Africa Telecom Industry – In Search for a New Profitability Model

Competition, Profitability & OTT Challenge

The global telecom market is experiencing fierce price competition among Telecom Operators on their primary voice and data services which has reduced aggregate global industry revenues over time

The Industry has also contended with Innovation from Over-the-Top (OTT) players like WHATSAPP, SNAPCHAT etc. utilizing technology to convey voice calls/messages over the Internet at a fraction of the cost of a traditional voice call. The result of this is that, the ‘Voice driven” telecom business model is being cannibalized.

Operators are seeking growth from Data (mostly Mobile Internet). Some markets are experiencing massive data subscriber growth of 18% amidst slowing voice market. The growth in data subscription means that the industry will need to spend about $200 billion annual industry CAPEX mainly to meet increasing data demands although, given the declining industry returns on capital employed and revenue tapering down to very low single digits, justifying this new investment is becoming difficult.

It is no longer sustainable to invest in an internet driven business model which requires more CAPEX to deliver lower rate of growth in revenues. With the need to increase broadband internet penetration, a new business model needs to evolve.

The challenge with SCALE and EFFICIENCY

With the contraction in industry aggregate revenues, only a finite number of operators can pool resources to operate successfully in any market or across several markets. Even with all necessary cost-efficiencies, only an operator with significant scale can make a positive net margin. Consolidations and rationalization of telecom operations is now becoming routine.

Operators without such scale will be perennially cash flow negative and will either have to consolidate with another operator to extract some margins acquired by bigger healthier operators or die with creditors in their wake.

Telecom operators can still thrive with reinvention of their businesses to be more innovative and translate their assets to more creative services connecting to their customers’ everyday lives.

Telecom Infrastructure as Backbone of New Digital Economy

Telecom now represents the infrastructural backbone powering DIGITAL innovation and socio-economic development in any economy. Pervasive broadband access is considered critical to support national economic growth objectives. New regulatory framework needs to emerge to create the right atmosphere to drive expected growth.

There is a need to find an efficient model (CAPEX and OPEX) of deploying Broadband Infrastructure to support a broadband penetration Objective of Government

The current business model is a challenging situation which will have negative implications on the economy in the medium to long term. A shared broadband access network could be a way of addressing this challenge, reducing cost of deployment and improving penetration.

Making A Case For Shared Broadband Networks In Emerging Market

According to Cisco Global Mobile Data Traffic Forecast Update, 2015 – 2020 White Paper, it is expected that global mobile data traffic will grow by eight -fold over the period 2015 – 2020. Mobile data traffic will grow as a compound annual growth rate of 53% to reach an average of 30.6 Exabyte per month.

The implication of this growth is that many network operators will have to invest significant amount of CAPEX in order to build capacity to carry this traffic. Same report pointed out that 75% of mobile data traffic will be video which further compound the pressures on current networks.

Also, data traffic is expected to record massive growth, the corresponding revenue is not expected to experience the same growth trajectory, as average price per GB is expected to decline. This makes the case for massive investment by each network provider to rollout independent network very weak; thus, the existing players will be unable to rollout services faster and deepen 4G penetration beyond main urban centers.

Silver Rock believes that the rollout of 4G services can be made faster and more cost effective if countries adopt a shared Wholesale Network approach that will focus on an aggressive nationwide deployment of broadband network access not only in the high traffic urban areas but also in the deep rural underserved areas.

The Entity will provide wholesale capacity to existing incumbent GSM & 3G operators, Broadband Wireless Access operators, Existing ISPs as well as new entrants such as MNOs and other service providers that will require broadband infrastructure. A successful roll-out of broadband services over 4G will help promote economic development opportunities throughout the country of interest especially in the underserved areas.