CDMA to GSM migration: another one jumps ship in Africa

Reports of the death of CDMA have been greatly exaggerated. That has been the theme of of few articles I've posted here. In March I blogged on claims made about the standard being in rude health in Nigeria. A month earlier, I was writing about operators betting on CDMA in India. That article, however, did report on the seemingly unstoppable rise of the GSM family and the constantly eroded global market share of CDMA. Contributing to this trend is the phenomenon of former CDMA operators migrating to the more successful technology. An example of this is currently underway in Africa.

I learned via Telegeography yesterday that Rwandan mobile operator Rwandatel is continuing to switch users from CDMA mobile phones to 3G-enabled GSM handsets.

According to the article, which quotes RwandaTel CEO Patrick Kariningufu, the MNO is handing out new GSM handsets to an estimated 20,000 subscribers mainly located in rural areas. The move is said to be part of the company's response to increased competition.

The country's mobile market is currently split two ways - but the slices are very differently sized. MTN's Rwanda outpost has 82.61% of the country's subscriptions according to WCIS. Until late last year, Rwandatel, as a purely CDMA operator, was doing OK in terms of slowly chipping away at MTN's dominant position. The decision to migrate to GSM/W-CDMA was made some time ago, however. A Global Mobile Daily note of December 5th indicates that while the new network was launched around that time, the operator, a unit of Libya's Lap Green, had hoped to make the move to GSM earlier last year but was prevented from doing so by equipment shipping delays caused by the post-election violence in Kenya.

Both cellcos will be preparing for the impact of a new challenge to the status quo. This comes in the form of a soon-to-be-launched Tigo-branded MNO, the newest part of the Millicom International Cellular empire.

In November, GMD reported that Millicom had been awarded Rwanda's third mobile operating license by the Rwanda Utilities Regulatory Agency, which reportedly rejected competing bids from Zain and Telecel Globe, a company owned by Orascom Telecom. Millcom's new operation will offer mobile and fixed-line services.

Market-watchers will be interested to see if Rwandatel's migration to GSM will be enough for the operator to compete effectively vs. this new entrant and the well-established MTN operation.

CDMA to GSM migration: another one jumps ship in Africa

Cellcos banking on m-financial services in tough 2009?

I recently made reference to the Mobile World Congress preview written by my former colleague, Informa Telecoms & Media Chief Research Officer Mark Newman. Mark's article was in large part dedicated to wondering about how tech vendors would be able to balance showcasing next generation mobile broadband technology with addressing operators' concerns about the need control costs in response to the global economic downturn. Right at the end of the article, however, Mark found the time to say that he felt growth potential in emerging markets will remain a theme of so this year's event, adding that discussions could centre on mobile banking.

There does seem to have been plenty of activity in this area of late, across a wide range of emerging markets. Yesterday's Cellular News email carried a highly relevant article about UK-based Monitise, which says that it has been awarded US$1.5 million by the Africa Enterprise Challenge Fund (AECF) to help fund the launch of its mobile banking and payments service in East Africa.

Monitise East Africa will initially offer services in Uganda and then plans to expand into Burundi, the Democratic Republic of Congo, Ethiopia, Kenya, Rwanda, Tanzania and Zambia. The service will enable the provision of banking, payment and money transfer services by both banks and mobile networks, within the regulatory framework of each market. Hugh Scott of AECF said: "By helping enterprises to build successful businesses in Africa, we believe that we can make market systems work better and generate wealth that benefits the entire society. Through the extension of the reach of the banks and allowing people to save, make payments and transfer money to their families, we believe that Monitise East Africa has the potential to transform the economic outlook for literally millions of people. I also firmly believe that in due course many of the people who use the service will, through the empowerment that a savings and payments culture delivers, become business people themselves, creating a truly sustainable economy."

The cellular news piece mentioned that the news from Monitise and AECF coincides with a recent launch by the UK's Department for International Development of a £1.4 million fund to spur the development of biometric and mobile phone-based banking in emerging economies in Asia and Africa. Known as Facilitating Access to Financial Services through Technology (FAST), this project will explore the options for introducing 'branchless banking' in developing countries and look at how technologies such as mobile phone banking can help the poor to access financial services.

Also in the news in recent months have been related operator-led initiatives - or at least initiatives in which certain MNOs are key partners. Again with reference to East Africa, I read a Global Mobile Daily new item just this week about Zain launching mobile banking services in Kenya and Tanzania in partership with Citigroup and Standard Chartered. Branded 'Zap', this service is also set to be extended to Uganda. Zain intends to offer the mobile banking service as part of 'One Network' allowing subscribers to send airtime to each other across Kenya, Tanzania and Uganda without roaming charges. 'Zap' is supported on all devices including ultra low cost handsets (ULCH) which are especially popular in Africa.

I also noticed last month, again courtesy of Global Mobile Daily, that in the same region, Rwandatel, the Rwanda-based unit of Libya's LAP Green will launch a mobile banking and cash transfer service in October 2009, according to reports, allowing subscribers to send and receive money via SMS. The operator has a target of 600,000 subscriptions by the middle of 2009. My feeling is that the low level of mobile penetration in the country (13.36% at y.e. 2008, according to WCIS) will be something of a stumbling block. I daresay that higher rates of penetration in some of the other markets mentioned here will mean that the benefits of mobile banking will spread faster elsewhere.

Ugandan incumbent telco, Uganda Telecom, meanwhile, has selected software developer Redknee to provide its 'Mobile Money 2.0' mobile money transfer solution, according to a Global Mobile Daily article this week, which reports: "Redknee's new Mobile Money 2.0 service will aim to allow subscribers to store and transfer money through their mobile device, and will be targeted at rural communities with poor or limited banking resources. Implementation of the solution will begin as soon as all requirements for launching the service have been approved, and will initially be available for subscribers making domestic payments and transfers, before being expanded to microfinance initiatives."

While there is plenty of mobile banking news coming out of East Africa, Francophone West Africa has seen fewer developments. In December, Global Mobile Daily reported that Orange, together with French bank BNP Paribas, will launch its Orange Money service in Côte d'Ivoire, apparently the first mobile-based payment and money transfer service in Western Africa, according to the operator.

This claim seems a little strange given that around a month earlier, GMD reported that Senegal's Sonatel is to offer the Orange Money mobile money transfer service in the country in partnership with banking group BICIS.

As a UK citizen, currently resident in my home country, and as someone who has lived in Poland, I could not have failed to notice this decade's westward movement of people from the EU accession countries of Central and Eastern Europe. When I returned from Kraków in 1997 after four enjoyable years working there, I initially found it frustrating to have very few opportunities to practise speaking the Polish language, with which I'd made some headway in my time away from home. In the years that followed, it soon became that case that not a day would pass without having the chance to chat with someone po polsku, be it a colleague in the office, the guy delivering groceries, the lady serving me coffee on the way to work or the carpenter quoting me a (very good) price to build a bookcase. It felt like Polska had followed me across the Baltic en masse. I love it that I can buy a jar of bigos and a packet of pierogi z mięsem on the high street of the SE England commuter town where I now live. It also makes me smile to travel along London's Finchley Road and see Polish language bus shelter advertisements for money remittance services. My guess is that a good proportion of the monies earned by the grocery van driver, the coffee shop lady and the carpenter have been sent back to Poland to support families there.

In December, the UK's NatWest bank gave these members of our large Polish migrant community a new option - send money to Poland from the ‘Polish Welcome Account' via a mobile money transfer service. Maybe it's a pity that this service was not launched sooner. My feeling is that the number of Poles working in the UK is set to fall rather than rise. That said, a Banking Times article of 23rd December indicates that Polish migrant workers send an estimated £1 billion a year to their homeland.

Migrant workers sending money home via mobile remittance services could be one of the m-financial services applications with the best prospects. Of these, I would guess that the new international version of Safaricom's M-Pesa services may become one of the most widely known.
M-Pesa, developed in partnership with Vodafone, has just netted another award at Mobile World Congress. Receiving the awards, Safaricom CEO Michael Joseph said: “We are very proud of the M-Pesa service. It continues to impact positively on the millions of Kenyans who have no access to banking services."

Now, in addition to Safaricom subscribers being able to transfer money and make payments within their home country, they can now take advantage of an international money transfer service between Kenya and the UK. According to a Global Mobile Daily article back in December, users of the service will be able to send money from Western Union agents in the UK to subscribers to Safaricom's M-Pesa mobile money transfer service.

Hot off the press today is news of further investment in an MVNO set up specifically to leverage the demand for international remittance services for migrant workers. Japan's Sumitomo Corporation today announced its involvment in Malaysia's first-ever MVNO, Merchantrade Asia Sdn Bhd, whose focus is prepaid mobile and remittance services targeting foreign workers, from Bangladesh, Indonesia, Nepal, the Philippines, Vietnam, India and Sri Lanka. The press release indicates that in Malaysia there are over 2 million foreign workers in various industries such as construction, plantation, manufacturing and service sector.

Merchantrade launched its mobile service in mid 2007 and as of January 2009, it has 94,000 active subscribers, according to the press relase, which continues: "as for the remittance service, Merchantrade obtained the license to operate remittance business from Central Bank of Malaysia in 2007. One of the pioneer non-bank organizations to receive license to operate remittance business in Malaysia, Merchantrade outbound remittance transaction numbers is growing aggressively. Such remittance service is in line of the global efforts targeting to secure the transparency on the personal remittance."

All of the above suggests that Mark Newman is not too far wide of the Mark in tipping mobile financial services in emerging markets as a bright spot in a tough 2009.

Cellcos banking on m-financial services in tough 2009?

Millicom's global emerging markets strategy examined

Following my recent posts here regarding 2008 results and 2009 forecasts from the emerging markets components of the Telenor and TeliaSonera businesses, I would like to examine the performance of a company whose main focus is to provide affordable, widely accessible and readily available prepaid cellular telephony services in developing countries.

In April 2008, I spent an enjoyable two weeks visiting a very diverse range of telecoms service providers in four South American countries. At the time, I was responsible for the development of the Informa Telecoms & Media-produced annual Americas Com conference and exhibition, part of the Com World Series, a global suite of emerging markets-focused telecoms sector networking and discussion events. In the case of Americas Com, which under my watch was held twice in Rio de Janeiro, we were working to broaden the audience. Formerly known as GSM Americas, the event had a strong track record of gathering executives from mobile operators, particularly from Brazil and the Cono Sur countries of Argentina, Chile and Uruguay. I was keen to connect with prospective speakers and delegates from less well-represented countries. Another priority was to reach out to wireline operators of various kinds. Across the four countries I visited, therefore, I had meetings with people from national incumbent long-distance carriers, several cooperative-owned LECs and a cable MSO - as well as with MNOs on every stop of the tour.

In Paraguay and Bolivia, I met with very friendly people working for the Tigo-branded mobile operations of Luxembourg-headquartered Millicom International Cellular. For someone trying to secure top-level conference speakers, Millicom is a tough nut to crack. Having their executives speak in a public forum about company strategy or the company's view of technology choices is not something the group seems enthusiastic about.

This week, as picked up by Telecompaper, Millicom released Q4 2008 results and discussed its plans for the year ahead. The company reported fourth-quarter EBITDA up 31% percent from a year earlier to USD 406 million and revenues up 18% to USD 907 million.

Millicom met its target for an EBITDA margin of 45% in the period, but net profit fell to USD 66 million from USD 113 million a year ago, due to a net charge of USD 55 million for tax and forex losses. Total subscribers rose to 32.0 million at year-end from 30.6 million in the third quarter.

The company plans capital spending of USD 1 billion in the current year, down from USD 1.4 billion in 2008. Millicom says that it also plans to lower OPEX due to the challenging economic environment, and also expects a continued impact on results this year from the stronger US dollar. The cellco is also aiming to scale back its promotions in Latin America to focus more on higher value customers. Millicom says this is due to slowing subscriber growth in increasingly penetrated markets.

For me, this is very familiar territory. I have lost count of the number of presentations I have heard from companies in the broad customer management/billing/CRM space which urge operators in developing countries to be ready for market maturity. The mantra tends to go something like this: identify the highest-value customers, decide if you want to keep the less profitable ones (or have your competitors handle them), maximise the value of every customer, prevent churn.

In a number of the Latin American countries in which Millicom competes, market conditions do indeed seem to be at the stage where these kinds of issues need to be treated with some urgency. El Salvador broke the 100% mobile penetration barrier in December, up from 77.59% a year before. Other highly penetrated markets in the Millicom footprint include Guatemala (84.49%), Honduras (79.25%), Paraguay (81.21%) and Colombia (90.71%). In the Latin American arm of the Millicom empire, Bolivia stands out as a market with rather more room for growth, mobile penetration having reached 51.32% by December 2008, up from 40.96% one year earlier.

I am not clear whether Millicom intends to sharpen the focus on higher-value customers even in somewhat under-penetrated Bolivia - or whether reaching less affluent, lower ARPU population segments remains a priority there. If Tigo Bolivia does not go after these segments, there are other players who may be keen to step in.

It was in Bolivia that I met representatives of telecoms cooperatives. Collectively, these co-ops are the leading providers of local fixed telephony, ahead of recently renationalised national incumbent long-distance carrier Entel. The two co-ops we visited also bundle pay-TV services with fixed voice. Several of them offer mobile services as MVNOs. For me, the visits to co-ops in Santa Cruz (COTAS) and Cochabamba (COMTECO) were as much about fact-finding as about banging the drum for our Americas Com conference. I knew little about how these purely local telcos are organised and what their strategies are. I learned that a component of those strategies is to reach outlying settlements and bridge the urban-rural digital divide.

Moving north, Central America is home to the one Millicom holding which bucks the trend of building and buying mobile operations only. In this week's report, the company said that the fixed-line business it acquired in July last year is performing as expected.

This asset, the triple play cable TV group Amnet, operates coaxial and FTTH networks in Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica. When this acquisition was confirmed, Global Mobile Daily speculated that "the move would appear to be aimed at Tigo being able to offer quadplay services in Latin America."

This week's report from Millicom indicates that the company is enjoying improving margins in Africa, where it plans to sell its Sierra Leone operation. I was curious about why Millicom would want to sell one African operation so soon after buying a licence in another market - in November the company announced it has been awarded the third national mobile licence for Rwanda.

On the face of it, Sierra Leone does not appear to be a wholly unattractive market. Mobile penetration has grown strongly in recent years - from 5.45% at year-end 2005 to 29.87% by December 2008, a figure which leaves good growth potential to be exploited. However, Sierra Leone is the lowest ranked country on the Human Development Index and seventh lowest on the global Human Poverty Index, and is known to suffer from endemic corruption - a challenging place to do business. Millicom has also fared less well than most of its rivals in the Sierra Leone market. Currently, the Tigo operation lags far behind market-leading Africell (36.04% market share), 2nd placed Comium Sierra Leone (31.78%) and 3rd placed Zain Sierra Leone (24.80%). Tigo's market share? Just 7.38%, ahead of only chronic laggard Datatel (0.01% ).

Millicom is not really going in the right direction in the battle for market share in Sierra Leone. In December 2005, Tigo had 9.15% of subscriptions. This fell to 7.92% a year later, rose to 9.17% by December 2007 and then dropping off again over the last twelve months.

Millicom generally does rather better in the smaller markets it serves, enjoying the top spot in El Salvador (pop. 7 million), Guatemala (pop. 13 million), Honduras (pop. 8 million) and Paraguay (pop. 7 million). It looks to me as though the combination of a small overall market size and a long struggle to carve out a decent chunk of that has finally made Millicom go cold on Sierra Leone in these challenging times.

Another market in which the company faces challenges is Senegal. In November, Global Mobile Daily reported that Millicom had begun arbitration proceedings with the International Center for the Settlement of Investment Disputes (ICSID) against the Senegalese Government, which had suspended the operator's license.

It was in the same month that Millicom announced the USD 60 million purchase of 15 year licence to operate in Rwanda. There is certainly room to grow there. Mobile penetration is low at around 13.5% and the population is only served by two incumbent operators, RwandaTel and the market-leading subsidiary of South Africa's MTN.

According to the GMD article, Marc Beuls, President and CEO of Millicom, notes that the Rwandan company can forge some synergies with its Congo and Tanzanian operations and also says that the country has a well developed road and grid infrastructure, which will enable the company to build out a network quickly and cost-effectively.

In these challenging times, Millicom seems to be an example of a telecoms group with far-flung operating units that is looking hard at these various operations and making context-specific business decisions rather than pursuing a one-size-fits-all approach to emerging markets worldwide.

Millicom's global emerging markets strategy examined