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.