Something to Grin about for Malawi's mobile users?

Tay Grin - star of the African hip hop scene... and Malawi's mobile sector?

It is not with any pleasure that DevelopingTelecomsWatch sometimes observes a country's mobile market and concludes that one of more of its competing cellcos surely seems doomed to fall by the wayside. All such enterprises are doubtless founded in good faith and with the firm intention to reward investors and employees for providing services to customers who will want them. A somewhat recurrent theme of this blog, however, in its first year, has been to wonder aloud about likely market consolidations around the world, and to speculate a little about which actors might be shaken out in any such eventuality.

In March, DTW picked up comments on this topic from MTN CEO Phuthuma Nhleko, spotted in a Financial Times article. Nhleko was quoted as saying that he believes Africa will see a wave of telco sector consolidation in the next 1-2 years, and the article contended that this will result from both new entrants and more established competitors struggling to maintain healthy margins in increasingly crowded markets.

Shortly after this, DTW took a look at some examples of particularly congested competitive environments in Africa, starting with Benin, the continent's 31st largest country in terms of the size of its population. We noted that five mobile operators now compete in a country of just 8 million people.

In the same month, DTW articles asked about the potential for mobile market consolidation in Burundi and in Gabon. By June, the same questions was being asked of Tanzania. A related post the same month zeroed in on Malawi, which might be something of a different case.

In that piece, it was noted that this under-penetrated market (still only 17.47% mobile penetration as of end-December 2009, according to WCIS) may offer a decent opportunity for a new entrant. At present, a duopoly exists, with the country's mobile subscriber base split between Zain's Malawi operation and Telekom Networks Malawi, a cellco in which the country's incumbent fixed line operator Malawi Telecommunications owns a 44% stake. Market share now (as of end-Dec 2009) is as follows: Zain 71.34%; TNM 28.66% (estimated figures, again from WCIS).

The June article on Malawi noted that country's telecoms regulator felt that the services offered by these two operators were at a price point which did not offer a fair deal to consumers. Zain responded by blaming high tariffs on high taxes. The market-leading operator also claimed that as the overall mobile market grows in Malawi, it will be able to lower prices. Zain Malawi's Managing Director Fayaz King explained: "Imagine at Zain, we have mounted a network that could take up to 5 million users but we currently have only 1.5 million customers. We believe that if at least 3 million people started using the Zain network, we could start enjoying the benefits of economies of scale."

The regulatory agency apparently remains unmoved by this line of argument. Aiming to bring down prices and extend service availability to the wider population, the Malawi Communications Regulatory Authority felt that the best course of action was to open the market to a third entrant. As early as April this year, press reports were naming this third entrant - Globally Advanced Integrated Networks, the holder of the G-Mobile brand name.

Does Malawi, then, really offer a good prospect for this third entrant? As discussed back in June, there are reasons to suppose that while there are certainly numerous European countries with populations smaller than that of Malawi sustaining three or more mobile operators, the landlocked southeast African nation might nevertheless offer insufficiently attractive returns for prospective new entrants. While its high population density suggests that mobile coverage could be built out relatively cost-effectively, Malawi is, however, among the world's least developed countries, with a heavily agriculture-dependent economy and with GDP per capita of less than USD 320. Low life expectancy, high infant mortality and a high prevalence of HIV/AIDS all blight the country, with the latter draining the labour force and expected to impact further on GDP in the near future.

However, even in this context, mobile penetration is very low, as we have seen, even when compared with other underdeveloped African economies. So there could be room for one more MNO.

Is GAIN/G-Mobile, though, a likely candidate for success as a third entrant in this environment? Perhaps not. Due to the economic factors mentioned above, DTW suggested back in June that Malawi might be the kind of market where only MNOs able to leverage the scale and best practices of large groups can prevail and prosper in the long term.

G-Mobile, seemingly not aligned to any such major international telecoms group, certainly does not fit that description.

Who, then, is behind this latecomer to the Malawian mobile scene? The only person connect with the business whom I have seen quoted in the press is one Limbani Kalilani, the company's Vice Chairman. Mr Kalilani appears to be something of a celebrity in Malawi - and is working to become more well known across and beyond Africa. Although he has some track record in the telecoms industry, having set up a wireless payphone company called Phone Yanu, it is in the music world that Kalilani has made his real impact. Better known to his fans as Tay Grin, Mr Kalilani has established himself as a hip hop artist. Here he is in action:





It would be truly admirable if Tay Grin can succeed as both an international music phenomenon and a domestic business success story - more admirable still if it is his indigenous Malawian company that manages to bring the benefits of mobile communications to a larger number of his compatriots than can currently afford the services offered by the two established cellcos. DTW would be instinctively in favour of this form of African empowerment.

Are there already signs, however, that the going will prove as tough as DTW fears? Perhaps.

TeleGeography has recently reported that G-Mobile has admitted it will not be able to meet the 31st December 2009 deadline for the rollout of its network as stipulated by its licence. Instead the company plans to request an extension to the deadline from the regulator, and will make up for the delay by combining rollout phases outlined by the concession. Let's wait and see.

G-Mobile's rivals, meanwhile, are making progress of their own. TNM has launched its W-CDMA/HSDPA network, with Charles Kamoto, head of the cellco's Commercial Services division, saying that the service is initially only available to post-paid subscribers but that prepaid customers will soon have access 3G. Kamoto added: "Most less developed nations do not have this service on board for their customers but in Malawi we are very aggressive, we believe that our customers need quality, they need top-notch services and that is why we had to bring this 3.5G technology."

Something to Grin about for Malawi's mobile users?

Lucky Seven? Can the Tanzanian market offer solid returns for its (growing) plethora of mobile players?

Via TelecomPaper on Tuesday, I learned that one East African country will soon home to its seventh mobile operator, which will offer services over a CDMA network. With a population of around 40 million, Tanzania is not an insignificant country, but one must wonder if there is room for all players to run profitable operations in a market split so many ways.

How many other markets of about this size support such a large number of MNOs? The answer seems to be... none. Here is a fairly comprehensive sample of nations with populations of roughly the same size:

• Spain - 45m - 4 operators
• Colombia - 44m - 3 operators
• Sudan - 42m - 5 operators
  
• Argentina - 40m - 4 operators
• Kenya - 39 m - 4 operators
  
• Poland - 38m - 4 operators

Even highly penetrated, mature European markets of roughly the same population size, then, are home to fewer MNOs - cause enough, perhaps, to be cautious about the prospects for a brand new entrant in Tanzania. Further, it is already the case that two existing CDMA operators in the country have failed to establish large customer bases. One of these, Benson Informatics, is an ISP and telecoms service provider founded in 2000, which added mobile services to its product portfolio in 2007. To date, according to WCIS, the company has built a market share of just 0.2% - barely 3000 subscribers.

A bit more significant is the mobile network of Tanzania Telecommunications Company (TTCL), with a reported 110,000 subscriptions, down from a high of around 160,000 subs in September 2007. Prior to 2007, TTCL offered a fixed-wireless CDMA WLL service. The decision was then made to offer mobile services. In the two years that have followed, the impact on the market has clearly been very limited.

Once wholly state-owned, TTCL is the oldest and largest wireline telco in the country and operates the PSTN network of mainland Tanzania. The country's name is portmanteau of Tanganyika (the mainland of the present day country) and the Zanzibar achipelago of islands a few miles offshore. In the latter, the fixed-line market is split between TTCL and Zantel, the second basic telephony services provider there.

Given that CDMA mobile operators across Africa are typically pretty minor players in terms of market share, it is perhaps not surprising that TTCL's mobility proposition has not really grabbed the attention of Tanzanian consumers. Further, the company itself is perhaps not ideally geared to compete with the three GSM operators that have collectively established almost a 90% share of the mobile market. While these three are outposts of significant multi-country mobile groups (Zain, Vodacom and Millicom International Cellular), TTCL has, since the early part of this decade been in a number of joint management arrangements necessitated by its financial instability.

The company's rival in the Zanzibar fixed-line space, Zantel, has fared rather better in the mobile space, with a 9.19% market share (about 1.1 million subs on its GSM network).

Overall, the mobile penetration rate of Tanzania has not yet passed the 30% mark, lagging well behind the overall rate for the African continent as a whole (39.19% as of March 2009). Does that mean there is sufficient room for growth for this veritable plethora of mobile players? Perhaps not. In terms of GDP per capita at Purchasing Power Parity, Tanzania appears to rank as low as 50th out of 53 countries in Africa. Further growth of the overall market, therefore, will doubtless by constrained by consumers' ability to afford even very low-cost services.

A discussion of this type is not new territory for Developing Telecoms Watch. In March, I considered the case of Gabon, asking whether a fourth entrant mobile operator could expect to be profitable. Around the same time, I was thinking a bit about how tough the Burundi market appears to be.

Blog posts of this kind are just very quick thumbnail sketches of these markets - a quick look at mobile market metrics (penetration, market share etc.) cross-referenced with some very basic information about the countries themselves. You might be able to guess that for the latter, I am rarely looking further than Wikipedia. So when I raise questions such as whether these markets are attractive to new entrants or likely to see market consolidation, you are seeing nothing more than a bit of pure conjecture. Readers who really understand the markets concerned are warmly invited to correct any glaring errors in my rough analyses or to add some local colour and detail to the stories. Please use the comment function to do so, if you feel so inclined.

I note, for example, that this blog does get visits from Tanzania. Perhaps someone there will be able to offer a view on the prospects of success for the country's latest mobile market entrant which, according to the Citizen newspaper, will trade under the name Sasatel. The company apparently has a licence for voice and data services, Internet service provision and international gateway services and will have a fixed-wireless (CDMA WLL) offering as well as full mobility via a CDMA network.

I would be interested to know the level of this operator's ambitions and to what degree it expects to compete more effectively than Benson Informatics, whose offerings appear to be somewhat similar.

Lucky Seven? Can the Tanzanian market offer solid returns for its (growing) plethora of mobile players?

Burundi: room for more mobile operators or set for market consolidation?

Thoughts of my imminent trip to Nairobi have, of late, prompted me to write more regularly here about African markets than I would usually. One about which I know very little is Burundi, a small Francophone country in the Great Lakes region of Eastern Africa, bordered by Rwanda to the north, Tanzania to the south and east, and the Democratic Republic of Congo to the west. Burundi, one of the the poorest countries in the world, has an exceptionally low GDP, largely due to civil wars, corruption, poor access to education, and the effects of HIV/AIDS. In light of these difficulties, it is perhaps not surprising that this land of some 3.59 million inhabitants has the third lowest mobile penetration rate in Africa - 5.48% in December 2008, according to the World Cellular Information Service database maintained by Informa Telecoms & Media. Only Ethiopia (3.16%) and its neighbour Eritrea (2.13%) have lower mobile penetration.

The cellular industry in Burundi, however, is apparently growing strongly, albeit from a particularly low base. A Telegeography article this week noted that the country's telecoms regulator, Agence de Regulation et de Controle des Telecom (ARCT), has published data showing 78% year-on-year subscriber growth from the end of 2007 to the end of 2008. ARCT figures have subcriber numbers moving from 270,000 to 480,000 over that period. WCIS numbers indicate even more impressive growth, with the Informa service indicating that the growth from y.e. 2007 to y.e. 2008 was 224,300 to 495,250.

Whichever set of figures is correct, the Telegeography article contends that "the sharp rise has been attributed to increased competition in the local market and mobile network expansion by the four active operators - U-Com, ONAMOB, Africell Burundi and Econet."

The first of these is now part of the Orascom Telecom empire, having been acquired from India's Global Vision Limited in July, according to a Global Mobile Daily article.

In my last post on Zimbabwe, I noted that Egypt's Orascom Telecom seems to have a taste for adventurous investments which is not always shared by other major telecoms groups with multi-country footprints. Thus far, under-penetrated Burundi, too, has not taken the fancy of any truly large-scale international telecoms company apart from Orascom Telecom. U-Com's foreign-owned competitors are subsidiaries of rather smaller players.

Africell, for example, which offers which offers GSM services under the Safaris brand, was acquired by Dubai-based telecoms group VTEL Holdings in January last year, according to a Global Mobile Daily article of the time. Africell is the lone African operation of VTEL Holdings, which has stakes in an eclectic portfolio of telecoms and broadband assets scatted across the Middle East region, the Caucausus and the Caribbean.

Africell does not appear to be holding its own. WCIS figures indicate that the VTEL-backed cellco's market share was just 1.96% by December 2008. The Burundi subsidiary of Econet Wireless Holdings is also finding the going extremely tough, its share of the market having fallen below 1%. The vast bulk of the country's mobile subscriptions, then, are split between U-Com and ONAMOB, the mobile arm of Burundi's state-owned incumbent telecoms operator.

The decline of Africell and Econet Wireless Burundi (the former had nearly a 25% share of the market in December 2004; the latter had 12.45% of the market at that point), seems to support the idea recently expressed by MTN CEO Phuthuma Nhleko who believes that Africa will see a wave of telco sector consolidation in the next 1-2 years as both new entrants and more established competitors struggle to maintain healthy margins in increasingly crowded markets.

While Burundi's extremely low mobile penetration looks encouraging for potential further entrants, the overall market size is quite limited and the population's spending power is severely constrained. I wonder, then, what the future holds for two operators which are supposed to be making their Burundi debut soon, according to the recent Telegeography article, which states that two more companies hold mobile licences: Lacell and HiTS Telecom. All I know about the former is some information about the operator having done a turnkey deal with Ericsson for the network rollout. There is nothing on the website of Kuwait-based HiTS Telecom about a Burundi licence or subsidiary company.

The Burundi market appears to have proven too tough for two of its legacy cellcos. I wonder how succesful two more entrants can expect to be without the backing of deep-pocketed strategic investors. Although under-penetrated, there is something about this this small African market which has deterred major players (other than Orascom Telecom) from getting involved. I will watch future developments with interest.

Burundi: room for more mobile operators or set for market consolidation?