Africa’s top table

If there had been any doubt whether the pace of business was slowing down on the back of the global economic meltdown, comments made by Chris Gabriel, CEO of Zain Africa at Africa Com brought the issue clearly into perspective. “We are shopping. We have US$4.5 billion in cash from our rights issue, and we are looking to spend it,” Gabriel declared, stating that over the next 12 months Zain was looking to close three or four acquisitions. “Our strategy is based on building scale, leveraging very high growth markets and the creation of a global brand,” he added.

Africa’s pre-eminent telecoms players assembled in Cape Town for the 11th annual Africa Com event last month, concerned whether the global financial crisis is likely to affect the business in Africa. What became apparent after two days of networking and conversations was that m-banking, falling ARPUs and broadband expansion are that factors that operators on the continent are really concerning themselves with, while the tightening of liquidity is likely to spur further consolidation

However, even operators with the firepower of Zain are finding market conditions hardening, with the Kuwaitlisted operator having seen billions of dollars wiped off its market capitalisation over the last six months as financial markets lose appetite for stocks.

Zain’s reduction of its subscriber target for 2011 from 150 million to 110 million, representing an adjustment of 27 per cent, is another indication that market conditions going forward are likely to remain challenging as competition for greenfield as well as existing investments is likely to remain fierce.

The success of Safaricom’s M-PESA money transfer system has raised the prospects of the successful extension of banking services to previously unbanked members of society. Safaricom CEO Michael Joseph has previously indicated that as a standalone service, M-PESA offers the operator very thin margins, but as a service that drives differentiation and marketing, as well as a reduction in churn, it is a highly effective service.

Zain is in the process of developing its own m-commerce platform, which is branded Zap! It facilitates transactional banking and is in the process of being introduced in East Africa first. It will be available on low cost handsets, with the plan being to extend it to other Zain territories over time.

MTN Group’s Tim Lowry, who acts as VP for southern and East Africa, and MD of South Africa, said the company’s vision to become a leading communications operator in emerging markets began in 2004, and its path to achieving this has been rapid and impressive.

Last year, MTN added 20 million customers, with six million users being added in Iran in the first half of 2008 alone. No doubt spurred on by innovations such as Zain’s One Network, MTN has been modernising its tariffing structure, having introduced its MTN Zone product, which offers customers significant discounts on calling rates depending on how busy or empty the network is.

“Affordability, simplicity, clarity, and flexibility are the premise of MTN’s offering,” Lowry said. “The theme of my keynote is telecommunications beyond barriers and borders, and in order for this to be achieved effectively in Africa, issues around the pricing of devices, submarine cable investment, and transmission networks need to be addressed.”

Lowry revealed that MTN had a team in China earlier in the month charged with looking to purchase mobile handsets at as little as US$10-US$12 a unit, with markets such as Uganda and Zambia having the capacity to sell as many as 5,000-6,000 low cost handsets a week.

The expansion of broadband access across Africa is clearly a significant opportunity, with numerous incumbent and start-up service providers looking to capitalise on the low broadband penetration and pent-up demand for access technologies.

According to Mark Newman, chief research officer of Informa Telecoms & Media in the UK, while WiMAX had been a strong potential bearer of wireless broadband technology across the African continent, greenfield build outs utilising WiMAX are likely to be curtailed by the global economic downturn.

“We think that the financial crisis will have an impact of the greenfield investment in WiMAX and as such we have revised the number of WiMAX subscribers we expect to see coming
to market in the next few years,” Newman said.

Noel Kirkaldy, Motorola director of wireless broadband services in the region, remains a tireless advocate for the suitability of WiMAX in the deployment of wireless broadband networks, citing the decisions by South African service providers such as Sentech, Neotel and i-Burst to utilise the technology.

Sustainability was a topic of discussion at Africa Com, as operators sought ways to reduce OPEX, while at the same time expanding networks to more remote areas

“The reason to deploy WiMAX is data,” Kirkaldy said. “There is a real renaissance of the fixed-line globally, and in Africa that is no different. I think deployment of nomadic WiMAX networks is what we are talking about in the African context and the business case is improving all the time given developments of in-building solution and availability of multimode devices,” Kirkaldy added.

As for Newman’s forecast that the credit crunch would negatively affect the launch of greenfield WiMAX networks across the globe, Kirkaldy is of the opinion that it is not just start-ups that will be affected, but also the operators and investors behind them. He offered the examples of Atheeb Communications in Saudi Arabia, which is backed by Batelco amongst others, and Wi-tribe in Jordan and Pakistan, which is backed by Qtel, as backing players that would also need to adapt to the current economic climate.

The global economic situation has also wreaked havoc with one of the most anticipated initial public offerings of a telecoms operator in East Africa – Safaricom. On June 9, shares Safaricom began trading on the Nairobi Stock Exchange, in the largest IPO ever in sub-Saharan Africa. The listing of 25 per cent of the company owned by the Kenyan government—raised US$800 million and valued Safaricom at around US$3.2 billion.

However, Safaricom’s share price has fallen by 20-25 per cent since the IPO, and in hindsight the company’s CEO, Michael Joseph, describes the timing of the IPO as unfortunate.

“I think too many shares were offered too cheaply, and perhaps what ought to have been done is for fewer shares to have been offered to the public, but at a higher price,” Joseph suggested. “The performance of the IPO has definitely affected the brand name of the company.”

Away from the stock market woes, Safaricom remains a formidable company, counting a subscriber base of 12 million, which represents a market share of nearly 85 per cent. Given the intensification of competition with the entrance of Orange and Yu (Essar Communications and Econet Wireless), Safaricom can expect its market share to be affected, though Joseph is of the belief that his company will remain in a commanding
position in the future.

Zain CEO for Africa, Chris Gabriel said the operator was now targeting 110 milion subscribers by 2011, not 150 million as originally forecast under the ACE strategy

“I forecast that Safaricom will still be able to retain a market share of between 65-70 per cent in three years time,” Joseph said. I believe network coverage is the first significant differentiator. After that is service quality followed by brand loyalty.”

The competitive temperature in Kenya is definitely rising, and on September 17, Orange became the commercial brand for Telkom Kenya, following France Telecom’s acquisition of 51 per cent of the telco’s capital in December 2007.

The launch of a GSM network, alongside new mobile and broadband Internet offers under the Orange brand constituted a decisive step in Telkom Kenya’s development. Initially, broadband Internet and mobile offers were available in Nairobi and Mombassa only, but are progressively being extended and rolled out across the whole country. Additionally, with the arrival of undersea cables planned for 2009 and a pricing policy adapted to the country, Telkom Kenya is setting itself up to adopt a leadership position in broadband Internet.

At launch, Orange’s ambition was to increase its customer base to 1.5 million customers within a year (from 500,000 fixedline customers), through high quality services and the strength of the Orange brand.

“Orange Kenya has done some stupid things,” Joseph commented, in relation to the French operator’s market entry strategy for the mobile space. “The operator now has 50,000-100,000 subscribers depending on which media source you follow.” Thus Joseph remains confident of securing Safaricom’s future in the face of a growing number of global brands participating in the Kenyan mobile market.

The massive rebranding exercise undertaken by Zain in the middle of the year also impacted its operation in Kenya; though for all the high-profile campaigning, Joseph claims the effect on the market dynamics in the country have been negligible.

“Churn in Kenya for Safaricom did not change when Zain rebranded aggressively,” Joseph declared. “Even when number portability is implemented, we will have to go along with it, although it has not been successful anywhere in the world and we do not believe it will make any difference in Kenya.”

Given the emphasis that has been placed on branding in Africa’s telecoms space of late, a growing number of operators are re-examining their own brands and considering how best to strengthen their market image. Atlantique Telecom is one such operator, having been acquired by Etisalat in April 2005. Having originally purchased a 50 per cent stake in the company, Etisalat has since built that stakeholding up to 82 per cent.

Atlantique Telecom operates in seven markets in Africa, and under several branded names that are specific to the market. A partial rebranding has occurred incorporating the company’s various operational entities under the ‘Moov’ brand, though given Etisalat’s presence on the African continent directly, there remains an opportunity to tie all networks together under a single banner.

“We are examining whether to consolidate under one brand,” said Abdul Aziz Al Mutawa, CEO of Atlantique Telecom, Cote d’Ivoire. “We ought to have a decision on this by the end of the decade.”