“The mobile market in Africa has had ten to fifteen years of good growth. Penetration levels are at 50%, but with up to 30% of consumers using multiple SIMs, real penetration is below 50%. Nonetheless data penetration, internet penetration, is still no more than 10%, so overall the opportunity is still very significant,” declared MTN Group CEO Sifiso Dabengwa.
Challenges to long term sustainability identified by Dabengwa included aggressive price competition (“operators selling product below cost is a bit of a problem”), and the need to avoid regulations stifling the industry, as seen in Europe where the market capitalisation of telecoms companies is in many cases in decline.
“What is the sustainable number of operators in any one market?” Asked Dabengwa, referencing countries with five of six operators serving populations of 30 million. “I’m not sure how many operators in Africa are actually profitable.”
“Lots of African operators are making losses,” agreed Manoj Kohli, CEO of Airtel Africa. “The time has come to turn around Africa into a profitable sustainable, healthy business. We’ve placed a big bet on Africa, which has cost us US$13.5bn in cash.”
“We think Africa is a great market with a great future, and a great frontier. With population of two billion, median age of eighteen, we can grow voice, data and m-commerce.” Kohli added that it was tough to maintain infrastructure in Africa, with site running costs up to US$5,000 per month at off-grid sites in some markets, compounded by high taxes and levies.
“Operators are losing money at the point of acquisition, which leads to taking multiple SIM cards,” continued Airtel’s Kohli, adding that he had been surprised at the low elasticity in Africa, with usage of minutes per month being half India’s.
“Competitive intensity can be harmful rather than fruitful,” said Kohli, agreeing with Dabengwa’s concern about saturation of markets by adding “While Africa’s 54 countries can digest more operators, countries with 10-25 million population and three to five operators are a non-viable situation. Governments and regulators should build agenda of consolidation, otherwise a lot of operators’ investments will be pulled back, which will not be good for Africa.”
I believe if Africa is to achieve full coverage of voice and data, all towers have to be shared – Manoj Kohli, CEO, Airtel Africa
While they agreed on competition, the CEOs of MTN and Airtel Africa disagreed on the regulation of infrastructure sharing. “We expect regulators to lead on infrastructure sharing,” suggested Airtel’s Kohli.
“I don’t agree that regulators should be involved in infrastructure sharing,” said MTN’s Dabengwa. “Operators should do that among themselves.”
Continuing the discussion of infrastructure sharing, Kohli added: “I believe if Africa is to achieve full coverage of voice and data, all towers have to be shared. Towers are expensive and the revenues in small towns are small. Similarly, for voice and data we need fibre. No single operator can bear the cost of fibre,” added Kohli, referencing a consortium of three operators and government in Tanzania as an example model. “Tower and fibre sharing will pave the way for fantastic penetration tomorrow.”
MTN’s US$8 billion M&A war chest
Speaking at the Reuters Africa Investment Summit, MTN Group CEO Sifiso Dabengwa said: “Growth through mergers and acquisitions is still an important part of our strategy. Anything between ZAR35.56 billion and ZAR71.12 billion is something that we could look at.”
Q&A soundbyte: Airtel offers shared towers in all 17 countries
When challenged by Nic Rudnick, CEO and Founder of Liquid Telecommunications, that Africa’s mobile network operators were sharing with each other but not with smaller ISPs trying to enter new markets, Manoj Kohli responded: “We have towercos in seventeen countries. Give me a list of countries and towers you need, you’ll get it in 24 hours!” Perhaps Africa Towers have a few more towers on the market than we realised!