Africa Mobile Factbook 2012

2012
African Mobile Factbook

This briefing paper provides a snapshot of the African mobile phone
market, written and produced as a free service
for executives involved in the mobile phone industry by the editorial
team of ‘Africa & Middle East Telecom Week’.

For further information, please visit
www.africantelecomsnews.com

Blycroft Publishing www.blycroft.com

Blycroft Ltd – Africa Mobile Factbook 2012 2

Blycroft Limited

Published 15th. March 2012. Copyright 2012

www.africantelecomsnews.com

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Table of Contents

1. Africa Ascendant – the last great mobile adventure 4
2: The lesser of two evils; or the case for GSM in Africa 6
3. Basic challenges for infrastructure in Africa 9
4. LTE in Middle East and Africa outstripping the rest of the world 12
5. Mobile wars in Africa: is Airtel winning? 15
6. Treading carefully? – Glo in Ghana: Launching an MNO from scratch 19
7. New growth areas for handsets 22
8. Applications in Africa 25
9. Banking on the unbanked 28
10. The African MVNO – spent force or an idea before its time? 31
11. Letting go: deregulation of African telecoms 34
12. Risks and realities 37
13. Positive prospects in Africa 40
14. African Mobile Market Data 43
About ‘Africa & Middle East Telecom-Week’ 52
The Mobile Network Operators Directory 2012: Africa & Middle East 55

Charts
1.1 – Global Mobile Subscribers by Region 4Q 2011 4
1.2 – Global Mobile Subscriber Regional Change Q-o-Q 3Q 2011 v, 4Q 2011 5
1.3 – Global Mobile Penetration Q-o-Q 3Q 2011 v, 4Q 2011 5
2.1 Nigeria GSM v CDMA Subscribers 2007, 2009 & 2011 7
4.1 LTE Customers in Africa & Middle East to 2015 12
4.2 Spectrum Market Share 2015 13
5.1 Spot the difference: Airtel African Mobile Subscribers 4Q 2009 v 4Q 2011 17
5.2 Nigeria: Airtel Mobile Subscribers 4Q 2009 – 4Q 2011 18
5.3 Nigeria: Airtel Q-o-Q % change 4Q 2009 – 4Q 2011 18
6.1 Room for one more? Ghanaian Mobile Subscribers by Operator 4Q 2009 – 4Q 2011 21
7.1 Nokia still fighting the good fight 24
7.2 8.1.1 Africa Mobile Subscribers by Region 4Q 2010 36
8.1.2 Africa Mobile Subscribers Q-o-Q % Change by Region 4Q 2010 36
8.2.1 Africa Top 20 Mobile Operators 4Q 2010 37
8.2.2a/b Africa Top 20 Mobile Operators 4Q 2010 37/38
8.3.1 Africa Top 20 States by Mobile Subscribers 4Q 2010 39
8.3.2 Africa Top 20 States by Mobile Subscribers 4Q 2010 39
8.4 Primary African Mobile Subscriber Markets: Quarterly & Annual Change 4Q 2010 40
8.5.1 Africa Mobile Penetration 2Q 2011 41
8.5.2 Africa Mobile Penetration 2Q 2010 42
8.5.3 Africa Mobile Penetration 2Q 2011 v 2Q 2010 43

About the Author:

This briefing was authored by Roy Johnson, a writer specialising in IT and
business topics, who has regularly contributed to PC Magazine, as well as
editing TechNet Magazine for Microsoft. Roy was formerly editor of
CommsAfrica and contributing editor for Intelligence magazine. The individual
articles appeared originally in the weekly issues of ‘Africa & Middle East
Telecom-Week’ - see www.africantelecomsnews.com for more details.


1. Africa Ascendant – the last great mobile adventure

Ericsson, in its interim Traffic and Market Data Report for 4Q 2011, shows
global mobile penetration reaching 85 percent in Q4 2011, up from 81 percent
in 3Q 2011 by Ericsson’s reckoning. Global mobile subscriptions now total
around 5.983 billion, up from 5.749 billion three months before.

India and China accounted for approximately 35 percent of the estimated 182
million new subscriptions added in 4Q 2011. Mobile subscriptions increased
by around 13 percent year-on-year and 3 percent quarter-on-quarter. Around
75 percent of total subscriptions are GSM, whilst 15 percent are
WCDMA/HSPA.

1.1 Global Mobile Subscribers by Region (Ericsson) 4Q 2011

Source: Ericsson interim Traffic and Market Data Report 4Q 2011
c. Blycroft 2012

The Ericsson study shows Africa as the region with the greatest growth in
both the third and fourth quarters of 2011, topping China in both periods. The
Middle East was ranked third in both periods.


1.2 Mobile Subscriber Regional Q-o-Q % Change (Ericsson)
4Q 2011 v 3Q 2011

c. Blycroft 2012

However, it is in the Mobile Penetration stakes that Africa shows its true
potential, with currently the lowest mobile penetration globally, registering 60
percent at the end of 4Q 2011, up from 55 percent in 3Q 2011. The Middle
East had a penetration rate of 101 percent, up from 96 percent in 3Q 2011,
according to the Ericsson data.

1.3 Global Mobile Penetration 4Q 2011 v 3Q 2011 (Ericsson)

c. Blycroft 2012



2. The lesser of two evils; or the case for GSM in Africa

There are hard choices for regulators, MNOs and consumers when it comes
to deciding whether GSM or CDMA will prevail in Africa. But maybe there is
room for both.

Historically, Africa has been – and still is – dominated by GSM technology.
The reasons are simple: it was the first available option before NTT won ITU
approval for the CDMA system and its simplicity suited conditions on the
ground across the continent. Even today, the market in Africa is mostly voice
and text with relatively low adoption of data services. Lastly, it follows the lead
of Europe’s major MNOs who have strong ties with countries across the
region.

However, CDMA has advantages for consumers in delivery of video content
and MNOs busy across Africa have either rolled it out in limited areas, such
as densely populated cities, or experimented with it. The concern is that it
might be essential as the consumer market matures and moves more into the
data services space.

Even major network equipment vendors such as Ericsson admit, however,
that replacing GSM is not a likely outcome. Tellingly, that company has been
busy promoting a dual solution involving network and handset technology that
would enable to CDMA to coexist with GSM and that only requires consumers
to buy somewhat more expensive handsets.

Ultimately, the outcome depends on some basic realities faced by regulators
and operators. Largely, those realities will dictate which technology sees the
largest adoption.

The pros and cons of the two systems very much predict what has happened
thus far.

CDMA has distinct advantages for handling high-density user locations. In
such settings, it can offer lower operations costs for MNOs and improved
service levels for users. It also offers better video delivery and is a key
component of most 3G networks.

GSM is largely based on TDMA with some tweaks to minimise known issues
such as interference with audio devices such as landline phones or
loudspeakers and to boost its capacities for data transmission.

These differentiators are fast becoming obsolete concerns in developed
countries where roll-outs of LTE and 4G are in progress. In developing
nations, meanwhile, there is still some uncertainty regarding the roadmap
from 2G to 3G and operators and vendors are placing their bets on quite how
that evolution will progress.

On the face of it, Africa has proved before that there is willing adoption of the
latest technology and often a real avoidance of embracing any technology that



is seen as second-rate or obsolete. There is absolutely no doubt that CDMA
will gain traction but, as Ericsson said, it will not completely replace existing
TDMA/GSM networks.

There is a considerable investment involved in replacing GSM network
equipment with CDMA equivalents. The long-term advantages in cost of
ownership will only be realised in locations where there are high densities of
users. As for the maturity of the consumer market and growing demand for
high-end video and data services, that is still very much only just beginning.

On the technology front, the point has been made repeatedly over the last 10
to 15 years in the IT business that a developing market like Africa can learn
from overseas experiences and often leap-frog in progress, cutting out
intermediate – and possibly expensive – steps in technology deployment.

While it is a possibility that the consumer market in Africa will reach significant
levels of demand for broadband data services by the time LTE and 4G have
become the new normal, it has to be noted that there remains a need for 3G
services right now, albeit in lower rates of adoption than seen in developed
economies.

The flip side is that GSM is very well entrenched and the disadvantages it still
has are less of an issue for African consumers and operators than for their
European counterparts.

Alongside that, there are some specific, regional issues that actually inhibit
CDMA deployment, apart from the setup costs noted above. Certain
transmission frequencies are commonly used for CDMA and, as a result, that
equipment is less expensive.

In many parts of Africa, those frequencies fall into reserved ranges (usually for
TV services) and, although there are moves to reallocate spectrum, this is not
an overnight process. Secondly, there are generally available skills for GSM
across Africa, whereas CDMA skills are harder to find and more expensive.

2.1 Nigeria GSM v CDMA Subscribers 2007, 2009 & 2011

Source: NCC c. Blycroft 2012



Inevitably, Nigeria is a benchmark for guessing what the future holds. In that
country, there's eighteen times times as many GSM users as CDMA ones,
even though both systems were brought to market at about the same time.
The key factors there are strong user demand for basic services and a
preference for mobility, which the city-based CDMA networks cannot provide.

Nevertheless, one lesson of history which has been re-learnt by telecoms
multinationals is that it is not wise to generalise about African markets. The
conditions on the ground vary greatly, as do the preferences of the
consumers.

Even between apparently similar countries such as Ghana and Nigeria, there
are major differences which result from both social and economic conditions.

So, while it might be certain that CDMA will grow and thrive in major urban
settings – and the world trend for urbanisation is as strong in Africa as
anywhere else – it should be noted that drawing further conclusions is a high-
risk exercise.

Even a major operator such as South Africa’s Telkom actually disinvested in
its Nigerian CDMA subsidiary. Generally, across Africa, a number of telecoms
projects that seemed promising a few years ago have been slowed or
suspended during the current recessionary economy.

In the longer term, the future looks promising. Africa is one of the major
growth areas in the world and there are few other places where the gap
between what infrastructure and services are actually in place and what could
be achieved with the latest technology looms quite so large.

The opportunity remains for MNOs with carefully thought plans to achieve
large revenues and, simultaneously, support the development of communities,
skills and national economies across a vast region and massive continental
population.

Both GSM and CDMA have their roles in all this and, necessarily, those roles
will be complementary and not exclusive.



3. Basic challenges for infrastructure in Africa

The obvious notes about remote locations, difficult transport routes and
unreliable electricity are just the tip of the iceberg. MNOs in many parts of
Africa face other problems.

Broadly speaking, the problems that operators face in Africa are well
documented: large distances to be covered, unreliable road and rail transport,
low per-capita policing ratios, occasionally extreme weather conditions and
socio-economic factors that drive high crime rates.

Whereas this looks like a toxic cocktail for high-tech operations, it can be –
and has been – dealt with in very practical ways by all MNOs across the
region. Beyond that, however, it raises a question regarding what was
previously called “appropriate technology” for Africa and the answer to that
question might well be a signpost for the future.

Setting up a network of towers in remote areas of Africa is more daunting than
in developed countries. Maintaining those towers then proves an even greater
challenge. Even in urban areas, there are issues that are proportionally
heavier overhead than elsewhere in the world: electricity, fuel, weather
damage and theft.

On a simple business level, this means the costings and risk analysis for
projects in Africa are more carefully considered. Startup costs remain higher,
despite possibly lower costs for labour and basic materials.

Maintenance costs are the devil in the detail. MTN, the South African operator
that holds significant slices of the market in many countries on the continent –
21 in all, including Middle East operations – reports that a generator is stolen
every day, on average.

That does not even include other damage such as cable theft or weather
events. Nor does this cover the high costs of diesel fuel supplies and the
negative environmental impact.

While the inflated maintenance costs can be dealt with on paper by adjusting
the ratio of capex to opex, the fact remains that increased costs anywhere in
the books run counter to providing low-cost, mass-market GSM access for
Africa’s huge and often widely distributed population.

This has driven innovative approaches that are in the nice-to-have category in
other parts of the world but practically a priority in Africa.

Taking MTN as one example, that company has been running pilot projects to
power base stations in remote parts of South Africa using both solar and wind
power. Building on that experience, MTN Cameroon has a project running to
equip its towers with solar panels provided by ZTE.



Typical of Chinese leadership in green technologies and a cautious approach,
these installations are mounted with “theft-proof” screws on frames that are
3.5 metres high. It’s not just generators that get stolen. There is a market
somewhere for practically anything.

Cynics will note that even such provisions might not be enough. But the
present reports indicate that there have not been any problems thus far and
MTN’s operating expenses are reduced.

By comparison, Airtel has also been active in exploring solar power, being
currently engaged in a project to provide over 20,000 towers in India with
panels. There is a reasonable expectation that this will be expanded to Airtel’s
operations in other locations as it proves its value.

The advantages are not quite as prosaic as they might seem. There are few
studies yet available for the solar initiatives in Africa but we can look at figures
from India as a guideline. Greenpeace India reports that some 60 percent of
power used by GSM towers in that country is actually provided by diesel
generators.

That is, as with Africa, thanks to remote locations and unreliable grid supply.
Greenpeace claims a potential cost saving of 300 percent for operators over a
10-year time frame if they convert to solar.

Even without that saving being a proven figure, what we do know is that
Indian MNOs are using something like three billion litres of diesel a year,
producing some five million tons of carbon dioxide. And, of course, that is a
huge fuel bill compared to grid power and “free” solar power, quite apart from
the environmental impact.

While wind power might be an option in some specific locations, the
advantage to solar is that Africa is generally well supplied with enough
sunshine to avoid the power interruptions experienced with such installations
in countries outside the tropics. The same applies to other less consistent
renewables, such as wave or hydro-electric power sources. Solar still works
better.

Looking ahead, it seems inevitable that MNOs across Africa will turn to solar.
This is driven not just by green concerns and the need for being responsible
corporate citizens but also by significant savings in running costs, including
reduced risk of equipment theft.

A further predication that seems high-probability is that it will often be
companies from Shenzen providing the necessary technology. China’s
forward-looking approach on all things green and its own interests in Africa’s
resources and developing markets practically guarantee that.

There is another aspect to operations in Africa worth noting. The same
challenges that face operators also affect their customers. Obviously, if
customers face problems with electricity, that is not good for business.



This issue is not yet being addressed with the same urgency as is seen with
power supplies for base stations but there are signs that point to increased
interest in this area.

There have been pilot projects across Africa for many years to provide rural
communities with domestic solar power and ICT equipment and radios that
work from manually wound generators. These have mainly been the province
of charities and NGOs.

More recently, Nokia has gone ahead with its bicycle power charger. That
product has been a success in developed countries where it has been
adopted for reasons of convenience and green awareness.

In Africa, it is even more useful, as so many people use bicycles but do not
have access to grid power. It has been welcomed in the Great Lakes
countries already, where it sells for more affordable prices than in the EU.

Even for the lowest-income communities, the advantages are compelling. It
provides power for handsets on the spot, eliminating the need to travel to find
electricity.

Finally, while it would be no surprise that companies from India, China and
South Africa are leading the charge, it is Africa that might well be the proof of
concept for much wider adoption of renewable energy for mobile services at
both a corporate and consumer level.



4. LTE in Middle East and Africa outstripping the rest of the world

Growth rates for LTE services in the Middle East and Africa will outstrip the
rest of the world from 2013 onwards, analyst firm Signals and Systems
Telecom has forecast.

LTE is rapidly gaining momentum in the Middle East region, and is forecast to
grow at an average annual growth rate of 197 percent, with subscriptions
already expected to reach 110,000 by the fourth quarter of 2011, according to
a new report from SNS Telecom: ‘LTE in the Middle East & Africa 2011-2015’.
Global LTE subscriptions have already passed the 3.7 million mark in 3Q
2011, spread across 36 global networks.

In Saudi Arabia there have already been commercial network launches from
Zain Saudi, STC, Mobily, and in the UAE by Etisalat from September 2011,
and over 26 LTE commitments. As a result the Middle East has initiated a
major push towards commercial LTE adoption, besides pioneering in the
commercial release of TD-LTE user devices.

Both Saudi Arabia and the UAE are sparsely populated outside the major
urban areas, and operators are unlikely to deploy fibre infrastructure from
broadband beyond major urban and industrial areas as economic activity is
typically highly concentrated in these areas.

Technologies such as LTE could serve as a relatively cost-efficient option to
deploy high-speed broadband services to smaller towns and villages
nationally, which operators attribute as the major reason to early LTE
adoption both the countries.

4.1 LTE Customers in Africa & Middle East to 2015

Source: Signals and Systems Telecom, www.snstelecom.com



By the fourth quarter of 2011, it is expected that there will be over 6.6 million
LTE subscriptions globally with the Middle East accounting for a 1.7 percent
market share with over 0.11 million users. With commercial LTE launches by
all three major incumbents, Saudi Arabia is not only leading LTE adoption
within the Middle East, but it is also pioneering TD-LTE adoption globally by
becoming the first nation to commercially offer TD-LTE user devices.

Saudi Arabia will lead LTE subscriptions in the Middle East with over 70,000
subscriptions by 4Q 2011 and over 0.39 million by the fourth quarter of 2012,
representing a year-on-year growth of 457 percent. This is being driven by
early deployments, attractive free trial packages such as those offered by
STC, bundled 3G/LTE pricing models, and the increasing demand for high-
speed mobile broadband access in rural locations.

By 2015, Saudi Arabia is expected to account for over 5.44 million
subscriptions representing a compound annual growth rate of 197 percent, a
figure that is much higher that the global CAGR of LTE adoption at 180
percent. Globally there will be 410 million LTE customers by 2015.

The UAE is expected to follow suit, with commercial LTE devices for Etisalat
expected to be launched in December 2011, following a pre-commercial
network release in September. du is also expected to commercially launch its
LTE network in due course, leading UAE’s LTE subscriptions to hit 40,000 by
the first quarter of 2012.

Although the 2.3 gigahertz TDD spectrum is expected to retain the highest
market share, driven by Saudi network deployments, re-farming is also
expected by 2013, which will make 1800 megahertz the most sought after
band.

LTE deployments in Africa are also gaining momentum, and a number of
operators are trialling LTE technology. In Egypt Vodafone, Etisalat Misr and
Mobinil have started trials, together with MTN, Cell C and Vodacom in South
Africa; and Globacom in Nigeria.

4.2 Spectrum Market Share 2015

Source: Signals and Systems Telecom, www.snstelecom.com



As the operator-preferred 2.6 gigahertz band has not yet been auctioned in
most countries, a number of operators have deployed their initial trial
networks at 1800 megahertz, such as the MTN South Africa trial network.
Vodacom and MTN are expected to carry out early commercial launches
before the second quarter of 2012, taking African LTE subscriptions to 0.35
million by the end of 2012.

By 2015, it is estimated that the Middle East will account for 7.49 million LTE
subscriptions, while Africa will account for 11.15 million subscriptions,
representing global market shares of 1.8 and 2.7 percent respectively. The
lack of spectrum below one gigahertz in particular is likely to remain a major
hurdle along the way to LTE rollouts.

Although the 2.3/2.6 gigahertz bands presently used in the Middle East are
widely backed by device manufacturers and equipment suppliers, this band
does not penetrate buildings as effectively as spectrum in the lower frequency
bands.

SNS Telecom reckons that without sub-gigahertz spectrum, operators in the
Middle East will struggle to offer true high-speed services in the areas of
greatest demand. In the UAE nearly three quarters of its mobile traffic
originates inside buildings.



5. Mobile wars in Africa: is Airtel winning?

Competition in African markets is fierce. It really is a war zone. And, as with
any conflict, the outcome hinges on decisions regarding strategy – and the
available weaponry.

Bharti Airtel has a history of making first moves and emerging as the winner
just because of that. This is what built the company’s success in India, where
it remains the top MNO and second-largest fixed-line operator.

In fact, thanks to the massive market it serves at home, at the time it acquired
the Zain portfolio in March 2010 Airtel was reckoned to be the fifth largest
mobile operator in the world on a proportional subscriber basis, putting it
behind the likes of China Mobile, Vodafone Group, American Movil and
Telefonica, but ahead of China Unicom.

As has been widely covered for over a year now, Airtel has been looking at
Africa as a new growth market. While it has a deal with Vodafone for the
Channel Islands, Africa is the only other territory outside the Indian
subcontinent (including Bangladesh and Sri Lanka) that the company has
entered.

The commonalities are compelling: similar markets, needs and infrastructure.
The realities on the ground are somewhat more challenging: logistics,
legislative compliance and serious local competition being foremost.

The logistics of infrastructure in Africa are an equal challenge for all MNOs.
That is a given. Where Airtel might have been overly optimistic is in hoping its
Africa model would run similarly to its success in India, based on a first-to-
market approach and having some leverage to overcome legislative
obstacles.

Unfortunately, while Airtel has a 30-year history of being first in India (with
pushbutton phones, cordless phones and then mobile), they were not first in
Africa. There were major EU, Middle East and South African players there
ahead of them.

In fact, Airtel’s African expansion is largely thanks to its takeover of Kuwait’s
Zain mobile operations in 15 countries. This was a beachhead, not a
conquest. Zain only held dominant market share in a few countries.

Going up against market leaders such as MTN of South Africa, Airtel applied
a strategy of extensive cost cutting. This followed on what it achieved in India,
cutting a deal with Ericsson for per-minute fees (rather than upfront payment)
that enabled very low-cost call rates from the outset. Airtel has an all-Africa,
five-year deal in place with Ericsson for network management that offers
similar advantages. Elsewhere, Airtel is engaged with Nokia Siemens
Networks and Huawei, not keeping all its eggs in one basket, of course.



As a Plan B, possibly following on the indecisive outcome of Airtel’s low-cost
invasion, the company has previously been negotiating a takeover of or
(maybe) a joint venture with MTN itself. How this putative deal is described
depends on which company is talking. This has been going on for some four
years without a definitive ending. Even if it never happens, it is a signpost of
just what Airtel would consider to get its Africa operations truly established.
But let’s look at realities.

Taking Nigeria as a bellwether example, Airtel’s charges are low, around 20
kobo (about GBP 0.08) per minute, but three times that for the first minute.
That is up against MTN charges of 50 kobo, although MTN offers a cheaper
peak rate (15 kobo) and more expensive off-peak rate.

As always, comparisons are tricky, given the different pricing regimes on offer.
Also difficult is working out which company is really winning. Airtel claims
either number-one or number-two positions in many of its Africa operations
(11 out of 17 countries).

Tellingly, no claims are made for Nigeria. Airtel is not just being coy. There is
an ongoing dispute over branding in that country and the latest development
is that Airtel has been court ordered to rebrand as Econet (EWN). Airtel will
appeal that ruling, while complying in the interim.

This dispute goes back as far as 2003 and is not yet over. It is, however, a
good example of the challenges Airtel faces in African settings and, while it
continues, the real winner is MTN, holding on to its own leading position in
Nigeria as well as its brand.

To come back to what we said at the start of this chapter, winning wars is not
just a matter of having the best weaponry, although that helps. Without a
strategy, chaotic retreat is the order of the day.

Airtel’s strategy bears comparison with the different approaches of two
European operators who have been busy in Africa, Vodafone and Orange.
Vodafone’s approach has been targeted, achieving a small number of high-
value operations. Orange went large, seizing opportunities wherever they
appeared. The final result is that Vodafone has good revenue and lower
costs, whereas Orange has higher costs and less revenue.

What Airtel needs to prove is that its broad approach with low fee rates can
win against competitors who have a head start and better targeting. Current
usage, market share and consumer approval figures – where independently
available – do not support a claim that Airtel is winning, despite the impressive
growth that was claimed after the launch in 2010.

This is, to a large extent, an inevitable result of the original acquisition by
Airtel of Zain’s operations. Among the 15 countries involved, not every one
was clearly a winning proposition.



Nevertheless, do not underestimate Bharti Airtel. The company has deep
resources, including enough to offer anything between USD 13 and USD 45
billion (as reported) to buy out its main competitor, MTN. It is also licensed to
roll out 3G in 12 countries, clearly focused on the expected maturity of African
markets finally proceeding to data services instead of the fundamental voice
and text services that fuelled the original mobile boom on the continent.

5.1 Spot the difference: Bharti Airtel African Mobile Subscribers
4Q 2009 v 4Q 2011

Source: Blycroft Mobile Operator Database c. Blycroft 2012

* Airtel figures adjusted to show 90-day active totals

On a side issue that might well have bottom-line impact in the medium term,
Airtel is pushing ahead with its Green Towers programme to upgrade 22,000
of its sites in India to solar power over three years. The company won the
MWC Green Mobile Award for that in 2011. Apart from the marketing boost,
there are practical and financial advantages to such technology, especially in
Africa. Other MNOs are also exploring this option but Airtel is not just
experimenting. It has about 6,000 towers already running solar.

But driving down rates may have backfired for Bharti. At the Mobile World
Congress 2012 in Barcelona it reported that the African market had not
responded as expected to the slashing of call rates. The Airtel model,
developed in India, assumed that as rates were cut, usage would increase, so
that subscribers would spend the same but make longer, or more, calls.

However Airtel has discovered that the volume of calls has remained at
previous levels after the rate cuts were made; consumers preferring to spend
the savings on essentials, such as food. Bharti termed the outcome as an
‘unexpected and surprising’ response. An elastic market - where demand for
services rises as prices fall - was critical to supporting Bharti's low-cost model.

Chairman and Managing Director Sunil Mittal, was quoted as saying: "Unlike
India, we were surprised that in Africa, lower tariffs could not increase
volumes. In Africa, subscribers use the money saved on lower-calling rates to



buy food and not to talk more. This means that we have to think of a new
model that works there ".

While Nigeria is obviously the jewel in the crown, Airtel will continue to be an
influence in other countries, driving down rates and forcing technology
upgrades.

This has advantages for consumers but is a problem for operators as growth
in Africa’s markets has currently reached a plateau. Big as Africa is, there
might not be enough room for all the players who are there at present.

5.2 Nigeria: Airtel Mobile Subscribers 4Q 2009 – 4Q 2011


5.3 Airtel Q-o-Q % change 4Q 2009 – 4Q 2011




6. Treading carefully? – Glo in Ghana: Launching an MNO from scratch

While the expansion of mobile markets in many countries across Africa is an
undeniable opportunity, both private and public sectors are still looking for the
magic formula to make it work for the benefit of all parties.

Ghana is a case in point. Although Glo Mobile (Globacom of Nigeria) is stating
that its network is ready and has a number reservation campaign started
since late January, this is not what was promised last year. So why is the
reality not meeting expectations?

As has been seen elsewhere on the continent, progressive privatisation is not
a simple process, especially when the present market has been effectively
saturated with major incumbents. This was – and still is – an issue for Cell C
in South Africa, going up against Vodacom and MTN. In Ghana, the major
players are multiple, including MTN (Scancom), Millicom, Airtel and Vodafone.

Although Globacom seems like a good fit for the market in Ghana, being also
Anglophone and from near-neighbour Nigeria, the launch of its services is not
happening at quite the pace expected.

This is not because it lacks infrastructure. The company claims an investment
of some USD 750 million in 1,600 base stations; has landed the Glo 1 cable
that links to Europe and, by dedicated extension, to the US in Ghana; and
potential capacity for 10 million lines.

Parallels with Globacom’s home territory in Nigeria abound. There are similar
issues with logistics and geography and a similarity of focus between the two
regulatory authorities, NCA of Ghana and the NCC of Nigeria.

So the cautious approach of Globacom in Ghana – whether made by choice
or not – raises some questions as to why apparently expanding markets are
not providing all the potential for new MNOs and increased competition.

To use South Africa as a comparison, it has to be pointed out that private and
public sector interests are not as smoothly aligned as they might seem.

The step-by-step process of privatising telecoms in South Africa, often
delayed and significantly behind its original schedule, was referred to as
“managed privatisation”. It was also based on some assumptions regarding
consumer choice and market growth that might now be seen as perhaps over-
optimistic.

This regulatory approach falls between two chairs: it may not allow the
freedom that the private sector wants and it certainly will not happen at a pace
driven by consumer demand. As it evolves with the goal of creating a market
fair for all competitors it will, again, not move at a private-sector pace.

There is then a problem at both ends of the equation when calculating risks in
new mobile projects. Despite the miracle of widespread adoption of mobile



technology in Africa, the political realities run counter to the more fluid
privatisation seen previously in the UK or Australia, to name two textbook
examples. At the other end, the actual number of users is hard to establish
and predictions based on any such assumptions can have major error
margins.

In general, governments are not rapidly or heedlessly going to relinquish
control of cash-cow telecoms. Hence, the concept of “managed privatisation”
which, cynics might say, really isn’t a free-market process.

As for market size, potential growth and defining saturation in any one
country, the real figures are opaque at best. For example, South Africa has a
population of about 50 million – twice that of Ghana or one third that of
Nigeria.

Current, reasonable figures suggest that about 84 percent of South Africans
have a mobile phone or access to one. Figures for South Africa based on
different criteria indicate over 100 percent market penetration but let’s stay
with the most conservative numbers. Ghana’s mobile penetration is estimated
at some 81 percent while Nigeria’s is around 55 percent. Now look at per
capita GDP. South Africa leads with over USD 10,000 per annum. Nigeria is
at about USD 2,500 and Ghana about USD 3,300.

The one thing that drives consumer choices in mobile telecoms is novelty and
the inevitable disaffection with existing operators. After that come the more
mundane choices based on coverage, QoS, service offerings and, of course,
price.

It is certainly a risk, however calculated, for a new MNO to move into a nearly
saturated market and hope to win over customers. Ghana is not as affluent as
South Africa and Cell C has battled to gain market share even there. It is
tempting to predict the same future for Globacom in Ghana.

No doubt, there is also an exit strategy. Assets can be sold off to other
companies if the project fails. A quick look at a flurry of recent deals to
unbundle and sell infrastructure in various parts of Africa shows that there is
always such potential.

Despite the doubts, Globacom’s decision to launch in Ghana seems practical
in terms of its regional presence, infrastructure and past experience. It was
rated as the best network in Nigeria a few years ago, although recent figures
would tell a different story.

However, a very simplistic calculation based on stated figures gives this
result: USD 750 million invested for a maximum consumer base of 10 million
translates to an ARPU of USD 75 to break even.

That seems achievable, until you factor in the likely slow adoption curve,
based on Globacom’s reliance on disaffected customers migrating from the



dominant two operators. If only one million migrate, the break-even is USD
750 or a fifth of the annual per-capita GDP. That looks less achievable.

Realistically, if Globacom can win five million customers within five years, its
Ghana operation starts to look doable.

6.1 Room for one more? Ghanaian Mobile Subscribers by Operator
4Q 2009 – 4Q 2011

Source: NCA c. Blycroft 2012

Whether it can do that remains a question that only time can answer.

The other question that cannot be answered without the test of time is just
how much impact data services will have.

The pattern elsewhere in Africa is still for voice and text to dominate. Mobile-
targeted services like Twitter have lower usage than in other parts of the
world. A current survey shows South Africa has the highest Twitter usage,
followed by Kenya and Nigeria. Ghana ranked 20 out of the 20 countries in
the study.

But one key point in that study is that young people (21 to 29) are driving
mobile Twitter usage. Another is that, based on Opera usage, Nigeria is the
fifth-largest mobile internet user in the world.

That bodes well for MNOs throughout Africa, as the market moves to data
services. Whether that could save Globacom’s Ghana initiative remains to be
seen.



7. New growth areas for handsets

While it seems obvious that the mass market for handsets in Africa mainly
comprises basic models, there are reports of better than expected sales of
smartphones. Is this a blip on the radar or a real trend curve?

One thing that should not be forgotten is that aspirations in all markets are
very similar. Only the abilities, in terms of purchasing power, really vary.
Across the globe, while priorities and needs might differ, consumers are
driven by similar concerns.

One man’s bicycle is another man’s Porsche. The need for personal transport
is universal and the purchasing choices are based on psychology that is
surprisingly similar in any income group.

So it is with mobile phones. In Africa, India and many other developing
economies, it is both a luxury to have a personal communications and/or
computing device, as well as a brutal necessity in places where landlines are
few, unreliable and postal services are just as poor.

In fact, news has always travelled faster in Africa by word of mouth, person to
person, than by post. The advent of mobile communications changed all that.
Across most of Africa, news travels faster now than newspapers, local TV or
even the localised internet access available at community centres can
achieve. It spreads in speech and text through mobile phones.

Add to that the purely personal need to stay in touch with friends, family and
business connections – as well as the compelling convenience factor – and
you can understand why people in developing countries are prepared to
spend a fair percentage of the few USD a day they earn on airtime and
handsets.

Looking at it from a distance, these are the same needs and aspirations found
in the US or EU. The difference is only that a basic speech and text handset
in parts of Africa is as proud a possession as a designer-branded smartphone
would be in New York.

Broadly speaking, handsets can be put into three categories: “dumb” devices
that offer only speech and text; “smart” devices that are fully equipped with
broadband connections of different types, full multimedia abilities and extra
features such as high-res cameras and GPS; and then the so-called “feature”
phones that have some connectivity and specific features such as camera
and music player abilities but not the full package that smartphones offer.

Globally, figures put out late last year in a survey by VisionMobile show these
outlines. In the US, smartphone adoption is about 63 percent. In the EU, it is
about 51 percent. The other major regions – Asia/Pacific, Latin America and
Africa/Middle East all run at 17 to 19 percent. The “other” category in these
figures is not broken down into “dumb” or “feature” models, although it can be
safely assumed that most developed economies have few “dumb” handsets in



operation while rural parts of Africa, Asia and Latin America are dominated by
such models.

Focusing specifically on Africa, it should be pointed out that the trailing
smartphone adoption figure of 17 percent is still almost twice what was
expected a couple of years ago, when most vendors were not even hoping to
get into double digits. In fact, considering the ratio of poor to rich users across
the region – something like 95 to 5 percent or worse – having nearly a fifth of
the market already on smartphones is remarkable.

Firstly, this is because consumer demand is just the same in developing
countries as in affluent societies. The needs and aspirations are the same.
The fact that the purchasing power is far less is also slightly mitigated by the
greater need. Communities that lack reliable landlines, internet access, TV
services or other entertainment facilities are more dependent on the access
that mobile phones provide than their first-world counterparts.

There is copious hearsay that mobile phones are used as family or even
public entertainment devices and even that the owners charge the audience.
There is extensive use of mobile phones for news, farming information and
educational content.

What the conservative view of smartphone adoption from a couple of years
ago failed to take into account is what one might call the “Arab Spring” factor.
Where the need is great enough, proportionally high costs or limited, rather
than universal, availability are overcome. Mobile phone usage in Africa is
certainly a luxury and nice-to-have. But it is also an essential for all but the
most insular, rural communities.

What cannot really be answered is just how many of the “other” handsets in
Africa are feature phones and how many are basic models. It can, however,
be assumed that a very large percentage are basic models, many of them
handed down or sold on by users upgrading. Very little gets thrown away in
Africa if it still has any use or value at all.

The flip side to the low adoption of smartphones – almost half the global
average figure of 30 percent – is that African markets can easily become a
dumping ground for unsuccessful models and obsolete technology. Even in
the ostensibly up-to-date markets such as Egypt, Nigeria and South Africa, it
is not unusual to find current models are a few months, a few years and even
a whole generation of technology behind US and EU products.

Where that happens and to whatever extent it happens in terms of market
share for different models, it has the effect of slowing down overall adoption
figures. Feature phones of a year or two’s age might be sold to consumers as
smartphones but they don’t count as such when looked at in a survey based
on global, first-world standards.



That said, the real miracle happening in African markets is that populations
with some of the world’s lowest per-capita income figures are still massively
adopting mobile technology, including far more smartphones than anticipated.

That ranks alongside the original miracle that mobile phones are today
pervasive in markets that just 20 years ago anticipated only niche and
upmarket adoption.

It remains to be seen whether smartphone adoption in Africa will improve but
the signs are positive that it will, creating a very significant growth point for the
industry as a whole.

7.1 Nokia still fighting the good fight…

Source: Statcounter

* Stats are based on aggregate data collected by StatCounter on a sample
exceeding 15 billion pageviews per month collected from across the
StatCounter network of more than 3 million websites. Stats are updated and
made available every 4 hours, however are subject to quality assurance
testing and revision for 14 days from publication.



8. Applications in Africa

While mobile banking remains the big story, there are plenty of other things
happening on the continent that unlock the potential of mobile services for
communities.

What has been remarkable about the roll out and adoption of mobile banking
in Africa is its uptake, especially compared to developed countries where
adoption has been much lower and usually only driven by convenience.

In Africa, it is need, not convenience, that drives adoption and there are plenty
of mobile applications that have resulted from this. Some are literally world-
leading examples of using available technology to solve problems and meet
consumer demand and user needs, rather than looking for a new technology
that might be practically and financially unobtainable.

Following in the footsteps of the general success of mobile banking and
beyond what most people would regard as proper banking and financial
services, there are a number of transactional offerings that are still primarily
concerned with the movement of funds as a service, rather than as just a
necessary part of a purchase.

One example is the specialist service Wizzit from South Africa, which is a
branchless mobile/internet banking business. Wizzit has partnered with ABSA
bank, one of that country’s four major banks, and the banking division of the
South African Post Office but its primary focus is on providing banking by
mobile phone. This includes having a debit card and covers a full range of
services available to a cash or savings account customer. The key point is
that it can all be done by mobile phone, using even a basic 2G handset.

A comparable service is Oltio, whose payD application was nominated for an
MWC award. The application enables people to make online purchases who
do not have a credit card. This is a major bottleneck for online transactions in
Africa, where debit cards are not often accepted online. The payD system
bridges the gap by using a debit card, with PIN verification from a mobile
phone. That creates purchasing opportunities for a large number of people
who have money to spend but not the full range of banking services that
includes a credit card.

Perhaps at the other end of the financial services scale is M-Pesa, which
operates in the Great Lakes region. This was a microfinance service that used
mobile phone channels for transactions. The widely adopted M-Pesa
application now also supports basic banking services and payments, having
evolved to meet consumer demand.

Then there are a slew of industry-specific services such as Slimtrader,
developed in Seattle but deployed in Nigeria to make buying transport
passenger tickets by phone quick and easy. On a less commercial level, there
are mobile phone systems for identifying fake medicines running in both East
and West Africa, showing some success in combating the huge fake drugs



market.

The signposts are there for anyone to read. Reports are that there is a 21
percent increase in African use of mobile phones for purchasing – higher than
any other region in the world. While the survey in question found that
increasing smartphone adoption is a factor, the telling figure is that feature
phone users are the largest part of the growing market.

What is really revealing is that African consumers prefer using their phones
over any other method: 46 percent buying via mobile versus 10 percent online
via computer and only 44 percent buying in-store. Some 60 percent report
buying at least one product online via mobile phone.

Figures quoted by Nokia support the view that commerce in Africa is
dependent on mobile. The company reports that micro-entrepreneurship
covers some 90 percent of the employment base and about 65 percent of the
continental GDP. Mobile phone applications are a key factor in supporting this
economic activity.

The other signpost that cannot be missed is a survey from East Africa.

In Kenya, 64 percent of users listen to digital music via mobile phones while
24 percent access via computer; 45 percent prefer to chat via mobile and 25
percent use computers. In Uganda, the figures are 48 percent listen to music
via mobile versus 26 percent and 40 percent chat via mobile compared to 23
percent.

While consumer demand typically moves in the direction of entertainment, it
should not be forgotten that there are other services that are just as well
delivered by mobile phone: news (especially weather and farming
information), education and even remote healthcare and medical services.

Education is a primary concern. It is an obvious enabler of social and
economic empowerment and Africa is generally a region where skills are hard
to acquire or find. As global studies show, much of the success in higher skills
starts with the very basic “three Rs” at primary level.

But in South Africa, one of the better equipped countries on the continent,
only some seven percent of schools have an adequate library and only about
10 percent have sufficient online access and desktops for staff and pupils to
use. Hence a recent initiative by MNO Vodacom to provide a cloud computing
solution to fill in the gap in educational resources.

Elsewhere, there are pioneering programmes to provide mobile phone access
for educational programmes running in East and West Africa. Nokia has a
system running in Tanzania that allows teachers to download content using
smartphones for TV display in the classroom. There are similar initiatives in a
number of other countries.

Probably the most famous African application is Ushahidi. The name means



“bearing witness” in Swahili and the app was developed in Kenya to report
and map the post-election violence in the country back in 2008. It works by
updates from mobile phone users to a website where the information is then
integrated with Google Maps. It works so well that is has since been deployed
for emergency service support in regions affected by natural disasters,
including Haiti and China.

While such high-profile applications hold the spotlight and even lead some
commentators to ask whether Africa might become the first post-PC region of
the world, it should not be forgotten that mobile phones are providing an
essential service across the continent in much simpler ways. These include
updating farmers on seasonal and weather information and updating
healthcare workers and patients about disease outbreaks and treatment
options.

The real story of applications in Africa remains how innovation has met
essential needs with available technology – and what a vast difference that
has made in the lives of ordinary people.



9. Banking on the unbanked

A surprising amount of mobile innovation originated in Africa. Building on
pervasive access to mobile phones, the banking industry is being smart about
providing phone banking services as just the latest example.

Turning “problems” into “opportunities” is a key step in marketing. The
banking industry across Africa has faced a range of challenges, some of
which obscure the very real market potential behind them.

With extensive uptake of mobile phones across the continent, there was
suddenly the chance to realise this potential and resolve issues that have kept
African financial services at an almost 19th-century level of technology
outside of urban areas.

The reasons why this development was first considered and is still being
actively pursued are quite straightforward. The logistics of brick-and-mortar
bank branches in many parts of Africa are horrendous. There are definite
security issues, the unwillingness of skilled staff to relocate to remote, rural
areas and then the frequent or entire lack of reliable communications by post,
landline or the Internet.

At the same time, there are enormous numbers of people who are unbanked,
not only because of traditional attitudes that encourage mattress banking but
also because simply finding a branch to deal with is burdensome or
impossible.

Some studies put the figure of unbanked people in the region at over 80
percent – a very considerable market of some 400 million potential customers,
even calculated on a conservative basis assuming only about half the
population are potential customers.

In parallel to this, there is pervasive mobile phone access. From some 1
million phones in 1996, Africa now has 400 to 500 million mobile phones
(estimates vary), many of which are used by more than one user. That
indicates at least half the region’s people have mobile access.

It was an obvious choice to look at ways to bring phone banking to the
masses, despite the conservative and risk-averse nature of banking
institutions.

Practically all banks across Africa offer mobile banking services and the major
banks all do. It is a huge market, even if you subtract the customers who have
internet access or personal access to branches and simply run mobile
banking for convenience.

The real challenge, of course, is the fact that most of the potential customers
are 2G users and very few have smartphones. The real innovations in Africa
have been a matter of meeting that challenge, rather than just introducing and
promoting mobile banking for the masses.



While a workable solution can be created using no more than voice and text
channels, the real security of 2G GSM technology – as opposed to 3G/CDMA
networks and true internet banking that just uses the mobile phone as a
terminal – lies with an obscure protocol known as unstructured supplementary
service data (USSD).

If you have used callback or balance checking on your phone, using odd
entries that begin with an asterisk, those queries have been going directly
from your handset to the MNO’s servers via USSD. With a little tweaking and
some secure integration of the operator’s severs and your bank’s servers,
USSD can be used as a secure channel for transactions.

Most of the mobile banking solutions use USSD or STK (SIM application
toolkit) to create secure, verifiable channels for transactions. Although STK is
claimed to be more secure, it has the limitation that changes and upgrades
require either that the SIM be exchanged or that the SIM, phone and network
is set up to use secure SMS SIM updating.

In Africa and other developing economies, USSD has proved sufficiently
secure and robust to underpin mobile banking without having the update
problems associated with STK.

A second area which has been a great challenge is authentication – making
sure the user really is the right person. This is not a small matter. To take
online credit card transaction problems as an example, banks in South Africa
report a 77 percent increase for 2011, bringing the fraudulent transaction
amount for “card not present” to around ZAR140 million for the year.

The issue is not identifying the phone. That is what a SIM does. The simple-
seeming SIM does a few other things as well. It has its own unique serial
number (ICCID), the subscriber identity (IMSI), and two passwords (the user
PIN and the “unlock PIN” password or PUK). As far as device identity
verification goes, a SIM is a fairly comprehensive solution.

As far as network and system security goes, there is encryption, as with any
remote banking solution, and use of secure SMS and TAC (transaction
authorisation codes, often called one-time passwords or OTP).

Verifying the actual user is less certain. The standard is to use two-factor
authentication, where one factor is something the customer has (like the SIM)
and the second is something the customer knows (like the bank PIN or some
other password-style datum).

This style of authentication is still the most common globally although it has
the obvious flaws that the assumed customer may not actually have the SIM
(it could be stolen or used by unauthorised persons) and the PIN or password
could be compromised where insiders in the system have leaked the
information.



The chances of these happening are small but they do happen. However,
what cases that have been made public prove is that auditing fairly rapidly
identifies the problem and corrective action happens quickly. As with all
security matters, there is no perfect solution that is still user-friendly enough to
gain wide adoption, especially among customers who are not experienced
with technology.

Mobile banking in many parts of Africa has been a success. It continues to be
a necessary and well utilised service in South Africa, the Great Lakes region,
Nigeria, Ghana and many francophone countries.

If it is to build on this success, mobile banking needs to be rolled out in
countries that are at lower levels of technology and infrastructure maturity. It
also has to deal with an unknown but significant number of potential
customers who still lack access to mobile phones. These are often the people
who are not in a position to take on paid-for services. Global charities and
NGOs are playing important roles in this area.

Even so, mobile banking across Africa has already been a surprisingly well-
adopted solution that drives economic progress and upliftment of
disadvantaged communities.



10. The African MVNO – spent force or an idea before its time?

It seems obvious at first sight that the MVNO model could work in Africa. It is
not yet happening and that brings us to discuss the reasons why.

The art of good business is being a good middleman. This might not be the
only factor but it is a common element in many transactions.

An MVNO is pretty much the ultimate middleman. Such a company need not
own any infrastructure, buying network access from MNOs as required. It
might even outsource its admin and billing operations to a specialist third
party called a mobile virtual network enabler (MVNE).

All it needs to “own” are customers. This can be in terms of contracts signed
or, if the MVNO has a home location register of its own, on the more familiar
basis of owning mobile phone numbers for subscribers.

The MVNO concept was originally driven by the idea that competition would
be increased if national mobile markets had openings for wholesalers as well
as the massive network operators that – simply because of the enormous
capital required – would always be few in number. This model was launched
in Denmark in the early 1990s. It was successful there and has, over the
years, been launched in many other countries. There are over 500 companies
running MVNO operations worldwide, including a number of MNOs who run
MVNO operations in parallel with their core activities.

Broadly speaking, MVNOs typically target consumer markets with attractive
“loss-leader” price offerings. There are more specialised operations that target
specific markets with equally specific value propositions: business and
enterprise markets; branded offerings to niche, brand-conscious markets; ad-
supported networks that offer good prices because of the revenues they get
from advertising; and ethnic (typically expat) operations that offer very good
prices for people to phone their home countries.

Any one of these MVNO models has relevance in African markets. Obviously,
with low-income subscribers, call cost is a primary concern. Businesses
always look for savings. Consumers in Africa are very brand-aware, despite
their limited means. Advertising seems questionable until one considers that it
is hard to get the message out on a continent where other channels (print
media, TV, cinema, even radio) are limited in reach or very segmented – and
mobile is a pervasive and inexpensive channel. As for ex-pat services, Africa
has some of the largest migratory labour populations in the world.

On top of all that, virtual operators would seem a very good fit in a region
where existing networks have been dominated since inception by one or two
main MNOs, sometimes originally state-owned, and there have been even
fewer opportunities for other operators to break into the markets than in the
EU or elsewhere.

However, MVNOs have not been a great success in Africa.



The primary reason is that the African market is still a significant growth area,
unlike the mature markets of the first world where MVNOs have succeeded by
offering more competitive prices and snapping up disaffected customers from
the major MNOs. Demand exceeds supply in Africa and the MVNO concept is
focused on a situation where there is little or no surplus demand. Also,
ARPUs in Africa are often below the critical point for sustaining MVNO
offerings. That is a hard figure to quantify but it is clear that MVNOs will
succeed where potential consumer spending is greater than the average
MNO cost. It is notable that Virgin Mobile succeeded in the UK, closed in
Singapore, was sold off in the US and is not a major force even in a
comparatively affluent country like South Africa.

There is also the consideration that MVNOs really are aimed at surpluses in
every area except consumer demand. They do succeed where there is
surplus income for more mobile services and surplus network capacity that
can be leased in bulk deals at preferential prices. Africa is not there yet,
despite the unbundling of infrastructure that has been seen in recent years.
Those network assets were not unused. They were merely not sufficiently
profitable for the MNOs who owned them.

The last hurdle for African MVNOs is dealing with legislation and regulation.
The continent, as a whole, is still shaking off the limitations of state control of
key telecoms assets and deregulation is proceeding somewhat unevenly with
significant differences in the process between individual countries. That much
could be said for the global MVNO industry as well, with the EU and its strong
support for the concept being a notable exception.

What we have learnt in 20 years since the first MVNO launched and the 10
years since such operations became commonplace is that the industry goes
through certain phases.

Initially, it follows the established MNO model, without major differences in
what it offers apart from better prices. Then it becomes aggressively
competitive on prices to gain market share. That leads to some MVNOs
becoming unviable. They get absorbed by other operations, including the
MNOs – but the overall impact is lower prices across the board from all
players. After the necessary M&As have reduced the number of operators, the
differentiators become unique brand offerings and niche markets, as well as
the attractive pricing.

If that is a reasonable model of the adoption curve, where exactly could we
place Africa?

The answer is complicated. It will depend on exactly which country we are
talking about. Among the 54-odd countries in the region, there are major
differences in per-capita income, current maturity of infrastructure, relevant
legislation and regulatory requirements and even the on-the-ground basics of
consumer needs and demand.



An objective analysis must conclude that the MVNO model can work in Africa.
It has many advantages that are just as – or even more – applicable in that
region as they are in developed markets where MVNOs have become
entrenched with anything between 10 and 20 percent market share. Some
MNOs would be quite happy with such figures.

At the same time, an objective view must note that the caveat is “not yet”.

The critical conditions of saturated demand, excess capacity and flexibility of
disposable income have not yet been met across the continent. In specific
countries or locations within those countries, MVNOs can survive. But broad
adoption of the model is a future prospect that awaits greater maturity of the
continental markets and infrastructure.

A warning from history - Virgin in Singapore
Just nine months after launch, in July 2002, Virgin Mobile pulled out of Singapore leaving
network operator Singtel with a loss of about USD 25.6 million. At the time Ivan Tan, as
SingTel’s spokesman, said that the one-off charge allowed for the fact that not all of SingTel's
initial USD 50 million investment had been spent. According to Tan, the charge was in
addition to operational losses made by the venture in the previous financial year.

At the time the two said in a joint statement: "Both the Virgin Group and its partner SingTel
view the market [as] too saturated to sustain an otherwise successful virtual network operator
model. The subscriber net growth for mobile phone operators in the Singapore market has not
been sufficient to sustain a new entrant in this mature market place."

Virgin Mobile began its operations in Singapore in October 2001 and signed-up some 30,000
customers by the time of its demise, compared to the 1.8 million it had in the UK, and 220,000
in Australia. This compared to SingTel with some 1.4 million subscribers, MobileOne Asia with
about 900,000 and StarHub 350,000.

Prior to the closure, SingTel Mobile’s CEO Lucas Chow in March 2002 had claimed that
Virgin was not communicating its value proposition to the market well enough. Chow had
been quoted as saying: "They are behind what we hoped that they would do. There are many
reasons for that. I think the management team are putting effort in terms of earning their seat
at the table".

"The Singapore market is actually a very sophisticated market and the users have a certain
set of expectations and when you do not deliver that set of expectations, it is very difficult to
actually get new subscribers," he added. He said that while Virgin Mobile's strategy is
"unique", the company may need to brush up on getting its message across to the market.



11. Letting go: deregulation of African telecoms

The benefits of deregulation are undeniable: improved economic growth and
facilitated participation in the global economy. But the path to that utopia has
many branches and there is no benefit that comes without a price.

Before discussing the current status of telecoms deregulation across Africa, it
is worth noting some history, since that still has a significant impact today.
While most countries on the continent have been in a post-colonial phase of
development for some 50 years, the legacy of the past is still there. In many
cases, centralised control of strategic assets such as telecoms by colonial
powers was initially replaced only by centralised control under the new
independent governments. Obviously, this was a change in name but not in
structure, purpose or process.

With few exceptions, privatisation and free-market competition ran counter to
the socialist manifesto supported by many of the new governments.
A later phase started in the 1990s, with African governments looking at a
larger, more capitalist world than they focused on before the collapse of the
Soviet Union. This also followed on the success of deregulation in developed
economies and the growing pressure from international bodies – and trading
partners – to meet open and fair-trade standards. It also provided a useful
boost for government coffers although commentators would talk about “selling
off the silverware”.

The largest consideration in telecoms deregulation, which is both a legacy of
the past and a very present practicality, is that telecoms has been a cash cow
for every country. Run by government monopolies at non-negotiable prices,
telecoms was a zero-sum game with only one possible winner.

Despite the inexorable pressure to privatise and deregulate, governments
have generally not leapt at the opportunity, either phasing it in on extended
time scales or ensuring that licensing regimes are imposed to fill the gap
created by lost revenue from citizen consumers.

This has not been a simple process and it is far from resolved today. It has
also been a net inhibitor of investment and new technology infrastructure
deployment.

If there is a path to achieving Africa’s stated goals of social and economic
upliftment without unacceptable losses for state revenues, it could be said that
the continent stands at a fork on that path today.

Put simplistically, the choices are: hold on to local control and slow the
progress towards working in global markets on an even-footing basis; or
surrender to foreign interests for expedient reasons and hope the results
justify the decision.

Despite all the debate and agreements of the last several decades, the
African Union – including other regional groupings such as SADC, ECOWAS



and the EAC – has often failed to enact the unified vision of progress spelt out
in agreements such as NEPAD.

While critics see this failure as either a lack of political will or the triumph of
parochial over regional interests, there is a cold economic reality behind it.
Africa lacks the financial services and resources required for cross-border, let
alone continental, projects – especially those that require high-technology
infrastructure on a massive scale. Few African countries or companies have
the resources to even become players in telecoms without resorting to foreign
loans which are hard to find in the current economic climate and have a lot of
small print.

As a result, governments have given way to a new colonialism where finance
and interests come from overseas, including both private-sector companies
and foreign governments.

It is no surprise that the major players in the evolving telecoms markets
across Africa are major EU companies (leveraging historical ties), South
African companies (with a common history and regional influence) and,
increasingly, India and China.

Once again, Nigeria is a telling case study on all these issues. The country
was under military rule until 1999 and centralised control was the order of the
day. The national service provider was NITEL and the regulator (NCC) had a
somewhat symbiotic relationship with the parastatal monopoly.

Deregulation began with the democratic election of a civilian government.
Fourteen years on, NITEL is still not privatised, as was intended; the NCC has
a slightly ambiguous role between protecting state and consumer interests
that may not always agree; and the major players in the telecoms space
(predominantly mobile) are mainly foreign – from South Africa, India and
China.

This is not to say that Nigerian telecoms deregulation is a failure – far from it.
The country is the most populous nation in Africa, has a strong economy and
has achieved remarkable uptake of mobile services, approaching saturation. It
is still regarded as one of the top mobile growth areas in the world.
The point is that Nigeria’s progress has not been a simple straight-line graph
and now its telecoms market is serviced largely by foreign companies.

Telecoms remains that country’s second-largest source of revenue, after oil
and gas. That is another industry where the players are foreign but the state
gets significant income.

Given the specific constraints in Africa, both historical and economic, it is not
the general rule that full, free-market privatisation will proceed as it did in the
UK or Australia. Africa tends to a hybrid model where private-sector interests
are involved but governments retain some control and important revenue.



This brings us back to the old criticism of selling off the silverware and, at the
present moment, quite what involvement with BRICS entails.

The 2010 inclusion of South Africa in the former bloc of Brazil, Russia, India
and China was surprising, despite close ties forged in G20 activities. The
country has about a third of the population of Russia. In terms of size of
economies, the other countries are in the top ten but South Africa is at the
bottom of the top 30. But it is the gateway to Africa, in truth as well as stated
in its own marketing.

It would be fair to assume that BRICS’ interest in Africa is not just a matter of
finding markets for the member countries’ products. Africa is still almost
exclusively centred on resource economies: oil, gas, precious metals and
minerals. China controls about 95 percent of world production of the rare-
earth metals used in mobile phones, computers and energy-saving lightbulbs.
Africa is the only other place where these are readily found in quantity.
Canada has reserves but extracting them would be costly.

So there is a new Grab for Africa in progress and quite how telecoms
deregulation plays out is profoundly affected by this, with outcomes that are
difficult to predict.



12. Risks and realities

Africa is not the only part of the world where corruption can be an issue. The
real question is: how do corporate investors deal with it?

Before discussing this, it needs to be made clear that corruption of one type or
another is a concern everywhere. Even in well-regulated economies and
carefully monitored jurisdictions, it still happens. That applies in countries
where there is a traditional respect for the rule of law as well as in those
where traditions are somewhat more cavalier and there are business
approaches that have a frontier-society attitude.

Then there is the cynical but possibly realistic view that major international
deals are especially prone to some element of corruption in how they are
negotiated and closed. Such deals involve large amounts of money,
governments that precariously balance their public image and their real
agenda, powerful individuals and organisations that are closely tied to
governments and the often adversarial public- and private-sector interests.

The real issue is not just corruption or even what type or degree of corruption
exists.

However great an equaliser globalisation really is, it has not yet created a
uniform culture across the world. Individual regions and countries have
equally individual characteristics. Corruption of some type, from subtle to
obviously venal, is sadly an ubiquitous risk factor and different regions have
different attitudes about it.

What really impacts business deals is the perception of that corruption. When
it comes to FDI, a foreign government or company stands more to lose from
reputational damage than even the direct costs of deals cancelled or assets
expropriated. Executives in both the public and private sectors are mindful of
this, as are their shareholders and stakeholders. Should a questionable deal
become public knowledge, there can be extensive damage.

With this risk-averse backdrop, it is worth looking at the figures from
Transparency International (TI), the global NGO whose figures focus on
perceptions of corruption, rather than just dealing with instances that have
become public knowledge.

Tellingly, TI’s corruption “barometer” reports that the situation has
deteriorated: 60 percent of those surveyed in 2010 say corruption has
increased in the preceding three years while 25 percent report actually paying
bribes.

Africa, as a whole, is perceived as worse than South America, is on a par with
Russia and has two of the ten worst-perceived countries in the world. The
best-perceived African country (Botswana) only makes 32 on the TI rankings,
while regional superpowers South Africa and Nigeria come in at 64 and 143
respectively, out of 182 nations reported.



There is also reporting on the “supply” side of international bribery, the
likelihood of paying a bribe to get a contract – the above figures being the
“demand” side, the likelihood of expecting a bribe. In terms of sectors,
telecoms gets 6.7 out of 10, looking at worldwide opinion. That is compared to
least corrupt agriculture at 7.7 and most corrupt public works at 5.3 – and only
slightly better than the arms industry’s 6.6 score.

Just to underline what was earlier stated about corruption being a global risk,
the “cleanest” countries whose companies were least likely to pay bribes
(Netherlands and Switzerland) only score 8.8 out of 10 and South Africa’s
companies only score 7.6, Russia’s score of 6.1 being the lowest.

These figures are not cheerful reading and it should be remembered that
Africa is regionally at the lower end of the scale in terms of world perceptions.
It also has to be noted that telecoms corruption, where it happens, is not a
victimless crime. Corruption involving armaments or pharmaceuticals might be
more high-profile and emotive but the downstream effects are similar. As TI
points out in its manifesto, corruption – “Corruption is the abuse of entrusted
power for private gain” – has the knock-on effects of perpetuating poverty and
slowing down economic development.

Where telecoms deals are blocked, delayed or ineffectively implemented, the
benefits to the communities involved are reduced or negated. This is
especially a problem in a region of the world where better access to
communications holds out the promise of all parties being enabled to do
global business on an equal footing and people getting the resources to
improve their education, employment prospects and their living standards.
Of course, beyond the ethical and philosophical issues are the practical
business realities. How should foreign companies approach the issue?

It is not as if Africa is without potential. There are resources aplenty and a
nearly one-billion developing population of potential consumers. Telecoms
plays an integral role in enabling development at all levels, especially on a
continent where familiar IT networks are few, limited to urban areas and often
well below global standards for QoS.

In terms of FDI, there has been an understandable slowdown for the last
couple of years, with UNCTAD (United Nations Conference on Trade and
Development) reporting almost zero growth. It also highlights Africa as a
marginalised region with about half the population living on about USD1 per
day.

OECD figures show the same plateau pattern except for G20 countries, which
are slightly ahead of the curve. The developing world is still developing,
obviously – and it is a growth point. The active role of Indian and Chinese
companies in Africa is at the forefront while EU and US investments have
slowed along with their national economies. These investments from
expanding BRICS economies are strong circumstantial evidence that Africa is
a place to invest if the funds are available.



To take advantage of the growth opportunities in Africa, foreign companies
have to factor in corruption as part of their risk analysis. This is not a new idea
but it is a slippery concept to quantify. It is also necessary to look at specific
cases: Botwsana has a reputation on a par with most of Europe, while
Somalia has the dubious honour of being rated the most corrupt nation in the
world.

Finally, corruption is the elephant in the room. It is not something most
businesses would openly discuss. But it is a very real variable in the equation
if one wishes to explore developing economies anywhere, Africa included.



13. Positive prospects in Africa

Despite the global recession and one of the lowest per-capita income levels in
the world, BRICS countries – and others – are investing in Africa ahead of
other markets. Why are they doing this?

In the previous article, we looked at the downside for foreign investment in
Africa. The fact remains, however, that expanding economies with money to
spend are focusing on Africa: China, India and South Africa to mention just
the obvious ones.

Africa is full of surprises. Over 2,000 years ago this was noted by Aristotle and
repeated by the Roman writer Pliny the Elder: “There is always something
new coming out of Africa”. Admittedly, the phrase was applied in the study of
natural history but it has often been repeated since in other fields.

What has been seen over the last 50 years is a boom in sought-after natural
resources: oil, gas, platinum-group metals, rare-earth group metals. This
eclipses the original resource markets of gold and gemstones. It is also worth
mentioning Africa’s massive reserves of coal and industrial metals such as
iron, zinc and copper.

Then there is the socio-economic surprise of mobile phone adoption across
the continent. It seems obvious, with hindsight, why this was such a success
but to dismiss it simplistically ignores the massive changes in consumer
attitudes that were involved – as well as not a few innovations in service
delivery that were pioneered in Africa, free voicemail and text banking
services to name just two.

The African telecoms industry is at a tipping point at present. As always with
such a moment, it is hard to say when the massive change will happen. The
outcome is also uncertain but only because it depends on human decisions –
mainly government decisions – about whether to leverage the new potential
effectively and quickly or cautiously delay the developments and risk losing
momentum.

The potential is partly that the rest of the world is, as always, interested in
doing business with Africa for its own advantage. The search for resources
and markets is why China and India are so busy in Africa. But the real
potential for Africa is a step beyond that.

Over the last decade, Africa’s connectivity – once the worst in the world – has
jumped by a factor of five to 20TB. Ten years ago, outside of the North Africa
states, there was only one cable and heavy reliance on satellite services.
About 95 percent of the internet usage was in South Africa alone, with some
routing on to neighbouring countries.

Today, there are five cables in use or shortly to become usable, with two new
ones coming in this year. In 2013, the large South Atlantic Express cable will



become operational, connecting Africa to Brazil and bringing capacity to over
30TB.

Five years ago, much of this was blue-sky planning. Now, these cables are
landed and lit.

The burning question is: what will Africa do with all that bandwidth?

Initially at least, it will not be used for African IT networks. Outside of a few
countries and often limited to urban centres, these simply do not exist. If you
added together all the traditional IT usage of the continent, including high-
usage countries, big businesses and academic institutions, it would only equal
a fraction of the bandwidth soon available.

The channel will be mobile, with another of Africa’s surprises taking centre
stage – unexpectedly high adoption of smartphones and a number of 3G
rollouts already in progress in areas that once were consider hopeless for
basic 2G. There are also a number of countries already exploring LTE and
4G: Egypt, Libya, Kenya, Nigeria, Namibia and South Africa.

The problem is getting these services out to the population. Operators can
make money in high-density locations like Lagos or Johannesburg. To take
the services out into the countryside or provide cross-border connections for
the often less affluent landlocked countries requires more than just a
commercial incentive: it requires regional initiatives, political will and private-
public sector partnerships.

There is no lack of vision. African countries all understand the benefits of
better communications. Many lack the economic resources to invest in
network infrastructure while they deal with more pressing issues. Others are
reluctant to deregulate and create an environment attractive to foreign
investment and the conditions that make PPPs viable.

This is the tipping point. The demand is there from international trading
partners, international technology vendors, operators (both local and foreign)
and from citizen consumers. It just awaits more governments to follow the
lead of those West, East and Southern African nations that have already gone
the route of deregulation. Africa has been Alcatel-Lucent’s best market for the
last three years, as it reports. Now it should be the turn of network equipment
vendors and operators to build on that foundation.

There are some backbones in place. The Great Lakes countries have theirs,
there is the Central African Backbone to the west and Southern Africa is still
supplied mainly from South Africa.

More work needs to be done. Like international cables, backbones need to be
hooked to distribution, local switchgear and towers that are not yet there and
costly to build.



This is the other side of the PPP coin. Operators will build distribution
networks if the regulatory environment is conducive to such investments.
Private sector entities will expect to retain ownership and control of their
assets, as well as some latitude in terms of pricing.

All this proceeds in phases. Landing of cables is a necessary first step.
Establishing a backbone network is next. Then comes local distribution.
Beyond that deregulation is needed to unbundle the local loop and create a
competitive, free-market environment and, last but not least, to free up
spectrum for additional 3G and, eventually, 4G services.

While it seems that there are challenges aplenty, as we have said before, a
problem is just an opportunity seen the wrong way.

There is massive market potential in Africa and the real question is whether it
will be EU companies with strong historic ties or the assertive members of
BRICS who will succeed in building on that.

One thing can be certain. There will be more surprises from Africa.



14. African Mobile Market Data

14.1.1 Africa Mobile Subscribers by Region 4Q 2010

Source: industry sources, Blycroft estimates c. Blycroft 2012

14.1.2 Africa Mobile Subscribers Q-o-Q % Change by Region 4Q 2010




14.2.1 Africa Top 20 Mobile Operators 4Q 2010

Rank State Operator 4Q10 Africa % Share
1 Nigeria MTN 38.7 7.1%
2 Egypt Vodafone 31.8 5.8%
3 Egypt MobiNil 30.2 5.6%
4 South Africa Vodacom 25.3 4.7%
5 Nigeria Glo Mobile 19.6 3.6%
6 South Africa MTN 18.8 3.5%
7 Kenya Safaricom 17.5 3.2%
8 Morocco Maroc Telecom 16.9 3.1%
9 Nigeria Airtel 15.8 2.9%
10 Algeria Djezzy 15.1 2.8%
11 Morocco Méditel 10.8 2.0%
12 Sudan (north) Zain 9.9 1.8%
13 Algeria Mobilis 9.0 1.7%
14 Ghana Scancom (MTN) 8.7 1.6%
15 Tanzania Vodacom Tanzania 8.7 1.6%
16 Egypt Etisalat Misr 8.6 1.6%
17 Libya Libyana 8.6 1.6%
18 Algeria Nedjma 8.3 1.5%
19 South Africa Cell-C 7.3 1.3%
20 Nigeria Etisalat 6.8 1.2%

Others 226.9 41.8%

Grand Total 543.4 100.0%


14.2.2 Africa Top 20 Mobile Operators 4Q 2010




14.3.1 Africa Top 20 States by Mobile Subscribers 4Q 2010

Rank State 4Q10 Africa % Share
1 Nigeria 87.30 16.1%
2 Egypt 70.66 13.0%
3 South Africa 51.61 9.5%
4 Algeria 32.38 6.0%
5 Morocco 31.98 5.9%
6 Kenya 24.97 4.6%
7 Tanzania 20.98 3.9%
8 Ghana 17.02 3.1%
9 Sudan (north) 16.85 3.1%
10 Cote d'Ivoire 14.71 2.7%
11 Uganda 14.29 2.6%
12 Libya 11.82 2.2%
13 DRC 11.71 2.2%
14 Tunisia 11.14 2.1%
15 Angola 8.89 1.6%
16 Cameroon 8.36 1.5%
17 Senegal 8.34 1.5%
18 Zimbabwe 7.88 1.5%
19 Mali 6.88 1.3%
20 Mozambique 6.64 1.2%
Rest of Africa 78.97 14.5%
Total 543.40 100.0%


14.3.2 Africa Top 20 States by Mobile Subscribers 4Q 2010



Africa Mobile Factbook 2012

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