News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Monday, 23 March 2009

Are some African markets already contested by too many cellcos?

In yesterday's post, I tried to examine an idea articulated last week by MTN CEO Phuthuma Nhleko in an interview with the Financial Times - that there will be an African showdown leading to "fewer players with larger footprint, bigger balance sheets, more economies of scale".

Nhleko notes that 2008 saw more players entering the continent's smaller markets, some of which now have three, four or five competing operators in the mobile space.

One notable example must surely be Benin. The Francophone country ranks 31st in Africa in terms of the size of its population. Five mobile operators now compete in a market which is home to around 8 million people. The fifth entrant, joining the fray in June last year, is a subsidiary of Nigerian cellco Globacom. Yesterday I recounted some of the difficulties and delays faced by Globacom owner Dr. Mike Adenuga on the company's home patch. The Benin market has also presented challenges for the Nigerian company. A Wireless Federation article in September described how Globacom was protesting about radio spectrum allegedly withheld by the Beninoise Government. The article cited an anonymous Globacom insider who reported urgent appeals to the state to release spectrum by state-run MNO Libercom. "Sources," said the article "disclose that most of the spectrum released to Globacom so far was in the 1800MHz band but not the promised 900MHz band and this could disrupts the operator’s plan for expansion." Network expansion, in terms of capacity at least, might well be high on the agenda for Globacom's Benin operation - according to an IDG article published not long after the operator launched services, the Nigerian cello sold 600,000 SIMs in fewer than 10 days. By December Globacom Benin had around 700,000 subscriptions according to Informa Telecoms & Media's World Cellular Information Service, outstripping two much longer established operators - the aforementioned Libercom and locally-owned Bell Benin Communications. Presumably, in the consolidation scenario envisaged by MTN's Nhleko, it is these strugglers that would be more likely to fall by the wayside than Dr. Adenuga's Globacom Benin.

With four mobile operators serving a relatively small population, the Central African Republic, one of the poorest countries in the world and among the ten poorest countries in Africa, seems to me like another quite congested market. The country's 2007 census recorded a population of around 4.2 million, the 36th largest in Africa. Mobile penetration is very low, standing at just over 11% according to December figures from WCIS. This would suggest that, despite the rather limited overall market size, there remains a decent growth opportunity for each of the existing competing mobile operators. The likely ARPU from further waves of mobile service adopters, however, is surely very low: the CAR is heavily dependent on foreign aid and the presence of numerous NGOs which provide services that the country's Government is ill-equipped to deliver to the populace. The very presence of numerous foreign personnel and organisations in the country, including peacekeepers and even refugee camps, provides an important source of revenue for many citizens. While the country is self-sufficient in food crops, much of the population lives at a subsistence level. Political instability has also hampered development. As recently as 2006, over 50,000 people in the country's north-west were at risk of starvation due to protracted violence. This looks like a daunting set of trading conditions for the four mobile operators. Of these, the one to join the market most recently was France Telecom-backed Orange CAR, which has rapidly built a 25% share of the market since launching its commercial activities in December 2007.

Another well-funded later entrant in the CAR is the Moov-branded Atlantique Telecom operator, part of a group of African operations in which the UAE's Etisalat now holds a 70% stake. The CAR operation has been in business since 2005.

While the overall size of the CAR mobile market has grown quickly from a low base since the newer competitors set up their operations, with mobile penetration growing from just 1.30% at the end of 2004 to today's double-digit level, Orange and Moov have massively eroded the market share of the two longer-established MNOs. Of these, Telecel Centrafrique may now be in a better position to fight back, having been reacquired last year by Orascom Telecom.

If these two countries are truly representative, it would appear that MTN's Nhleko is quite right to contend that competitive conditions in smaller African markets may not be favourable for the support of as many competing MNOs as are currently in business. However, as last week's FT article noted, following the collapse of merger talks last year with India’s mobile groups, Bharti Airtel and Reliance Communications, Mr. Nhleko himself may be under pressure to prolong the whistlestop expansion of his six-year tenure. Mr. Nhleko acknowledges that "to maintain our growth, somehow we need to try and find larger markets". The FT piece insists that he appears focused on African opportunities, such as long-awaited new licences in fast-growing Angola and Ethiopia, one of the few countries that maintains a state-run monopoly. MTN’s balance sheet, says the article, "shows it is poised to pounce."

Let's see if further African expansion by MTN and other powerful groups this year drives the widely predicted wave of consolidation across the continent's mobile markets.


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