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

Tuesday, 28 April 2009

Rural VAS tipped to grow in India

Late last week, writing about mobile content/VAS in emerging markets, I wondered whether entertainment or highly practical applications offer the best growth prospects. With this in mind, I noticed today that back in February, Kunal Bajaj of BDA (a consultancy business which originated as an advisory firm specializing in China's telecommunications/media/technology sector) was tipping mobile applications that enhance productivity for people living in India's vast rural hinterland.

Kunal was a highly rated contributor to one of the first Com World Series events it was my pleasure to host while working with Informa Telecoms & Media - the COAI-endorsed GSM>3G India 2007 conference and exhibition in Mumbai. I found the presentation he made then (on an unrelated theme) highly compelling - the piece he wrote on February 2nd, which rounds up BDA's 2009 predictions for the telecoms sector is also a good read.

Kunal Bajaj believes that "rural VAS, especially affordable of ad-supported, local language application" of the productivity-enhancing variety "will emerge as a key differentiator in service offerings as operators pursue rural expansion more aggressively."

Kunal feels that a key driver for the development of such services is the already low level of tariffs and margins in rural areas. Basic voice and messaging, it seems, are not enough as operators penetrate the markets beyond the saturated urban centres. Of the applications I mentioned last week, Kunal appears to agree that "information-centric contextual applications, such as information about commodity prices, crop and weather data" look promising.

MTN eyeing Zimbabwe?

Back in March, I wrote a short piece here about Zimbabwe's mobile market. I noted that given the famously poor state of the country’s economy, it was not surprising that Zimbabwe remains a laggard in terms of mobile penetration, even in the context of Africa, which is itself the continent with the lowest cellular teledensity. I reported a mobile penetration rate of just 12.26% (by December 2008) according to the World Cellular Information Service database maintained by Informa Telecoms & Media. As of March 2009 that figure has crept up to 12.82%. Mobile penetration for Africa overall stands at 40.05%.

In March, I argued that it would not be until there is a serious improvement in the country's overall prospects that major telecoms groups would be tempted to invest in Zimbabwe. To date, the only big player brave enough to contend with daunting challenges such as the world's highest rate of inflation has been Orascom Telecom, whose Telecel Zimbabwe operation has a 14.39% share of the market according to WCIS.

The CEO of state-owned mobile operator NetOne Cellular, however, seems to be bullish about the prospect of a proposed Government plan to sell his company to foreign investors, according to a recent Telegeography article.

NetOne boss Reward Kangai is quoted as saying that there is "huge interest" in the proposed privatisation and that "the unnamed interested parties were already present in several African countries." Kangai concedes that the operating environment might deter new entrants and claims that "the Government is considering reducing equipment taxes for telecoms companies – currently as high as 60%."

A more recent Cellular News report picks up on speculation about the identity of potential strategic investors, contending that one of them might be South Africa's MTN. Rumours to this effect were apparently heightened when the company took a stand at a recent trade fair in the country. MTN's route into the Zimbabwe market, contends the article, would be a 60% share in Telecel rather than the privatisation of NetOne. MTN, then, does not seem to be one of the "unnamed parties" referred to by NetOne's Kangai.

Why would MTN consider such a challenging opportunity? MTN spokeswoman Nozipho January-Bardill is quoted as saying: "We have always said we are looking for value-enhancing opportunities and Zimbabwe presents us with one. Zimbabwe is our neighbour sitting there waiting. The Government is embarking on a reinvention of itself and has opened up to South African companies to go in and operate there."

MTN, then, seems to have confidence in the unity Govermnent's plans to lift Zimbabwe out of the extreme economic difficulties suffered in recent years. According to the Telegeography article, "the planned privatisation forms part of a wider effort to sell state assets in the oil and infrastructure sectors to raise desperately needed funds for an economy crippled by hyperinflation." The unity Government, which took office in February, does continue to face daunting hurdles on the road to improving the lot of its citizens. Mr Kangai is optimistic, however, stating that "Zimbabwe is open for business, investors will be able to start operations here at low cost."


Wednesday, 22 April 2009

Mobile operators - low TCO, smaller carbon footprint: the answer is blowing in the wind?

Wind/solar hybrid powered base station deployed by Avea: pic from Cellular News

By March this year, according to Informa Telecoms & Media, there existed over 4.1 billion mobile subscriptions globally. At the start of this decade, the number of global subs was just 482 million. Ten years earlier than that, there were fewer than 5 million subscriptions worldwide.

I feel proud to be associated with an industry that has grown so impressively, but am mindful of the challenges ahead as mobile operators seek to connect the next billion customers. These prospective subscribers are poor people with very restricted spending power. A popular argument put forward to explain factors responsible for keeping such people locked into poverty can be exemplified thus:
  • The earning potential of a semi-skilled handyman living in a shanty town on the fringes of a large African city is hampered by his not being able to advertise how he might be contacted by anyone wanting his services. He spends more time walking the streets asking for work than he does working and getting paid.
  • A farming community lives a largely subsistence lifestyle, growing crops to meet its own needs and selling the surplus to buy other vital goods and services. The farmers routinely fail to get the best price for this surplus because they have no way of finding out at which markets they they will find the highest levels of demand.
  • A person living in a remote community needs to register a birth or death in the family. The state bureaucracies have no touchpoint in the community so completion of this routine paperwork involves taking time away from productive activities to travel to a bigger population centre.
All of these problems can be resolved through access to telephony and/or the Internet. The handyman can write his mobile number and details of the services he offers on signs, placing these at road junctions or other prominent locations. I saw a lot of this kind of hand-made advertising on my recent trip to Kenya. With (mobile?) Internet access - or even just by making a few calls - the farming community can review market information and send its produce to where the best price can be commanded. In a small, isolated community provided with some form of Internet access, e-government solutions may obviate the need for long, expensive, time-consuming journeys.

Communications services, then, look set to have a vital role in alleviating this poverty. This role has been quite neatly explained by The Next Billion Network, an initiative incubated at the MIT Media Lab. The phrase used in the this group's mission statement is about deploying innovative mobile technologies which help poor people in developing countries to "reduce friction in their local markets from the bottom up". The Next Billion Network's founders believe that these new waves of mobile subscribers will make their voices heard—and connect to the global information network. "This will unleash a wave of entrepreneurship, collaboration and wealth creation, turning the newly connected into a powerful force in the world economy," the founders say, adding that "the kind of world that emerges from this transformation will depend on our ability to recognize it as an opportunity."

For mobile operators to continue to act as a catalyst for developments of this kind, they will need to resolve a number of challenges around keeping the total cost of service ownership low for poorer people in developing countries. These challenges are many and varied. The one referred to in the title of this post is around powering mobile networks in locations lacking reliable electricity grid infrastructure.

In emerging markets, cost-conscious operators have long been concerned about the OPEX implied by running diesel-powered generators to power off-grid base stations. The fuel itself must be bought and operators must also take fuel transportation costs into account - significant costs when fuel must be supplied to remote areas with poor roads

Solar power and wind power look like good alternatives - the power sources themselves are free and inexhaustible. Added to that, CSR-conscious telcos can bask in positive press coverage of their reduced carbon footprint.

In September last year, however, I read that trials of these technologies have largely been quite disappointing. My former Informa Telecoms & Media colleague Matthew Reed, the editor of Middle East and Africa Wireless Analyst, reported disatisfaction on the part of the GSM Association with the trialing of base stations powered by the sun and wind. The GSMA's Development Fund Director Dawn Haig-Thomas said: "There have been a number of trials that have failed, and we've been digging into the reasons," adding that "we've seen trials where the geography hasn't been correctly considered – where solar panels and wind turbines have been placed in inappropriate places, or not in optimum places."

In addition, Matt Reed reports, "many sites are also missing electronic control devices that manage power fluctuations or alert systems that tell operators to switch on backup diesel generators, if the base station is low on power, perhaps because it has not been windy or sunny enough."

Further, Matt writes, a big reason for the lack of take-up of alternative energy sources is that although operating costs might be low, the solar panels and wind turbines have historically been too expensive. In addition, notes Matt, "lots of solar panels were needed to power a base station, which would force operators to buy more land on which to site them." Wind generators, until recently, he notes, "were only manufactured with massive turbines that were more appropriate for wind farms than for small base stations."

Matt observed, however, that better solutions are becoming available. A number of deployments of wind and solar powered base stations have been announced in the month's following Matt's article. I have to assume that these deployments involve solutions to the kinds of problems Matt raised.

The most recent one that I know about is the deployment by Turkish mobile operator Avea of what it claims is the first hybrid wind/solar powered base station in the country - manufactured by Scottish firm Proven Energy. A Cellular News piece on this story this week quotes Erol Barendregt, Director of Turkish reseller Girasolar Türkiye, which installed the equipment: "The hybrid solution is the best option because the sun and wind resources have opposite cycles and intensities during the day. Wind and solar power are understood to be among the best natural alternatives to fuel based electricity generation. By using both in a system that is designed to supplement each other you get a continuous and reliable power supply."

Major telco sector vendors want a piece of the action in this space. In October, Ericsson, for example, unveiled a wind-powered 'Tower Tube' base concept developed in partnership with Vertical Wind and Uppsala University in Sweden. According to a Global Mobile Daily article at the time, vertical rotor blades work silently, minimising the load on the tower during operation.

A more recent announcement by the Swedish vendor, made in February, concerns its involvement in the development of solar-powered base stations. A GMD article dated February 18 notes that the Orange-branded mobile operator in Guinea is to deploy 100 solar powered base stations across the African country, in partnership with Ericsson. The base stations, says the article, make use of Ericsson's energy-efficient hybrid diesel-battery solution and solar panels, which will replace one of a base station site's diesel generators with a bank of specially designed batteries capable of handling a large amount of charging and discharging.

Chinese vendor Huawei also has solar powered solutions on offer. GMD reported in September that the company had deployed Pakistan's first solar powered base station for Warid Telecom, thereby enabling the operator to extend its network reach into remote areas of the country with limited access to the electricity grid.

Sri Lanka's Dialog Telekom has opted for a mix of solar and wind-powered base stations in trials designed to investigate the uses of several forms of equipment from eight different vendors. This was reported by GMD in February.

So there seem to be a few renewable energy developments going on in emerging markets worldwide. I could not comment to what degree these recent deployments and trials have addressed the concerns raised last year by the GSMA.


Friday, 17 April 2009

Mobile content in emerging markets: Which services offer the best prospects?

In a former role, I hosted a number of conferences and discussion events with a mobile content focus. More times than I care to remember, I grinned politely at the well-worn joke that 3G stood for Girls, Gambling and Games. The premise, of course, was that three areas stood out as being likely to generate decent revenues for anyone involved in the mobile content value chain.

Looking back, it now seems strange that these product areas were emphasised more than, say, mobile music services. My understanding is that while mobile gaming continue to be an important output of the wider mobile entertainment industry, in terms of revenues generated music is a much bigger deal. Gambling, too, continues to account for quite a small portion of overall mobile data revenue. In 2008, my understanding is the global revenue from mobile gambling services was around USD 200 million - vs. USD 10.1 billion for music services.

I always took the 'girls' referred to in the joke about 3G to be the kind of girls prepared to make their living through the provision of adult content. This segment is, of course, not to everyone's taste but I hear that the wider adult entertainment business looks set to be quite recession-proof. While mobile content value chain participants do make money in this space, writers of reports on mobile VAS seem to struggle to provide exact revenue figures and forecasts. This is because adult content revenues seem to be split by format (video, wallpapers etc.) and amalgamated into other categories. I assume this is due to a keenness for big brands not to be too closely associated with something that many customers will always see as morally dubious - while at the same time making money from it. I daresay significant sums change hands, but it seems a little bit tricky to know how much.

It's not something I've studied closely, but I've always assumed that the added value in specifically mobile content lies in... er... mobility, i.e. that the content is deliverable anywhere, anytime to the user's eyeball. This advantage around immediacy and availability was, I thought, why users would tolerate the limitations of the mobile phone form factor, i.e. a very small screen and, until fairly recently, annoyingly slow connection speeds. My own mobile content use is pretty much limited to catching up with real time football (soccer) scores when I am not near a PC or TV. While I am perfectly happy to do that in a public place such as on a train or in a cafe, I can't help noticing that people near me sometimes like to have a crafty glance at the screen to see what I'm up to - much as commuters peek at one another's newspapers. Were I in the market for adult content, I think I'd be a bit concerned about getting caught in flagrante by some curious member of the public. This seems like an inhibitor to revenue growth to me, but maybe I'm unusually squeamish or self-conscious.

It seems fair to assume that the kinds of mobile content likely to gain traction vary across world regions, in line with factors such as disposable income and cultural norms. With reference to the latter, gambling and adult content, particularly, are never going to fly in territories where they are prohibited by law. Even where that is not the case, the mobile VAS space is bound to look a little different from country to country.

The vast, growing Indian market is an interesting example. On a visit to Mumbai in 2007 I was told that the mobile content industry there is all about ABC - astrology, Bollywood and cricket: a trilogy of national obsessions. A company which seems to have taken this on board is Nokia, which started to get more deeply involved in the Indian market early last year by customising its Ovi-branded offering in line with these obsessions.

The international potential of Bollywood is being stifled by "the hefty upfront fees expected by local license holders and the questionable origin of much of the content", according to Informa's Ronan Shields, writing in Mobile Media late last year. Shields notes that "many players in the mobile industry are eager to export this content to the massive number of South Asians living in Africa, the Middle East, North America and Western Europe and offer it on phones in the form of wallpapers, ring tones and video clips." The article contends that the development of a truly international market for the content is being hampered by a handful of India-based licence holders that "are often loath to loosen their grip". According to Shields, this handful includes one particularly powerful player: "digital-content giant Hungama alone holds licenses for 70% of all Bollywood content, according to sources."

In terms of services which sell well within India, a good chunk of the action seems to be in ringback tones - and more revenue potential from this kind of product might lie in other emerging markets. Mindful of this, Vodafone has, according to a recent Cellular News story, signed a deal with India's OnMobile to offer ringback tones across a number of territories. ­"Currently," states the article, "millions of Vodafone Essar customers in India use OnMobile's ring back tone service, which will be rolled out across Vodafone’s other emerging markets from the Spring."

Another sort of service tipped by some to do well in emerging markets is mobile social networking. A Mobile Media article written in Q2 of last year, for example, says that "even as cellcos in developed markets struggle to make money from such services," their counterparts in developing countries are "desperate" for a piece of the action.

In January, while still working with Informa Telecoms & Media, I was invited to make a presentation at a Mobile Monday Istanbul meeting. Offered a few choices of themes on which I felt I could speak, the organiser chose mobile social networking. Drawing on a related Informa report, I shared the view that vastly lower levels of PC and fixed broadband penetration might make specifically mobile networking services grow well in emerging markets. Had I spotted the Mobile Media article before heading for Turkey, I might have added the point made there that while MNOs in the developed world are "fearful of introducing advertising" (the business model upon which social networks depend), "the low profit margins for mobile data services in emerging markets mean that cellcos there are more open to the idea of supplementing their earnings with other sources of revenue, such as advertising." David Dew, CTO of messaging-software company Critical Path, which is branching out into social networking, is quoted as saying that cellcos in price-sensitive emerging markets are less wary of the perceived intrusiveness of mobile advertising, since users there welcome the opportunity to receive discounts and other special offers from brands.

Ringback tones and social networking as hot tips for mobile VAS in emerging markets, then. Is there, however, a good level of solvent demand? In the Cellular News article, a Vodafone spokesman is quoted as saying that ringback tones are an "affordable" way of personalising a mobile device - but in the context of emering markets, what does "affordable" really mean?

Writing in Mobile Media earlier this year, Informa's Guillermo Escofet notes that in relation to the average user's spending power, India has the least affordable mobile content of sixteeen countries surveyed. In the case of mobile games, writes Escofet, "although India is where the cheapest mobile games can be bought on-portal, at US$1.03 each, it is also where they are most expensive in relation to per capita income – even when weighed against the US$9.64 charged by Vodafone Germany, at the other end of the spectrum."

"With a mobile game in India costing most of what the average Indian earns in a day", asserts Escofet, "it could be argued that the market for such products is largely confined to the country's middle- and upper-class minority. The same could be said for other emerging markets."

Perhaps with this in mind, companies such as Nokia have dedicated part of their efforts to the development of services which offer less affluent subscribers much more practical benefits. A Mobile Handset Analyst article written in November describes the Finnish handset vendor's unveiled introduction of seven low-cost handsets equipped with features developed for users in rural communities, "in keeping with its new business model of bundling services with the appropriate devices." According to the article, this has been driven by the company's desire not to compete for a greater share of emerging-market sales "by lowering prices, as Samsung and ZTE have done."

The competition for emerging markets is heating up, contends the article "because the already long handset-replacement cycles in developed markets are being extended by the economic crisis." In this context, Nokia, states the article, "is eager to identify the software and services that will provide it with new revenue streams and protect its share in certain markets." An unnamed Nokia spokesperson is quoted as saying that the company's Mail on Ovi service will give "millions of users the possibility to create their first Internet identity and communicate in new ways." Global Crown Capital analyst Tero Kuittinen is quoted as saying it will serve as "a firewall aimed at preventing BlackBerry from migrating into low-end business and emerging markets.

Despite the global economic downturn, mobile content/VAS in emerging markets seem to present operators, handset vendors and others with some interesting opportunities. I'd be interested to know which of entertainment services and more practical applications is the hotter tip.


Arab world and India: investments to flow in both directions?

Towards the end of February, I asked here whether 2009 would be the year that a prominent Indian mobile operator will make major moves on the world stage. I noted that the cellco I had in mind was facing a number of competitive pressures on the home front that might soon drive international expansion.

The operator I had in mind was Bharti Airtel, the country's mobile market leader (with 26.24% of the subscriptions on a highly fragmented market, according to WCIS). To date, the company's only significant foray beyond India has been the recent establishment of a subsidiary in Sri Lanka. In the February discussion, I noted that Bharti Airtel had failed in a previous bid to acquire South Africa's MTN. With no particular evidence to support it, I'd developed the gut feeling that if the big Indian cellco were to make a bold move into new territories, somewhere in Africa would be the likely target.

I was surprised, therefore, to read in a recent TotalTelcom article that a quite different Indian operator has turned its gaze to the African continent.

Apparently, state-owned BSNL (Bharat Sanchar Nigam Ltd.), India's oldest and largest communication service provider is likely to get involved in a bid for a telecoms licence in Tunisia. The operator's partner in the proposed bid is consultancy firm TCIL, a fellow state sector enterprise.

The TotalTelecom article contends that BSNL sees overseas expansion as an opportunity to increase revenues, having lagged behind private sector operators on the domestic market. The Tunisian licence, says the article, is of the unified variety, enabling a new entrant to offer mobile and fixed-line services.

A degree of skepticism is reported, with Jithesh K. Gopi, Head of Research at Bahrain-based investment bank Securities & Investment Co. B.S.C. saying "with the current level of penetration [in Tunisia], it won't be an easy market for a new entrant."

In the African context, Tunisia does have a high rate of mobile penetration - currently at 82.73% according to the World Cellular Information Service (vs. 40.16% for the continent as a whole).

In the cellular arena, any new entrant will be seeking to shake up a duopoly situation. The mobile market is presently split very evenly between state-owned Tunisie Telecom and Tunisiana.

My understanding is that it will become known quite soon whether BSNL will take the plunge in the possibly quite challenging Tunisian market.

In the meantime, I spotted news of monies being set to flow in the opposite direction, i.e from the Arab world into India.

I have, of late, been taking advantage of an excellent newsletter from Blycroft Publishing - Africa & Middle East Telecoms Week. The latest edition carries an article about the UAE's Etisalat, currently a minority stakeholder in Swan Telecom, planning to invest a further USD 1 billion in India's telecoms sector. The Etisalat Chairman is quoted as revealing that the company's investments in India "would complement its investments in other countries having growth potential, such as Pakistan, Afghanistan and Indonesia" and that "the current economic meltdown has provided an opportune time for investing in different areas, and Etisalat is ready to exploit the situation and bolster its global presence." For some time now, I've held the belief that the current downturn is set to stimulate acquisition activity on the part of well-funded telecoms groups from the Middle East. This latest tip about Etisalat's plans seems to be in line with that.

Thursday, 16 April 2009

A naked giant in a perfect storm

I enjoyed constructing the title of today's offering. The image of a stoic titan leaning into a howling maelstrom of wind and rain, bereft of protective clothing, is a colourful one, not least on a rare day of hazy sunshine and light Spring breezes here in the north London suburbs (when I started this; the rain is now hammering down). I don't expect it's at all obvious what the title refers to, however. I just looked back at recent post headings and thought they've all been a little too prosaic. That Spring feeling just seems to have me waxing lyrical. Dont' worry. What follows is the usual sensible stuff... and the nude giant in the story makes an appearance before the end of this piece.

The giant concerned is South Africa's former land-line monopolist Telkom, which continutes to adapt to a range of changes in its home market. The managed liberalisation of the country's telecoms sector was catalysed by the Telecommunications Act of 1996 and the Telecommunications Amendment Act of 2001, which paved the way for a second national fixed-line operator. With the exception of full mobility, that second wireline player, Neotel, provides a wide range of products including basic voice and data services, high-speed Internet access, VPNs, and network management and hosting.

The new kid on the block, however, has not found competing with Telkom to be without challenges. South African telecoms and tech news portal MyBroadband yesterday picked up a newspaper article whose broad theme is that although the Neotel provides a "welcome" alternative to Telkom, "it doesn't quite offer all the answers."

Penned by Barrie Terblanche of the Mail & Guardian, the article focuses on particular difficulties faces by Neotel in the business telecoms market. Terblanche writes that "years after Neotel received its license to provide South Africa with an alternative to Telkom, by far the majority of small businesses are still forced to depend on the old behemoth for basic fixed telephony – even those businesses situated in the middle of Neotel’s coverage areas in Johannesburg, Cape Town and Durban."

One reason for this, argues Terblanche, is the lack of fixed-line number portability.

The country's telecoms regulator, ICASA, launched a Mobile Number Portability system in Q4 2006, the first instance of MNP on the African continent. This might have happened even earlier had South Africa's three mobile operators not twice asked the regulatory agency to postpone the introduction of the MNP platform. As my former colleague Matthew Reed (editor of Middle East and Africa Wireless Analyst) noted in a South Africa market update some months later, Cell C, MTN and Vodacom claimed more than once not to be "ready to implement portability" on the earlier scheduled launch dates of March and September 2006. This aroused the ire of no less an individual than billionaire industrialist Sir Richard Branson, whose Virgin brand is used by more than 360 companies worldwide - as I write this, I am still aching as a result of my most recent session in a Virgin Active gym and have yet to pay off the credit card bill for my recent trip to the USA on Virgin Atlantic Airlines.

Branson's interest in South Africa's delayed implementation of MNP stemmed from attempts of the country's Virgin Mobile-branded MVNO to carve out a share of the cellular market. Early last month, when discussing the prospect for MVNOs gaining traction in Africa and India, I observed that this has not been an easy task, noting that Virgin Mobile South Africa had signed up just 600,000 subs by end-2008, of which only 200,000 were active. Back on September 27 2006, a member of Matt Reed's MEAWA team quoted Branson as saying "South Africa's mobile players are dragging their heels on this issue, because it isn't in their best interests... they want to lock their customers in. You shouldn't be held hostage by your mobile phone company."

In the same article, this was refuted by a Vodacom spokesman, who said that the delays had been caused by "the technically complex nature of MNP, which requires new business processes to be designed and implemented."

The article, however, also contended that Cell C, then (and now) the country's third placed mobile operator had lobbied for MNP to be introduced more quickly but that Vodacom and MTN had insisted on a longer delay.

Whichever operator(s) may or may not have been behind any alleged MNP foot-dragging, the MEAWA article of the time raised the question of whether number portability would really have any very significant market impact. "Local analysts have played down the likely effect of MNP on the market," stated the article, which reported the view that fewer than half a million subscribers would be likely to change networks within a year.

I don't have to hand a detailed analysis of to what extent MNP may have driven customer churn in South Africa. There was, however, a little jostling in the year which followed the implentation of number portability. Market-leading Vodacom lost ground a little, but maintained a significant lead over it rivals. The bigger winner over that period Sept. 2006-Sept. 2007 seems to have been Cell C, though not to such a degree that the market changed dramatically. Cell C has, however, coninued to make up ground on its competitors since then - according to the World Cellular Information Service, the Oger Telecom-backed MNO now owns 13.80% of South Africa's mobile subscriptions, up significantly from the 8.61% logged in September 2006. I am absolutely not qualified even to speculate to what degree this is due to MNP. That said, my sense is that number portability has not massively changed the South African mobile market.

What, then, is behind Barrie Terblanche's claim for the degree to which the non-availability of fixed-line number portability has hampered Neotel's efforts to compete with the incumbent wireline opearator? He contends "that only business start-ups really have a choice between Neotel and Telkom, because established businesses can ill afford to give up an existing number."

Terblanche goes on to say that it is not only in the small business space that Neotel is finding the going tough. "Another huge hurdle in the full-scale adoption of Neotel by slightly larger businesses", he writes "is its lack of line-hunting facilities. This provides a business with one public telephone number linked to several lines in the business. When a customer phones the number, the exchange hunts for the first available line and puts the call through." The lack of line hunting, apparently to be solved in the next few months, "means that a business with a PABX still has to rent Telkom lines for incoming calls", continued this Tuesday's Terblanche article.

Tuesday was a good day for commentary on the South African telecoms market. Carried the very same day by MyBroadband was another article taken from the country's Financial Mail. This one, penned by a Duncan McLeod, zeroes in on the former fixed-line monopolist. While Barrie Terblanche contends that Telkom is better positioned than its rivals to compete in the enterprise telephony markets, McLeod constructs an interesting piece around the large number of challenges faced by the incumbent.

The article begins by noting that Telkom is soon to dispose of its 50% stake in market-leading cellco Vodacom, which, despite the advances of Cell C, continues to own slightly more than half of the country's mobile subscriptions. McLeod feels that "the divestiture will reshape SA’s telecommunications landscape for the better" and asserts that "it's sink or swim time for Telkom." Despite Neotel's struggles in the business telephony space, McLeod feels that the incumbent's fixed-line business "is going nowhere fast and, with new competition, it is going to have a hard time defending its top-line revenue and profit margins."

Given the powerful position of Vodacom in its home country, and given its valuable collection of subsidiary opcos in Tanzania, Mozambique, Lesotho and the Democratic Republic of Congo, why would Telkom seek to get rid of its stake in the business?

Let me turn once again to MEAWA's Matthew Reed, who in November last year wrote that the sale would free Telkom "from an unsatisfactory relationship with Vodacom." Matt stated "Telkom had hoped that Vodacom would help it to expand into the fast-growing mobile sector and into new markets in Africa, but it has been disappointed by the level of cooperation."

As Matt noted then, Telkom has begun a wireless play of its own. Earlier this month, as reported by TelecomPaper, the operator launched its new Mobi service, which offers mobile voice over a WCDMA network. The mobile service is currently available in Gauteng and Cape Town only.

My understanding is that the shareholder agreement with Vodacom prevents Telkom from building a national mobile network. Instead, to establish a nationwide presence, Telkom must sign a roaming agreement with with MTN and/or Vodacom. Cell C does not fit the bill, having not yet established a 3.5G network.

Beyond the home country, Telkom may also be working to find its own route into the mobile arena. Matt Reed observed in November that the operator had, in 2007, "acquired a 70% stake in Nigerian CDMA operator Multi-Links... and... is thought to have had separate talks with both Zain and Nigeria's No. 2 mobile operator, Globacom, about the possibility of forging partnerships."

Will Telkom's sale of its stake in Vodacom prove, then, to be a smart move? According to Duncan McLeod's article, one vocal supporter of the decision is the incumbent's CFO Peter Nelson, who has praised CEO Reuben September, saying "it showed a lot of leadership and courage... the new Telkom is standalone — I call it the naked Telkom."

This naked giant, McLeod contends, looks set to be caught in "a perfect storm" with the telecoms sector wide open to new competition. Cellcos MTN and Vodacom are free to compete in the wireline area, McLeod writes, also inviting readers to "consider also that new undersea cables will finally end Telkom’s control of international bandwidth."

McLeod reports that Mr. September is, however, "clearly relishing the company’s imminent divorce from Vodacom and the demands of a competitive market" and expresses admiration for the Telkom CEO's willingness to take tough decisions, such as shutting down Telkom Media, the pay TV unit for which a buyer could not be found.

Duncan McLeod wonders whether September will "take flak" for deciding to postpone a project that was set to outsource 19,000 jobs, questioning whether this has resulted from political pressure ahead of the country's elections. CFO Nelson, however, has defended the postponement thus: "We won’t outsource problematic and poorly engineered areas because what happens is you lock in inefficiency and you pay for it forever." McLeod conceded that this is a fair argument, going on to say that "Telkom is still SA's most important communications operator. It is critical for the economy that it doesn’t stumble and fall. Whatever South Africans might feel about Telkom — and it’s often not flattering — September deserves their encouragement."


Sunday, 12 April 2009

Kenya: Zain and Yu cut costs through infrastructure sharing

Having very recently been to Kenya for the first time, I now find stories from that country catching my eye.

One which has broken since my trip, reported by Telegeography among others, concerns a network infrastructure sharing deal struck by Zain Kenya and Essar Telecom Kenya (until recently known as Econet Wireless Kenya).

In February, I asked here
whether 2009 will see arrangements of this type having a major impact in emerging markets worldwide. I cited recent examples from India, Bangladesh and Panama, but noted that in Zambia, Zain had declined to become involved in a network sharing project recommended by that country's telecoms regulator in order to boost rural coverage. Zain Zambia and prospective network sharing partner MTN Zambia preferred to spurn the approach from the regulatory agency on the grounds of guaranteed quality of service being a difficult issue.

Zain's Kenyan operation appears to have no such qualms, with reduced base station operating costs being cited in local reports as the principal driver for the cellco entering the infrastructure sharing deal with the Yu-branded recent entrant.

This presumably meets with the approval of the Communications Commission of Kenya, whose Assistant Director Susan Mochache spoke at the East Africa Com conference I recently attended. Ms. Mochache's presentation made mention of infrastructure sharing as a plank of the Commission's wider strategy of promoting competition. Ms. Mochache was asked during the conference about whether network sharing was something the Commission would be merely recommending or whether it might do some degree become mandatory. The answer, however, was not immediately clear to me. I think I understood that this is an issue which is still under discussion.

Saturday, 11 April 2009

East Africa: exchange of views (?) on taxes levied on mobile use

When I used to be involved in the organisation of telecoms sector conferences and exhibitions around the world, my marketing team worked hard to ensure that the events were attended both by reporters from international industry publications and by journalists from the mainstream news media of the host country. It was always quite gratifying to see copy about the presentations and discussions in the local vernacular in the days following the conference.

I imagine, then, that my former colleagues in the Com World Series team over at Informa Telecoms & Media may have been a little annoyed to see a round up of stories clearly emanating from the recent East Africa Com conference in Nairobi which failed to mention the event. Perhaps the host country's Daily Nation newspaper is not actually at fault here, having sourced the piece from Reuters.

Putting these gripes aside, I was interested to see that of the numerous points raised at the event by Vitalis Olunga (who heads up the GSM Association's African chapter), the Reuter/Daily Nation article led with his comments about taxes on mobile phone use.

Mr. Olunga, whose day job is with market-leading Kenyan cellco Safaricom, is quoted as saying that excise duty rates of more than 10% across Kenya, Uganda and Tanzania are too high. "If they reduce it, it will promote the usage of mobile. Rwanda has given us a good example where they introduced it at 3%," he told Reuters at a regional telecoms conference (this is the point at which the journos could have named the conference!)

Olungu said that a cut would also help cushion the sector from forecast falls in ARPU as the region increasingly feels the impact of the global financial crisis.

Susan Mochache, also spoke at the event, is an assistant director at the Communications Commission of Kenya. Ms. Mochache told Reuters her organisation expected tariffs to fall anyway due to growing competition.

I flew to Nairobi with the beginnings of a bad head cold. I got off the plane with somewhat impaired hearing as a result. So I may have missed some nuances of what was discussed at the conference. Even so, I am pretty sure that the exhange of views about taxes and tariffs which is implied in the Reuters/Daily Nation piece is not something that unfolded on stage...


Thursday, 9 April 2009

East Africa Com musings: Does it matter which submarine cable lands first?

The socio-economic impact of undersea cables in East Africa: the SEACOM view

Blogger Clement Nthambazale Nyirenda is a lecturer, researcher and consultant in Electronics and Computer Engineering at the Malawi Polytechnic, a constituent college of the University of Malawi. He is currently studying for a PhD in Japan at the Tokyo Institute of Technology. In February Clement wrote about the broadband speeds he enjoys in Tokyo and expressed his hope that a similar service might one day be available in his home country.

Malawi, as Clement noted, while usually considered to be part of Southern Africa, also lies in the easterly part of the continent, which is "the only region in the world that has neither intra-[continental] nor direct access to worldwide international cable networks." The region, Clement observes, "instead relies on expensive satellite communication" with "data costs... among the highest in the world."

Clement discusses the progress of the Eastern Africa Submarine Cable System (EASSy), "the first initiative proposed to connect countries of eastern Africa via a high bandwidth fibre optic cable system to the rest of the world." According to the EASSy website, the level of international telephone traffic per main line in sub-Saharan Africa is the highest in any region in the world, which is proof of there being "considerable demand in East Africa due to insufficient supply for telecommunications within the region." My own single experience of visiting that part of the world - last week's trip to the East Africa Com conference in Nairobi - does lead me to concur, as does the business of simply trying to make calls to other East African countries from the UK. As I noted in my most recent post here, the only frustrating aspect of my short trip to Kenya was finding it fairly difficult to stay on top of my day job via our company VPN. At both my hotel and the conference venue, Internet access was slow and unreliable.

My understanding is that there exists the hope that providing East African countries with improved connectivity could prove to be an effective catalyst for economic development in the region through the expansion of businesses based on the Internet, the provision of call centre services and the outsourcing of other back office functions.

EASSy is set to run from South Africa to Sudan, with landing points in six countries, and will be connected to several landlocked countries. A number of telecoms operators have invested in EASSy via WIOCC (West Indian Ocean Cable Company), which had a visible presence at last week's conference. These include state-owned wireline incumbent operators such as Botswana Telecommunications Corporation, Djibouti Telecom, Telecomunicacoes de Mocambique and soon-to-be-privatised ONATEL of Burundi.

Others in the WIOCC contingent are Orascom Telecom-backed MNO U-Com (of Burundi), Telkom Kenya, Dalkom (Somalia), Zantel, Uganda Telecom, Israel's Gilat Satcom and the Lesotho Telecommunications Authority.

From South Africa, direct investors in EASSy include Neotel, MTN and a consortium of Telkom (SA) and Vodacom. Futher direct investors in the project are Telecom Malagasy, Mauritius Telecom, SUDATEL,
Tanzania Telecommunications Company, Comores Telecom and Zamtel (no, that's not a repeat of Zantel). From beyond the region, other backers are BT, Saudi Telecom, Bharti Airtel, Etisalat and France Telecom.

In his February blog post, Clement Nyirenda
notes that EASSYy was once expected to be ready for commercial use in Q2 2007 but that construction did not get underway until March 2008. Clement reports (confirmed by a more recent Compterworld Kenya article) that the project is now slated for completion and commercial service in the second half of 2010 - three years behind schedule. "EASSy has not been EASY", comments Clement.

In Clement's opinion, "the major problems hampering the progress of the EASSy project stem from the fact that it is a joint venture of more than 20 largely monopolistic parastatal telecommunication bureaucracies." I shall leave it to individual readers to decide which (if any) of the project's backers fit this rather critical description. "In Africa," says Clement, "the culture of working together in such a large grouping is not common."

Wrangles between partners do seem to have been a feature of the project, at least as far back as June 2006, when a meeting of ICT ministers from Eastern and Southern African countries helped resolve disagreements among project participants, according to Sammy Kirui, the chairman of EASSY's project management team.

Regarding the most recently announced delays, the Computerworld article quotes WIOCC CEO Chris Wood, who said late last month that "the delays have been caused due to optimizing the cost structures and finalizing the agreements between all participating carriers". Wood, states the article, is not worried about the delays because the most important thing is the long-term stability of the financial structure of the cable system. "Time and again", Wood said, "the telecom industry has seen private equity financed companies build cables and then go bankrupt within a few years as their business model, hit by high costs, proved unattainable."

EASSy is just one of three submarine cables set to improve the region's connectivity. Another is TEAMS (East African Marine System). Etisalat appears to be spreading its bets in the race to connect the region, having a 15% stake in TEAMS in addition to its investment in EASSy. The other 85% of the ownership of the TEAMS project is split between a diverse group of interests including the Kenyan Government, Telkom Kenya (another one which is backing two horses) and Kenya's market-leading cellco Safaricom. Also involved from Kenya are the country's largest private data carrier Kenya Data Networks and most recent mobile market entrant Essar Telecom Kenya, whose billboards I saw all over Nairobi last week. The advertising of another TEAMS backer, the cable MSO Zuku, was also very prominent as I caught a glimpse of the city during cab rides between meetings.

Kenyan players dominate the consortium, with ISP AccessKenya and Jammii Telecommunications (which provides access to the Internet Backbone to telcos, ISPs, and large enterprises) also involved.

One more Keynan TEAMS backer is Flashcom, an integrated telecommunications solutions provider offering voice, data and SMS services with a collection of network assets including a CDMA2000 WLL and ISDN services over Fibre. Flashcom's CEO Joe Kimani was on the speaker panel at last week's conference, but unfortunately I didn't get the chance to catch what he had to say. From beyond Kenya, a small stake in TEAMS is held by Africa Fibrenet of Uganda.

The other submarine cable on the East Africa scene is SEACOM, whose investors state that the project will ensure access to low cost bandwidth, thereby encouraging the growth of existing and new industries, as well as education and e-government.

Does the region need three undersea cables? If all of this is thought of as a race to land the cables and start doing business first, will whichever project finishes last find itself out of the game? A Business Times (Tanzania) article of last Friday contends that the answers to these questions are, respectively, 'yes' and 'no'.

In this article, the scene is set with an illustration of the degree to which the current paucity of connectivity impacts upon businesses in the region. The claim is made that a large corporation in Tanzania can pay about USD 3000 a month just to ensure a reliable Internet connection for its network. According to the article, this figure rises to USD 7000 to cover a megabyte of bandwidth per computer in a medium-sized office in Kenya. "A business connection in an urban center in the US," continues the article, "can cost as little as USD 25 a month".

The article compares the economics of the VSAT and undersea cable industries and adds that "fiber optic cables are low latency: they can carry information more than ten times faster than a VSAT to satellite to cable connection."

When making a comparison between the three submarine cables, the article contends that they all have "roughly the same capacity", but notes that "each connects a different combination of countries and ownership."

The article acknowledges that "there has been much hype in the media about which cables will land first" but makes the argument that "the success of one cable does not render the others useless." The view expressed is that redundancy is needed to ensure the security of broadband supply and to stimulate competition, thereby reducing prices for users. "Tanzania will be able to make room for both the EASSy and the SEACOM cables, as well as any connectivity provided by TEAMS", concludes the piece. Plenty of room for all, then, it seems.


Monday, 6 April 2009

East Africa Com report: Telkom Kenya positions as only convergence player in a competitive mobile market

TELKOM KENYA: ambitions of being East Africa's only quad-player

Last week I spent two days nipping in and out of the Com World Series East Africa Com conference and exhibition, organised by Informa Telecoms & Media in Nairobi, Kenya. I had hoped to share some of what was discussed here in real-time, blogging merrily away from the conference venue. A busy schedule made this difficult, compounded by the non-availability of a genuinely fast and reliable Internet connection at either the venue or my hotel.

Broadband speed and price in the region was a topic visited by a number of the conference speakers. Peter Reinartz, the Deputy CEO of Telkom Kenya/Orange Kenya, for instance, spoke about the effects of the long-anticipated arrival of submarine fibre optic cable. Reinartz poured cold water on suggestions that the retail price of broadband services would fall by as much as 90%, but did pick out the region's improved connections to the rest of the world as being a key driver of the kind of converged offerings his company is putting together.

Telkom Kenya was privatised in 2007, with France Telecom acquiring a 51% stake. The Kenya Government retains the other 49%. As part of the process, the company's controlling stake in market-leading cellco Safaricom was transferred to the Government, temporarily taking Telkom Kenya out of the GSM game. This brief period away from the heat of the battle in the mobile space ended with the September 2008 launch of Orange Kenya. With the later arrival of Essar-managed Econet Wireless Kenya (branded Yu), the country's mobile market is now home to four competing providers: Zain also has a presence.

As of March 2009, according to the World Cellular Information Service, the Kenyan mobile market is split as follows:

1. Safaricom: 76.79%
2. Zain Kenya: 17.41%
3. Telkom Kenya/Orange: 3.90%
4. Yu: 1.89%

The fourth player in the list above has recently been the subject of takeover speculation. On the day the conference opened, South African news portal Business Report was carrying denials from Yu CEO Srinivasa Iyengar regarding plans to sell the operation to MTN. If such a transaction were ever to take place, the Kenyan market would become the scene of a competitive struggle between only well-funded regional giants.

In his presentation, Reinartz spoke about not wanting to be Kenya's "third mobile operator", preferring to position the company as the country's only converged operator. 2009, he said, is to be a crucial year in the development of this strategy. Having launched a unified brand, a single touchpoint for customers and having "built an image as a full alternative to [the] mobile incumbents" in 2008, Reinartz set out his stall for this year: reinforcing existing customer retention initiatives and rolling out the first layer of convergent propositions. One of these is voice pricing unification across Telkom PSTN, Orange 'Fixed Plus' (CDMA WLL) and Orange mobile services. Customers can enjoy friends-and-family discounts across all these services.

At the conference, Zain was represented by Raed Haddadin, the group's Commercial Director for East Africa. A theme about which Mr. Haddadin spoke enthusiastically was mobile money. In this space, the Zain offering, branded Zap, enables under-banked people to desposit and withdraw cash, transfer funds to family and friends, top up mobile airtime and pay bills for goods and services.

Other tasks prevent me from rambling on at length now about other information I gleaned at the conference. I'll try to share more in the coming days.

Friday, 3 April 2009

Half-way home

... enjoying the zippy and free WiFi in Dubai International Airport...

Thursday, 2 April 2009

Yeah, right...

OK, so I said I aimed to share some of what was said at this week's East Africa Com Conference here in Nairobi, "more-or-less in realtime". Rash words.

Too busy. Painfully slow 'broadband' speeds. Excuses, excuses.

I'll share over the weekend.