains. WCIS+ tracks 191 mobile operators in Africa, more than 80 of which are accounted for by nine international operators; Airtel, Africell, Econet, MTN, Orange, Orascom, Ooreedoo, MTE, Vodacom and Vodafone.

“There is hardly a month without some kind of consolidation,” says Igor Leprince. “Bharti [Airtel] is still looking, MTN is still looking. There’s more M&A activity in Africa than in the rest of the world put together.” It is also conceivable that any greenfield LTE entrants will find themselves the targets of acqusition once their businesses are established.

The large international players are very effective at leveraging their scale for purchasing, says Clementine Fournier, regional vice president for Africa at Belgacom’s international carrier services arm BICS. She observes also that they tend to want to limit as much as possible the number of suppliers that they use, and are very open to outsourcing functions for which they lack specfic expertise.

Roaming is one such example, she says, and is a healthy market on the continent. Some of the smaller operators can generate as much as 40 per cent of their revenues from international termination. But in a highly competitive market the large operators are able to exploit on-net roaming tariffs that place the smaller players at even more of a disadvantage.

This is the sort of proactivity that someone like Neelie Kroes would be very happy to see in Europe and Fournier remakrs that African operators are “lucky not to be regulated like operators in Europe.” But she adds that African regulators are looking at roaming traffic as a potential source of tax revenues, with several introducing surtaxes on international termination. “For the mobile operators this is not good news,” she says.

Informa’s Thecla Mbongue agrees that regualtors and governments—which can be much more closely linked in Africa than is perhaps the case elsewhere—have tended to focus too much on the revenue opportunity that mobile affords the state coffers. But this, she says, is changing.

“Governments started to redefine the rules in order to make more money by creating new taxes,” she says. “And because of this there hasn’t always been enough collaboration between the regulators and the operators. But regulators now undersstand that, as well as being a tax payer, telecom networks contribute to the welfare of the population nad we’re now seeing more collaboration.”

If there is a common regulatory problem it is that telecoms ministers and heads of regulatory bodies are politicians, often with no background in communications and often, due to turnover in goverments, not in the position for long enough to establish and realise a vision. This is exactly what happened with Kenya’s plans for a wholesale LTE network.

Broadly, she says, English-speaking Africa has managed to evolve its regulatory environment more successfully than French-speaking Africa. “Markets in English-speaking Africa have a lot more flexibility in their approach to regulating business,” she says. “In French-speaking Africa things are much more centralised, all the way to the Minister of Telecommunications who has the final say on most decisions.”
A recent example of the varying approaches of different markets towards regulation is the shift to technology-neutral or converged operating licences. This was treated with a great deal more flexibility in English-speaking markets than it was in French-speaking Africa, Mbongue says.

It is perhaps the international African operators themselves that have the greatest potential to influence regional harmony in terms of communications services, however. These players, while not “making things the same in every country,” says Daniel Jaeger, are nonetheless “bringing it together and making the differences smaller.”

The mobile communications industry is used to growth; it has never known anything else. And Africa, which is behind many markets in the world in terms of the development of its mobile sector, is where all the growth is happening now. Network suppliers in the region joke that their colleagues elsewhere in the world are envious of the potential they have for expansion in their business.

And it would be a mistake to assume that lagging developments in other markets will be to Africa’s detriment in the long term. Models that are not possible in advanced western markets are being tried in Africa—where in Europe would a pure play, greenfield LTE opportunity come about? Regulators in the region are increasingly attuned to the wider benefits that the communications sector can deliver and are working to introduce flexibility and opportunity for the region’s many operators.

It is certainly unlikely that those operators will remain so great in number, but for the winners the rewards will be substantial.

LTE Africa will take place on 11th-13th November 2014 in Cape Town.