The new battleground for African cellular operators
"The growth game in the cellular market has changed irrevocably. Data - not voice - is where the real growth will take place in SA and the rest of the continent argues FTC's Lûizet Ruzow."
The growth game in the cellular market has changed irrevocably. A recent FeverTreeConsulting survey looking at possible growth strategies for the mobile telephony industry concludes that neither increasing subscribers nor increasing the Average Revenue Per User (ARPU) is likely to generate the kind of ambitious revenue growth that the African mobile operators have in mind.
The macroeconomic and demographic realities are sobering.
The traditional growth route of increasing subscribers is an unlikely avenue for significant future growth. The South African market is mature and nearing saturation point with a mobile penetration of 112%, whilst in other African countries, mobile penetration rates are not as low as initially thought. In addition, most of these countries also have a considerable "youth bulge" in their population structure further militating against significant growth through new subscriptions. In Kenya for instance, 43% of the total population is younger than 15 years. In Liberia, this figure is 42%. The key issue here is that if close on half the population is not yet economically active and has limited spending power, it does not present a significant growth potential for cellular operators.
Increasing the average use per user has similar limitations. The steep income disparities in many African countries mean that new subscribers are generally coming from segments of the population that can hardly afford the service. In addition, subscribers in resource-scarce North Africa and sub-Saharan countries, generate very low ARPU's.
Data is the new frontier. Leveraging ways to increase the uptake in data and Internet services will become the primary mechanism by which mobile operators increase revenue in the future. Significant demand is being fuelled by a proliferation of mobile-ready devices such as tablets, gaming consoles and smart phones, as well as widespread mobile video consumption. The arrival of new undersea cables will further remove some of the bottleneck created by Africa's hitherto lack of international connectivity and "open" the potential data market significantly.
The Cisco Visual Networking Index's Global Mobile Data Traffic Forecast anticipates that by 2015, the mobile network will break the electricity barrier in more than four major sub-regions. This means that sub-Saharan Africa will have more people with mobile network access than with access to electricity at home. By 2015, mobile video is forecast to represent 66% of all mobile data traffic increasing 35-fold from 2010 to 2015 whilst mobile traffic from tablet devices is expected to grow 205-fold in the same period.
That data will overtake voice at some point, is therefore a given. The Cisco Index pegs the mobile data growth for the period 2009 – 2012 at 40% and projects a 70% growth for the period 2012-2014 (with an accompanying 4% drop in voice revenues).
However, the real issue at hand is how fast operators will be able to leverage data as a significant revenue stream. There are a number of critical success factors.
A huge, untapped market for data services lies in the prepaid market. The level of demand for data services is directly linked to the type of handset and the costs thereof. Lower priced smartphones are therefore an essential element in the drive to increase data demand in this sector.
Directly linked to this is of course a reduction in the cost of data for consumers. Whilst the retail prices of mobile broadband are still relatively high in the region, there are signs that these are coming down, due in part to lower wholesale costs. This is yet another all-important element that will drive the increased uptake of data services.
In addition to the key element of affordability, the certainty of a future stream of customers is essential. We now can accept that penetration levels in Africa are somewhat higher than generally thought and with the under-15 market making up a significant portion of the addressable market. What counts as a limitation today, in fact bodes well in terms of future projections. This is especially relevant when seen within the context of Africa's overall projected economic growth.
Seven of the world's 10 fastest-growing economies are now African. The African Development Bank predicts that by 2030, much of Africa will have attained lower-middle class and middle-class majorities and that consumer spending will increase from $680 billion in 2008 to $2.2 trillion.
Against this backdrop, the "youth bulge" in the general African population today is an opportunity for tomorrow as operators are more or less certain of a regular stream of new, young customers increasingly literate in data and video usage and increasingly able to afford it.
Back home, here in South Africa, players are trying to increase their share of the pie with new and innovative marketing and price management strategies already having been applied to certain data products. I predict ever more focus on driving data uptake in the months and years to come. It is the new battlefield and might just be the sweet spot for all players spoiling for a fight in voice market reaching saturation point.