South Africa's Telkom: a fighting chance?

Telkom Direct stores: a vital channel to market as the company faces challenging times?

DevelopingTelecomsWatch is picking up lots of chatter today about Telkom, the incumbent wireline operator of South Africa. This started when this morning's daily roundup from TeleGeography included the news that the company is planning to re-enter the mobile space in 2010 after only a brief period with no cellular presence.

Until almost exactly one year ago, Telkom and Vodafone had each owned 50% of Vodacom, the pan-African mobile operator with 35 million customers in South Africa, Tanzania, Lesotho, Mozambique and the Democratic Republic of Congo. Earlier this year, the UK-headquartered mobile giant secured a controlling interest in Vodacom with the purchase of an additional 15% stake from Telkom. The remaining 35% owned by the South African incumbent was listed on the Johannesburg Stock Exchange and unbundled to the company's shareholders.

When plans for this transaction were first announced late last year, Lloyd Gedye of South Africa's Mail & Guardian reported the stated rationale for Telkom's sale of its stake in Vodacom and noted that many analysts "had expressed skepticism at Telkom's ability to make a success of going it alone in the mobile space and have questioned how Telkom will survive without the Vodacom cash cow."

Back in November 2008, then, Gedye wrote that Telkom CEO Reuben September was arguing that the deal would unlock significant value for the company's shareholders because its fixed-line business had "been undervalued while it clung on to its 50% stake in Vodacom".

How much validity is there in that notion of Telkom's wireline property being undervalued? The notion is, at the very least, open to question according to An Ovum note issued this week in response to Telkom's announced plans to roll out its own mobile services. Ovum examine the background to this strategy and observe that fixed-line penetration (currently under 9%) is continuing to fall in South Africa so "mobile is clearly the communication mode of choice, and this is where [Telkom] needs to be for its customers."

However, the note continues, establishing a new mobile operation in South Africa won't be easy, as mobile penetration is already above the 100% mark and because Telkom will be competing with two large, well-established players in Vodacom and MTN.

A third mobile operator, Cell C, has achieved a 15.57% share (according to WCIS) of the country's mobile market since its commercial launch in late 2001. For other mobile service providers, South Africa has offered a very challenging competitive environment. Back in March, in an article on the prospects for MVNOs in both Africa and India, DevelopingTelecomsWatch noted that Virgin Mobile South Africa had failed to capture even 1% of the country's mobile subscriptions by the end of 2008. The significance of the recently-launched CDMA mobile offering from Neotel, Telkom's principal challenger in the fixed-line arena, remains to be seen.

While Ovum's note politely points out the level of challenge facing Telkom's proposed new mobile offering, others have responded with far less restrained language. An article by Tiisetso Motsoeneng of Reuters today quotes one analyst who certainly pulls no punches.

"To be targeting the retail market in that industry, I think it will be suicide for Telkom," Jan Meintjes, an analyst at Gryphon Asset Management said. "I fail to see how a converged strategy of fixed and mobile is going to be earning significant margins," Meintjes said. "Unless they can show to the market that there's a specific niche that they're targeting and how they can exploit that in terms of earning margins on that business that will give them an accepted ROE on their capital expenditure, I don't see how that can be value enhancing."

The Ovum note, however, reminds us that in South Africa, Telkom claims not to be starting a mobile network operation from scratch. The note points out that the group already has fixed core network assets, which are used by both Vodacom and MTN for backhaul, and an established channel to market through over 134 Telkom Direct shops. Ovum contend that Telkom can choose to "develop a new brand and associated lifestyle concept to target some of the high-spending customers". Also, the Ovum note continues, Telkom could potentially have greater appeal to enterprise customers due to an ability to bundle services across fixed and mobile networks.

Lloyd Gedye's article late last year indicated that another use of the Telkom's Vodacom windfall might be to acquire a number of new mobile licences in numerous African countries. These would be in addition to the company's existing interest in Nigeria. According to Candice Jones of ITWeb, however, Multi-Links, the Nigerian telco in which Telkom has had a controlling interest since 2006, "is in dire straits, knocking Telkom's annual results set with a R1.7 billion net loss."

Let's see if this difficult experience discourages Telkom from further international expansion. My sense all this year is that African mobile markets are more likely to consolidate than they are to offer rich opportunities for new entrants.

While mobility in South Africa offers a new source of revenue for Telkom, Ovum argue that any new revenue streams from mobile - or from enhanced ICT services currently being developed - "are unlikely to significantly bolster its financials in the near term." Of more immediate concern, Ovum contend, is Telkom's rising cost base. Ovum's note expresses the belief that by implementing best-practice approaches in its own transformation, Telkom is giving itself a fighting chance in the challenging times ahead of it.

South Africa's Telkom: a fighting chance?

Cellco-branded mobile banking to thrive without challenge?

If you were asked to reach for an example of mobile financial services gaining traction really impressively, perhaps you would think immediately of the M-Pesa service offered by the Kenyan cellco Safaricom, in which Vodafone owns a minority stake.

I daresay most readers are somewhat familiar with the service. For those who are not, Safaricom's TV advertisement provides a concise demonstration of the simplicity and utility of M-Pesa:



Since its launch in 2007, M-Pesa has attracted widespread praise. In February 2008, the 'send money home'-themed marketing campaign, of which this ad was a component, scooped the 'Best Broadcast Commercial' gong at the annual Global Mobile Awards ceremony hosted by the GSM Association. This year, 'Best Mobile Money Service' was introduced as a new award category at the same ceremony - Safaricom and Vodafone were joint winners. More recently, M-Pesa has been feted by UN-HABITAT, the United Nations agency for human settlements whose mission is to promote socially and environmentally sustainable towns and cities with the goal of providing adequate shelter for all. In June, the agency announced the first Habitat Business Awards for best practice in categories including affordable housing, clean urban energy solutions and innovative ITC solutions. In the latter category, Safaricom made the winning submission for M-Pesa, which the jury felt boosts urban entrepreneurship and clearly demonstrates the impact of innovative IT solutions for sustainable urbanisation.

In its submission to the judges, Safaricom mentions Kenya's large 'unbanked' population - people, largely from the urban poor, to whom opening a bank accounts is off limits. The submission document explains that such people face challenges around the safety of carrying cash (mugging and carjacking are cited as dangers they face) and the high cost of transferring monies to relatives in rural areas via existing channels.

The benefits for the consumer, then, are quite clear - but what does a mobile operator such as Safaricom gain from entering the mobile money space? Dawn Marshallsay of mobile^SQUARED, writing in January, emphasised how mobile financial services drive up cellphone usage. She also quotes Safaricom CEO Michael Joseph, who told delegates at a London conference that "banking is a value-added service for mobile, not a money-making product"

"The main purpose of mobile banking is getting the customer to have an emotional attachment with the operator as they entrust their monetary details with the operator. Customers then start using their phones more in general," Joseph continued.

Where one operator in a developing country achieves differentiation as the only provider of such services, benefits for that operator, then, would presumably include achieving a high degree of customer stickiness in a market where the vast majority of mobile users are highly price sensitive (due to their relative poverty vs. their counterparts in developed countries) and where prepaid plans are dominant.

This model, in which consumers are locked into a specific mobile operator's set of financial services, is open to challenge, however. Earlier this month, Richard Wray of the UK's Guardian newspaper wrote about a recently-announced deal between mobile banking firm Monitise and Paynet, a company which operates ATMs and electronic payment services across Kenya, Tanzania and Uganda in partnership with thirty-five banks. Wray writes that the deal "will bring financial services to millions of people in Africa for the first time". The suite of services will include checking balances, moving money between accounts, and enabling customers to fill a mobile-wallet with cash to pay bills or send money to relatives.

A pretty close resemblance to M-Pesa and other mobile operator-run services, then. The crucial difference emphasised by Wray, though, is that while operator-branded services demand that users are customers of a particular MNO or are connected with a specific bank, the Monitise system is open to any financial institution and any mobile phone network that wants to plug into it. If I have understood this correctly, it seems, then, that M-Pesa and rival services such as Zain Kenya's Zap are to be challenged by an operator-neutral alternative. Monitise CEO Andrew Lukies believes that "mobile money is most effective as an 'open ecosystem' where you can transact with anybody or any organisation, regardless of your bank or mobile operator. Another differentiator, according to the Monitise Group's press release on this deal, is that "uniquely among mobile banking services, [it] enables people without a bank account to use its services, as well as providing traditional mobile banking to those with accounts."

It remains to be seen how far operator-neutral services of this sort pose a competitive threat to cellco-branded solutions such as M-Pesa, Zap, Orange Money (launched by France Telecom's mobile operation in Côte d'Ivoire) and the service launched by MTN Uganda in March, which the South African group hopes to roll out across its African footprint.

Assuming any such threat can be withstood, services like M-Pesa - improving the lives of the unbanked while providing cellcos with a customer retention tool - seem to be good for consumers, good for society and good for the operator.

None of this is to suggest that M-Pesa and services like it are never subject to criticism or concerns around their reliability and security.

Earlier this month, writes Victor Juma of Kenya's Business Daily, a technical hitch in the M-Pesa service caused anxious customers to crowd at outlets to have their accounts updated. For several days, it seems, users were unsure of whether some transactions had been properly credited to their accounts.

The service also appears to have been targeted by organised criminals depositing counterfeit currency via M-Pesa agents. Kenya's Daily Nation newspaper reported on 4th August that staff in two bureaus in the towns of Kutus and Kianyaga had received fake money worth Sh29,000 (about USD 380). Accounts used by the fraudsters were topped up without agents spotting the counterfeit cash. I assume that fraudulent deposits of this kind can be stopped once noticed, but this incident demonstrates that no system is completely immune from human error. Having visited Kenya, but never having stepped inside a retail bank there, I have no idea whether counter staff in banks there are more highly trained than M-Pesa agents and therefore less prone to making mistakes of this kind. Whatever the case, my feeling is that if mobile operators in developing countries are to capitalise on consumers' lack of access to traditional financial services and institutions, the authorities in those countries would be justified in insisting that the cellcos' services are subject to many of the same regulations imposed on the banking sector. I daresay, however, that incidents like the two mentioned here are relatively rare, so none of these observations are meant as a very serious criticism of mobile financial services in developing countries.

Kenya - and more specifically Safaricom's M-Pesa - stands out as a mobile money success story. How far is it an exceptional story? Can we expect services of this type to face greater obstacles to consumer acceptance and commercial success in other developing countries?

Sarah Rotman of the Consultative Group to Assist the Poor (CGAP) could presumably take a view on this, having written in July about the question of whether the success of mobile banking in Kenya can be replicated in neighbouring Tanzania. Rotman notes that unlike the rapid service uptake and quick development of an agent network in Kenya, things have moved much slower for Vodacom’s M-Pesa product in Tanzania. Explanations offered are as follows:

• Geography/demographics: Tanzania is a less densely populated country than Kenya, which is important in light of the idea that the density of an agent network is a key factor in the success of any mobile financial services suite.
• Market and competition: Safaricom in Kenya dominates its market (77.59% market share as of June 2009, according to WCIS), holding its own very well against established competitors and new entrants. Vodacom in Tanzania has just a 35.28% market share (according to WCIS) and is losing ground to the local operation of the Zain group and Millicom International Cellular's Tigo-branded operator.
• Control over agent networks: according to Rotman, it appears that Vodacom Tanzania has less direct control of and influence on its airtime distribution channel than Safaricom. Also, Vodacom works directly with just six airtime wholesalers, compared with 300 for Safaricom. Safaricom’s airtime distribution network was a key element in the rapid development of the M-Pesa agent network.
• Marketing and strategy: Initial Vodacom M-Pesa marketing seems not to have communicated the easily understood 'send money home' message we say in the Safaricom advertisement. As a result, writes Rotman, customers were unsure of what the product offered them and if it was really geared at the average Tanzanian.
  

While there are plenty of reasons to be bullish about the success prospects of mobile money services offered by cellcos to unbanked people in developing countries, then, it seems this enthusiasm should perhaps be tempered by an awareness of possible competitive threats from operator-neutral solutions and an understanding that a one-size-fits-all approach might not work effectively across a multi-country footprint.

Cellco-branded mobile banking to thrive without challenge?

MTN-Bharti deal - What are the potential obstacles?

MTN Irancell: does the South African group's presence in U.S.-sanctioned countries threaten the mooted merger with Bharti Airtel of India?

By some measure the the most durable story in these parts is playing out in the dramatic form of Zain Africa Speculation Watch the mini-series. I just can't leave it alone.

It is by no means the only show in town, however. Also quite compelling is the merger being considered by Indian cellco Bharti Airtel and pan-African mobile group MTN. However the talks are progressing, it seems that the former party will not find it too challenging to raise the necessary cash. If a recent headline in India's Economic Times is to be believed, several banks are in "a race" to offer part of the USD 4 billion apparently needed to fund the merger. Writing on Monday, Mohit Bhalla believes that JP Morgan, BNP Paribas, HSBC and Barclays are all keen to do business.

According to a Reuters article on Tuesday, however, some financial institutions may find one aspect of the mooted merger to be something of a challenge.

It seems that while a big Q1 jump in subscriber numbers for MTN Irancell (in which MTN holds a 49% stake) is good news for the pan-MEA group, the company's involvement in Iran is "potentially troublesome for U.S. banks eyeing a role in the South African telco's planned USD 20 billion-plus merger."

The Reuters article notes that MTN's annual report says 13% of its 2008 revenues came from Iran, Sudan and Syria, three states where the U.S. Treasury's Office of Foreign Assets Control (OFAC) "sets tough restrictions on U.S. firms, effectively banning them from most direct and indirect dealings due to U.S. sanctions."

While these markets are important for MTN, they can be challenging places to do business. In Iran, for example, some reports have suggested that MTN Irancell's revenues may have been quite badly affected by recent Government action in the wake of the disputed election result and ensuing unrest. A week-old Economic Times article cites unnamed analysts as suggesting that MTN "stood to lose at least a month's revenue in Iran" due to "blockage of mobile network signals in the wake of the ongoing strife there."

This suggestion was rubbished by MTN's group spokeswoman Nozipho January-Bardill according to Reuters. One week ago Ms. January-Bardill stated that the "MTN network is running in Iran and there is nothing wrong with it."

This comment about about MTN's network being unaffected notwithstanding, I do have the sense that to some degree it continues to be difficult for Iranians to communicate with associates within and beyond their country. I can offer one personal anecdote.

A Dubai-based Iranian contact of mine is currently visiting his home country and has advised me that he expects communication to be affected during his stay. He says that I may not be able to connect with his UAE mobile phone and that email communication could be affected if he experiences difficulties with Internet access.

The latter problem could certainly arise, if a recent Wall Street Journal article is to be believed. The WSJ piece contends that Government "infiltration of Iranian online traffic could explain why the government has allowed the Internet to continue to function - and also why it has been running at such slow speeds in the days since the results of the presidential vote spurred unrest." By way of evidence, the article states that "users in the country report the Internet having slowed to less than a tenth of normal speeds", explaining that "deep packet inspection delays the transmission of online data unless it is offset by a huge increase in processing power, according to Internet experts."

According to the Economic Times, MTN has declined to say anything negative about the current situation in Iran. The Indian newspaper also canvassed the views of analysts, whose collective feeling seems to be that MTN is "expected to continue its silent approach." Frost & Sullivan's Lindsey McDonald is quoted as saying that "MTN will want to keep the Government happy since Iran is one of its biggest markets, and they would rather lose market share than be kicked out altogether."

"That's the company's style," agrees Dennis Smit, Managing Director of South African research house BMI-T. "It doesn't get involved in local politics," he said. "That's why it can enter such high-risk countries."

In the sense of these countries being too high-risk for U.S. banks eyeing the MTN-Bharti Airtel merger, opinion seems to be divided.

Tuesday's Reuters article mentions that a U.S. Treasury official had "declined to comment on the MTN-Bharti advisory work by U.S. banks, but said there was some room within OFAC rules for U.S. companies to deal cautiously with situations involving deals with foreign firms that have subsidiaries in the sanctioned areas - as long as they are not facilitating transactions with the sanctioned countries."

"U.S. persons are not necessarily prohibited from dealing with third-country firms that do business in sanctioned countries, although they should approach such dealings carefully," said the official, who was not authorised to speak publicly about OFAC's enforcement of sanctions.

The Reuters article indicates that for investment banks with advisory or underwriting fees at stake, that interpretation has created two schools of thought. The first is a more liberal view of the sanctions, "which appear to have some wiggle-room" with regard to deals that are 'third-country' as opposed to dealing directly with a company whose headquarters are in a sanctioned country. The second view is more conservative and might lead to bankers and lawyers steering clear of a Bharti-MTN type deal "on the premise that facilitating such a transaction toes too close to OFAC, even though the merger indirectly involves the sanctioned areas."

It remains to be seen which view will prevail in this case and to what extent a cautious approach by U.S. banks could negatively affect the chances of the merger going ahead.

In South Africa, where MTN is headquartered, there also seems to be some divergence of views about the desirability of the group linking up with the giant Indian cellco.

One suggestion is that this week's resignation by MTN Finance Director Rob Nisbet may have resulted from his not favouring the proposed tie-up with Bharti Airtel.

A former rival of MTN's, however, seems to be feeling much more positive, according to another recent Economic Times article. Former Vodacom CEO Alan Knott-Craig told the newspaper that "the deal will create a lot of value for the shareholders of both the companies" and that "it is the best time for Bharti to do the deal." According to Knott-Craig, "three years ago, Bharti would not have brought anything to the table [but] that story is now different. The deal will allow Bharti and MTN to learn from each other." A nice endorsement.

The exclusivity agreement currently locking Bharti Airtel and MTN out of discussions with other prospective bedfellows expires at the end of this month. With Zain's African operations possibly on sale (see DTW posts passim) and possibly of interest to either of these two parties, I have to assume that this mooted mega-merger will play out one way or another before too long. Keep watching.

MTN-Bharti deal - What are the potential obstacles?

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?

Zain Africa Speculation Watch: Episode 2

My reporting of last week's speculation about Zain selling its entire African portfolio certainly generated a decent number of hits for this blog. I daresay anyone else who blogged about it saw a spike in visitor numbers.

The chitchat on this topic continues this week, with Cellular News feeling around for an explanation for why Vivendi might have been named as a possible buyer, while conceding that we still only seem to have a single report from a Nigerian newspaper as a source for this (non?) story. Undeterred by this, the Cellular News folks wonder whether a Vivendi bid might have something to do with Vodafone eyeing Zain's African assets. The reasoning for this is as follows:

"Vivendi currently owns a 56% stake in French mobile network, SFR - with Vodafone holding the remainder. The joint shareholding in SFR will raise speculation that Vodafone is involved in the talks through its South African Vodacom subsidiary."

Last week, when reports began to surface of a "French company" being involved in all of this crazy hullabaloo, Vivendi was not the first name that sprang to my lips. Instead, I quickly voiced the thought: it has to be Orange. Several days later, with the scribes at Cellular News trying to find reasons for why Vodafone might be the real stalking horse, I am, frankly, none the wiser.

So I looked to my former employers for some inspiration, noting that the good people at telecoms.com have had the time to do a bit of asking around. None of this, however, visits the issue of who might be in the mix to pick up Zain's African operations. Instead the focus is on, why the hell the Kuwait-headquartered would be looking to get out of Africa, a move which the telecoms.com editoral team describe as going "against pretty much every noise the firm has ever made about its strategic ambitions", which is pretty much in line with the thoughts I articulated myself here last week.

The telecoms.com guys asked one of their Informa Telecoms & Media colleagues for her view, quizzing Thecla Mbongue, the firm's senior analyst covering Africa. Thecla was reported to be "bemused" but did reveal that she had picked up on some grumbling from Zain executives about governance problems in certain African countries. This was communicated to Thecla at a "recent ITM event". I guess that must have been the East Africa Com conference in Nairobi back in April, which I attended myself and where I bumped into Thecla and other ITM market watchers. I always seem to miss the real intrigue at these get-togethers. While Thecla was getting useful inside info from Zain-ites, I was merely walking the halls trying to sell my wares.

In last week's chat with telecoms.com, Thecla also suggested "that perhaps the firm is struggling with the low margins on offer in many of its African markets."

Other analysts, according to the telecoms.com article, are divided. One unnamed source claimed that some kind of sale is "extremely probable" because "Zain is highly leveraged and financially constrained"; Angel Dobardziev of Ovum, meanwhile, told telecoms.com that any sale is unlikely because "Africa is very strategic to Zain" and "it doesn’t look like it needs to make the sale" because although "Zain does have a high level of debt... it also has a lot of cash and, if you look at current asset prices, this is not a great time for a seller."

The plot (if there is a plot) thickens. Or this is something we'll have all forgotten about in a few days' time. Take your pick.

Zain Africa Speculation Watch: Episode 2

Advice for emerging markets cellcos looking to replicate the success of M-Pesa

I am fortunate to be receive, on a regular basis, very insightful reports from the TIME practice of management consultants Arthur D. Little. The most recent of these is upbeat about m-payment services. Some advice is offered to the various value chain players in emerging and developed markets. For the former, the advice seems to be directed largely at mobile opertators, from which we might infer that MNOs have the opportunity to establish themselves as the key players in developing countries.

Mobile operators, attracted into the m-payment space by minimal competition from conventional payment-channels in emerging markets, are advised to take "an active role in shaping the regulatory environment" because the competing financial industry may lobby for policies and regulatory mechanisms designed to keep MNOs at bay. Mobile operators are also urged to "focus on low value/high frequency transactions and have a special focus on remittances". Finally, Arthur D. Little advise operators to continue to build up cross-border partnerships to ensure cross-border interoperability of remittance services across emerging markets.

In March telecoms.com ran a feature which noted that mobile financial services have continued to gain traction, particularly in developing countries.

"Mobile financial services fall into two distinct camps; additive and transformational banking", states that article. Additive banking is defined as "services targeted at markets that already have traditional financial services at their disposal." Transformational banking is defined as "the practice of extending banking and payment services to those people who do not have ready access to banking facilities" - i.e. largely people in developing countries or migrant workforces in more developed countries.

The article notes that transformational banking is currently grabbing a good deal more column inches than additive banking and cites the well-known example of M-Pesa, initially launched by Kenyan cellco Safaricom and later launched in Afghanistan and Tanzania by MNOs Roshan and Vodacom Tanzania respectively.

Advice for emerging markets cellcos looking to replicate the success of M-Pesa

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."

A naked giant in a perfect storm

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.

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

Zimbabwe's troubles deter (most) big telcos from investing

I seem to have been writing about the world's trouble spots rather a lot of late. Continuing in that vein, let me now turn my attention to Zimbabwe, the unhappy scene of human rights abuses and economic mismanagement leading to hyperinflation and general impoverishment. A hotly disputed election and an outbreak of cholera have added to the myriad woes of the southern African nation.

The country's parlous economic condition has naturally affected telecoms operators.

On January 28, Global Mobile Daily reported that Zimbabwe's Econet Wireless had resumed post-paid services, after they were withdrawn in November due to foreign currency shortages. The resumption of post-paid services was made possible by the Government's “belated decision to allow operators to bill subscribers in foreign currency”.

That decision, however, seems to have led to price rises large enough to alarm the Zimbabwean telecoms regulator (POTRAZ), which, according to a recent Cellular News article, has now revised telephone tariffs downwards by up to 40% in a move meant to make services more affordable. This seems to be an interim measure, pending the completion of an ongoing review apparently intended to balance the affordability of services for consumers with the viability of operators.

Given the famously poor state of the country’s economy, it is 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. According to the World Cellular Information Service database maintained by Informa Telecoms & Media, Zimbabwean mobile market penetration stood at just 12.26% at the end of last year, compared to a 37.73% penetration rate for Africa overall.

This difficult market is contested by three cellcos. Econet Wireless is the dominant player, with 59.61% of the market by December 2008. Last month Global Mobile Daily reported that POTRAZ had invited Econet Wireless and its two existing competitors to apply for 3G licenses. The market-leading MNO has reportedly been ready to offer 3G services since summer 2007, but the commercial launch has been delayed by the lack of necessary frequencies that can only be allocated by the regulator, according to the GMD article.

The other two players are state-owned NetOne Cellular (25.51% share) and Orascom Telcom-backed Telecel Zimbabwe (14.88%). Willingness to Invest in countries whose political and economic climates are not to the taste of other telcos is something of a recurring theme for Egypt's Orascom Telcom. The company made headlines last year by offering mobile services in secretive international pariah North Korea. Other large international groups, however, are strikingly absent from the Zimbabwean scene. None of the bigger African mobile empire-builders - MTN, Zain, Vodacom, Orange - have made a move on what is a decent-sized market with a population of over 13 million. My feeling is that it will not be until there is a serious improvement in the country's overall prospects that any other major groups will be tempted to set up camp in Zimbabwe.

Zimbabwe's troubles deter (most) big telcos from investing

Africa or India: Which will be first to see mass-market MVNOs?

I was pleased to see confirmation that those to whom I handed over the task of organising this year's annual Eurasia Com conference in Istanbul have found a speaking slot for Cristobal Alonso, Chief Commercial Officer at mmChannel, a technology company dedicated to the development and management of digital entertainment services and platforms on a B2B format.

Cristobal and I have been in contact since mid-2007 without ever having the opportunity to meet face-to-face. This is a shame for me given how much he has to share about boosting the take-up of mobile value-added services. You can get some sense of Cristobal's ideas by having a look at his blog, where I noticed that he and I have something in common - we have both recently had the pleasure of attending a Mobile Monday Istanbul meeting. In January, I gained from the wonderful networking opportunity which Mobile Monday events provide and made a short presentation on the theme of mobile social networking. Cristobal was at the February get-together, and on his blog he reports on that meeting's MVNO-themed discussions. I imagine that was a lively session, given that the mooted market entry of MVNOs in Turkey has been something of a hot topic for a while now. Cristobal is quite right to compliment the MoMo Istanbul organiser Natali Yeşilbahar for the great job she has done to boost attendance and further improve the usefulness of the discussion sessions.

I guess Cristobal maintains a keen interest in whether MVNOs will succeed in emerging markets, given that his blog also mentions the insightful materials on this theme recently prepared by his colleague Carlos Valdecantos. Carlos asks whether there is any realistic prospect for successful MVNOs in Africa, where "most markets are experiencing pent-up demand, customer segmentation has only started to be a buzz word, and capacity is scarce." As Carlos notes, this is a markedly different scenario from that seen in the mature markets where MVNOs have sought to exploit the challenges faced by their host network operators, namely "slowing subscriber growth, lack of consumer segmentation, and excess network capacity."

As well as discussing which MVNO business models might work in an African context, Carlos segments the continent's many markets according to the likelihood of their being able to bear the entry of MVNOs. Carlos believes the high potential markets (good market size/GDP, strong economic liberlisation and a "dynamic" telecoms sector) are Morocco, Algeria, Tunisia, Egypt, Ghana and South Africa:

Assuming the onset of the global economic crisis has not caused him to revise his view, I assume that Peter Boyd, the former CEO of Virgin Mobile South Africa, would agree with this assertion. Back in July 2008, Boyd was quoted in a Middle East and Africa Wireless Analyst article as saying that "if there is one place where consumers need choice, it's Africa." Boyd argued that "you don't need multiple network licenses – that's an inefficient allocation of resources. Having an environment that lets people plug in an MVNO is a much more efficient way to serve consumers."

My former Informa Telecoms & Media colleague Matthew Reed wrote the article, noting that "even in South Africa, MVNOs are technically illegal. The only way for Virgin to introduce one was by forming a joint venture with Cell C, which holds a license to operate." If this and other barriers to MVNO market entry could be overcome, Boyd felt that the MVNO model enables the host network to sell its spare capacity, giving it new income to recoup expenses or invest in extending its coverage. This sounds quite compelling when applied to markets in which MNOs and governments jointly have the aim of extending the availability of services to less affluent prospective subscribers in the under-connected hinterland.

Matt's article noted that Virgin Mobile, then lobbying the Independent Communications Authority of South Africa for reduced interconnection fees, had acquired very few subscribers compared to the more than 40 million subscriptions shared by South Africa's three MNOs. Matt noted that while Virgin Moblile was lagging far behind the MNOs in this regard, "one figure where [it] is ahead of its rivals is ARPU, as a result of targeting higher-spending users rather than the mass market."

Has this situation improved for Virgin Mobile South Africa? It seem the answer is a pretty clear 'no'. Now led by new CEO Steve Bailey, the company has yet to have had a significant impact on the market, according to a more recent MEAWA article. Writing last month, Dario Talmesio notes that although the MVNO still has the highest ARPU in the market, "it had signed up just 600,000 subs by end-2008, and only 200,000 of them were active – giving it a market share of just 0.4%."

Talmesio reminds us that before launch, Virgin Mobile South Africa had hoped to acquire 10% of South Africa's mobile market within five years and asserts that target is now unrealistic. Talmesio feels that the company is unable to differentiate its services other than by using its distinctive branding. 3G services are not an option, notes Talmesio, because host operator Cell C, has not deployed a W-CDMA network. Of the three cellular network operators competing in South Africa, Cell C is alone in not having a 3G offering. Rivals Vodacom (50.98% market share according to WCIS) and MTN (35.55% share) began to sign up 3G subscribers in December 2004 and June 2005 respectively.

Virgin Mobile is also prevented from lowering its prices, Talmesio writes, because of the high interconnection rates it continues to pay. Talmesio also states that the MVNO has a more limited handset portfolio than its rivals.

In contrast to Virgin Mobile's highest ranking ARPU, host network Cell C had the lowest ARPU in the country in 2008, according to Informa Telecoms & Media. Talmesio writes that "from Cell C's perspective, hosting MVNOs makes sense when they can complement Cell C's market position and reach a different segment of the country's customers."

Talmesio seems to feel that Virgin Mobile South Africa has just one unique selling point: "the simplicity of its semiflat tariff" with "VMSA customers pay[ing] a premium rate in return for getting a simplified tariff".

Talmesio also argues that lateness to market may have worked against Virgin Mobile in South Africa, noting that "mobile penetration was already 72% when VMSA launched" and that "by contrast, the UK's penetration was just 40% when Virgin launched [there]". Therefore, he writes, "VMSA had to try to lure users away from incumbents rather than focus on greenfield users, as Virgin Mobile UK did in the late 90s."

If this last point is one of the most important inhibitors to strong growth for Virgin Mobile South Africa, this might suggest that, favourable regulatory regimes permitting, less highly penetrated markets in Africa might prove more fruitful for future MVNOs. Of the countries coloured green on the map above, perhaps Ghana looks the best bet, then. I also wonder whether Nigeria might be a viable environment for new MVNOs.

Whether MVNOs do succeed in Africa, or in other emerging markets, remains to be seen. Writing for Billing World in September, Patrick McGrory of customer care and billing giant Amdocs felt that "new services — Internet access, VoIP, WiMAX — and evolving business models like MVNOs enable cheaper and faster deployment in areas that previously were not viable prospects".

Two companies seemingly not about to launch MVNOs in an emerging market are Ericsson and Nokia. A Total Telecom report last Friday rubbishes recent rumours that the Scandinavian firms were planning to offer MVNO services in India.

"The speculation is completely incorrect – it's pure nonsense," an Ericsson spokeswoman told Total Telecom.

"Nokia is not planning on offering MVNO services in India," commented a Nokia Siemens Networks spokesman, who added "we provided input and advice to the Telecoms Regulatory Authority of India to help educate them with our experience of providing services to MVNOs, and that was it."

The denials of these two companies notwithstanding, some analysts feel that the Indian market is ripe for exploitation by MVNOs. The Total Telecom article quotes a research note from Ovum which states that "being able to enter a huge market with a population of 1.2 billion people when the mobile penetration rate is extremely low at around 26% is certainly a dream prospect for MVNOs, and many will find it hard to resist." My former Informa Telecoms & Media colleague James Moore is quoted as saying "the MVNO model will be an opportunity for GSM operators without a 3G license to offer WCDMA services."

If Africa continues to be a hostile environment for prospective MVNOs, perhaps it will be India which proves to be the first emerging or middle income market in which virtual wireless operators gain traction and become a large scale phenomenon.

Africa or India: Which will be first to see mass-market MVNOs?