It's a long term game

By The Informer

The Informer’s been in gloriously sunny Cape Town this week, attending Informa Telecoms & Media’s AfricaCom event, which beats working for a living. Everybody likes to talk up Africa’s growth potential and not without justification. The show itself is expanding in reflection of the potency of the continental market. Attendees numbered 3,500 up from 3,000 last year, flying in from 72 countries compared to 54 in 2007.

One company with a high profile at the event was Zain, which regular readers will know rebranded its African Celtel operations in 14 countries in August. You couldn’t accuse Zain of timidity in any of its activities and in his keynote presentation at the show, the firm’s African CEO, Chris Gabriel, jolted the audience into activity with a bombastic speech. When his “good morning” went unanswered, Gabriel – who’s an imposing man – bellowed at the audience to wake up and got a rousing response the second time around.

He’s a passionate man; passionate about the word ‘passionate’ if the frequency of its appearance in his presentation was anything to go by. Zain, being extremely wealthy, is untroubled by the credit crunch, seeing it as an opportunity rather than a threat, according to Gabriel. A straight-talking type of chap, Gabriel beamed at the audience as he said: “We’ve just refinanced, we’ve got $4.5bn in cash and we are SHOPPING!”

Amusingly, when questions were invited from the floor, a Vodacom exec got up and asked Gabriel whether Zain had any intentions of moving into South Africa. He wasn’t actually quaking when he asked the question, but his voice seemed to betray a hint of trepidation at the prospect of the Kuwaiti carrier rampaging into his home market like a bull elephant with an attack of must.

Of the 22 markets in which Zain operates, average penetration is just 18 per cent, leaving plenty of room for expansion and the firm’s subscriber base is growing at 50 per cent year on year. Zain has targeted 110 million customers by 2011, which it reasons will take it into the top ten global operator rankings. Today it has 56.3 million customers.

Hindrances to further growth in Africa remain, and handset unit prices are chief among them, said MTN‘s vice president for Southern and East Africa, Tim Lowry, in his own presentation.

Handset vendors often get a bit of a bashing from carriers at industry conferences and Lowry told the crowd that, on a recent trip to China, MTN was buying basic GSM handsets at $10 per unit which have proven extremely popular, selling 6,000 a week in some MTN markets. He didn’t name the vendor, though. And the phones are just as reliable as big name brands, he added, which is crucial given that MTN is branding the handsets with its own colours.

Higher-end handsets need to hit a price target of $40 to sell in volume in Africa, he said. “I hope the manufacturers get to that level,” he said, “because the first to achieve it will be the winner.”

At the close of the first day the Informer shimmied into his posh frock and slapped on some lippy in preparation for a night out at some of Cape Town’s more exotic haunts. However, the glamour in South Africa that night was to be found at the Convention Centre where rugby legend Francois Pienaar was hosting the inaugural AfricaCom Awards.

Six carriers were recognised for their achievements, bagging nine awards in all. The crack panel of judges, hand-picked from a broad selection of the industry, had been kept busy with nigh on 100 entries to peruse.

One of the judges, Tawanda Chihota, group editor Comm, singled out Warid Telecom Uganda – the winner of New Entrant of the Year – for particular praise. “Warid Telecom is a deserving winner of the New Entrant of the Year category, having entered an already competitive market and made immense progress and impact in a short space of time,” he said. “I believe this is exactly the type of foreign direct investment required in Africa which is not only sustainable, but also industry changing.”

Warid Uganda was also judged Customer Service Provider of the Year. Kenyan stalwart Safaricom was victorious in two categories, with CEO Michael Joseph taking to the stage to collect the trophies for Best Solution for Rural Services and the Changing Lives award, which was presented by fashion designer Gavin Rajah in his capacity as a Unicef ambassador.

Zain also bagged a brace, seeing off competition in both the Best Marketing Campaign and Best Pan-African Initiative categories.

Cell C won the Best Network Quality Intiative, while Wana Enterprises did the business in the Best Enterprise Solution division. The lone vendor on the stage was Ericsson, which was recognised by the judges in the Most Innovative New Service category for MTN Zone, a yield management tool that has proven extremely successful for the carrier, according to Tim Lowry, MTN’s managing director for South Africa.

The Convention Centre Ballroom’s dance floor positively heaved as local band Coda rounded off the night with their unique blend of AfroEuro fusion folk pop music. Rhythm, as the song says, is a dancer. The Informer, however, is not, so he jumped in a cab in order to be fresh for day two.

Back in Blighty, the crystal ball gazers at Informa were claiming that advertising is to be the saviour of the big disappointment that is mobile TV. While the bulk of mobile TV revenues presently come from subscription fees, the analysts reckon the advertising business model is expected to gain prominence over time, and by 2013 will deliver over half of the forecast $10bn revenues derived from mobile TV worldwide.

No doubt this will be music to the ears of the mobile community, which largely believed that mobile TV was going to reach the mass market a lot earlier than has been the case. So far, a number of market and technology barriers have conspired to delay the widespread adoption of mobile TV by consumers and growth in many regions is still fragile.

Also feeling a bit fragile this week was Blyk, the ad funded virtual mobile network, which recently celebrated its first birthday. But the hangover was less to do with too much bubbly and birthday cake, and more to do with the persistently dire global economic climate.

“We like everyone else are feeling the impact of the world’s financial situation. As a result, in parallel to securing the new investment, we’ve taken decisive steps to cut costs and streamline our organization,” said Pekka Ala-Pietila, Blyk’s CEO and co-founder. Still, the company did announce an additional Eur40m investment to support its ongoing operations and international expansion, so things can’t be all that bad, and the initial critics of Blyk’s business model have been quiet since it claimed average advertising response rates of 29 per cent.

For those not in the advertising industry, these figures are nothing short of phenomenal, stacked against a 0.5 per cent response rate for online advertising and 4.5 per cent from unprofiled SMS.

In the internet world, Adobe‘s Flash has become an annoying favourite of the advertising community, while mobile web browsers have been spared. Not for much longer though, as mobile chip shop ARM announced plans to incorporate Flash and Adobe’s Air software platforms into devices powered by its processors.

The chip vendor said the deal will put Flash 10 on ARM powered devices, including mobile phones and mobile internet devices (MIDs) – an area where the company is also flexing its muscles after striking a deal with Canonical, the commercial backer of Ubuntu, to put the Linux OS on Mobile Internet Devices (MIDs) and other handheld gadgets including smartphones.

Other handset makers were doing their bit for the environment this week, with a handful of the world’s biggest gadget makers getting together to launch a common energy rating system for mobile phone chargers, cluing consumers into the best, and worst performing models.

The five star rating system was developed and is supported by Nokia, Samsung, Motorola, LG and Sony Ericsson, under an industry wide initiative to reduce the environmental footprint of telecoms products.

Many consumers are unaware that phone chargers continue to use electricity when disconnected from the phone but left plugged into the wall socket. Device vendors claim about two thirds of the energy used by mobile devices is wasted in this way. So the new rating system indicates how much energy the charger uses when left plugged in after charging is completed, with five stars for the most efficient chargers down to zero stars for the ones consuming the most energy.

It strikes the Informer, however, that it’s only the high-end handsets that ship with the most energy efficient chargers. Surely the best way to make a difference to global energy consumption would be to bundle energy efficient chargers with mass market phone models, particularly those distributed in the burgeoning emerging markets sector.

Speaking of which, Nokia is hoping to get in on some of the Chinese 3G action expected next year, saying this week that it plans to launch a handset based on China’s homegrown TD-SCDMA 3G standard before the end of 2009.

The Finn said it has already started the development of a TD-SCDMA device based on the Symbian S60 OS, which suggests it’s a high-end device and so likely to come with an efficient charger.

Despite its leading position in the handset market, as well as having Symbian dominate the smartphone space, Nokia will still be looking to build market share wherever it can. Last month the vendor confirmed what many have come to fear of late, the sharp pullback in consumer spending worldwide has hit the mobile devices market hard. Nokia’s preliminary estimate for industry mobile device volumes is down for 2009 compared to 2008, impacted by the economic slowdown.

Which is exactly why the low ARPU, high growth emerging markets are so attractive, and probably why Luxembourg-based carrier Millicom International Cellular (MIC) snapped up the third national mobile licence for Rwanda this week.

Millicom, which operates in a variety of emerging markets including neighbouring African countries Tanzania and the Democratic Republic of Congo, said it will own 87.5 per cent of a newly created joint venture firm in partnership with Rwandan firm Marathon. The joint venture is to pay $60m for the 15 year licence.

Rwanda has some 10 million inhabitants, in a country of about 26,000 square kilometres. Mobile penetration is low at around 9 per cent and the populace is only served by two incumbent operators, Rwandatel and MTN, with market leader MTN counting about 1 million subscribers.

Another topic that often shares company with developing markets is mobile payments, and at another industry event held in Macau this week, a gaggle of mobile operators called on handset vendors to implement contactless payment functionality in devices from mid-2009 in a bid to drive adoption of m-payment services.

Under its Pay-Buy-Mobile initiative (see what they’ve done there?), industry body the GSM Association is backing the implementation of the ETSI (European Telecommunications Standards Institute) endorsed Single Wire Protocol standard, to provide the interface between the SIM card and the embedded NFC (Near Field Communication) chipset within the handset.

Last month, industry analyst Juniper Research said that while the mobile payments market is currently dominated by purchases of digital content such as ringtones, music and games, it will in future be driven by users transferring money and using NFC to make purchases. The analyst said that mobile money transfer and NFC (Near Field Communications) transactions are predicted to account for 50 per cent of the global mobile payment market by 2013.

Speaking of money, one person who doesn’t appear to be short of a few quid is Sprint Nextel’s technical chief, Barry West.

At a time when share prices are tanking pretty much across the board, there are some who believe it’s a great time to invest. Get it cheap, they say. A win-win. Come on, you know it makes sense. The market, surely to God, has bottomed out.

And West appears to take this view. A few days ago, he boldly snapped up 50,000 shares in the company he works for. And it is a company struggling so badly that Sprint has now become synonymous (at least in the mind of the Informer) with ‘haemorrhaging customers’. And mobile operators, generally speaking, don’t like their customers to haemorrhage.

But that hasn’t deterred West from getting his wallet out. According to the SEC filing, West purchased 25,000 Sprint Nextel shares on 14 November in three batches, ranging from $2.52 to $2.35 per share. Three days later, West was back for more Sprint Nextel stock. He presumably saw greater value at $2.29 per share and bought 25,000 more of the blighters.

West clearly feels Sprint is undervalued and it’s admirable he’s willing to put his money where his mouth his. (At this point, the Informer should point out, much to his relief, that he holds no telecom stock, or any other stock, whatsoever. Apart that is, from chicken stock. In cubes.)

Sadly for West, Sprint Nextel’s share price has not bottomed out, not by a long chalk. If he was expecting a share price bounce after Clearwire‘s shareholders approved the ‘new’ Clearwire JV, which is to roll out mobile WiMAX across the US, then what a disappointment. Sprint Nextel’s share price fell by a massive 27 per cent yesterday to a buttock-clenching $1.37 (Sprint Nextel’s 12-month share price high was over $15 for pity’s sake).

So, according to the Informer’s very rough calculations, West’s purchase of 50,000 Sprint Nextel shares is now worth around $50,000 less than when he bought them. Yikes!

But West is no doubt looking long term, as well all are. No need to panic. Market confidence will soon be restored…

Or maybe not. According to the number crunchers at Informa, this year has been both the best and worst of times for WiMAX. The nascent technology is a tale of two markets, according to principal analyst Mike Roberts, while it has gained significant momentum in the last year, in the larger converging broadband market, the runaway success of rival system HSDPA and the acceleration of LTE threatens the opportunity for WiMAX in some markets.

“In many major emerging markets all the pieces are falling into place for WiMAX, including availability of spectrum, huge pent-up demand for broadband, certification of Mobile WiMAX equipment, and the arrival of new lower-cost devices such as ultra-portable notebooks and netbooks,” says Roberts. But, “The converging broadband market has changed dramatically in the last year due to the rise of HSDPA and the acceleration of LTE and while there’s no doubt that Mobile WiMAX has come of age in the last year with the launch of major new services such as Sprint’s Xohm, it now faces a tough fight with HSDPA and eventually LTE in key markets. As a result, many WiMAX vendors and operators need to reshape their strategies.”

On a different note entirely, the UK Post Office released some research revealing that the perfect phone call should last nine minutes and 36 seconds, and should contain a mix of chat about family news, current affairs, personal problems and the weather. Apparently the boffins were somehow able to study the anatomy of a call and come up with the perfect mixture of topics and timings for that perfect conversation.

This sounds like pseudoscience to the Informer, but coincidently, his own research suggests that the perfect weekly newsletter should be about 2,599 words long, which brings us nicely to a close for this week.

Take care

The Informer