The inconvenient truths of African telecoms

Africa’s telecoms and internet sectors have made enormous progress over the last ten years and many barriers to the expansion of the business have come down.

But there are still a number of inconvenient facts that stand in the way of the business continuing to grow and attract new investment.

Russell Southwood tries to identify the walls that will need to come down to speed new growth.

Africa’s telecoms and internet industry has two kinds of problems: those that can be changed reasonably easily (see below) and those that are much more difficult to change (power supply, geography, etc). The list below seeks to identify a short list of things that can and should be relatively easy to change:

Inconvenient Fact No 1: Bandwidth prices

International wholesale fibre bandwidth prices in something like 20+ African countries are 4-5 times the price that they are in Africa’s more competitive markets.

These same countries also have some of the highest national fibre prices because many still have a monopoly telecoms operator as the cornerstone of their market.

With certain exceptions, satellite bandwidth is ridiculously expensive to deliver reasonably priced services to remote areas. The price is set by the oil and mining industries and they have the kind of deep pockets that rural Africans do not.

Bandwidth is the petrol of the Internet economy and any African government that says it wants an “information society” (blah, blah, blah…) and does not nothing about the level of these prices is not serious about creating wealth and global access for its citizens.

Inconvenient Fact No 2:  Data costs

Even in some of the most competitive African countries, it still costs more to go from the coast inland than it does to go from the coast to London.

For example, in Nigeria, although prices have fallen from thousands of dollars per mbps on these routes (Lagos-London, Lagos-Abuja) to hundreds, the Lagos-Abuja route is still more expensive than the much longer Lagos-London route.

Prices in all parts of the network need to fall and the “rent-seeking” rates of dominant players (like MTN in the Nigerian context) need to end. Africa’s data future needs an increasing number of data customers on the new cheap smartphones (see Telecoms News below).

Inconvenient Fact No 3: Revenue share

Whether it is revenue shares on SMS or the share taken on operator billing, Africa’s mobile operators always seem to assume that they take the lion’s share of revenues in any value chain.

Recently Skrill (with Microsoft) has been working on providing a billing system with mobile operators where between them they only take 20%, leaving the rest to the content or service provider.

One mobile operator has been giving an Internet start-up it has invested in a 0% deal and privately acknowledges once it has started to succeed that the figure will be more like 7-10%.

Mobile operators need to understand the future and start creating the conditions for e-payment as quickly as possibly.

How will all of this happen?

There are several different stakeholders and they all have a role to play:

The Mobile Operators: They have to start looking forward to the new African data era and stop worrying about being a “dumb pipe”.

A low margin, high volume data business is entirely honourable. If you want to add value with OTT services, make local players successful by facilitating their success. You can always buy them in the ed.

Trying to compete with them is a fool’s errand. No mobile operator has a right to a certain business model in perpetuity. As the Black Panthers used to say, you’re either the steamroller or the road.

Regulators: Stop looking at all problems through the rear-view mirror of the last decade. Africa needs the cheapest possible data networks so prices to African users are as low as possible.

Encourage innovative services like Viber and What’s App rather than seeing them as a threat to the current business. When the business model changes, defending the old business model only delays disruption happening.

You need to encourage new players to enter the data market and give new competition to mobile operators.

Get spending your universal access funds with new operators to incentivise the existing operators to take expanding their geographic market seriously. Say to existing operators, if you don’t go to areas without coverage, we will offer licences to new operators who will.

Governments: The more competitive African countries have shown what can be done by opening up competition and their prices at many levels are globally competitive.

For those defending monopolies, the choice is very stark: you can continue to defend several hundred or thousand jobs at your incumbent monopoly or you can open up your markets in ways that will benefit all of your citizens and create hundreds or thousands of new jobs.

Governments tend to see the existing industry as a tax cash cow at all levels. You cannot continue to tax the industry and not understand that these taxes will keep industry prices higher.

The same is true of selling spectrum. You might get fabulously large sums selling 4G spectrum to mobile operators. But if you do that, then the price to the end users will remain higher for longer as they seek to get back the money they have invested.

African Governments have an interest in their citizens having as faster bandwidth as possible as cheaply as possible.

A US$30 smartphone can show an inexperienced rural nurse how to identify a recent disease or a teacher how to make his or her lessons more interesting. Likewise a farmer can look at a video on how best to plant and sustain his or crop.

It becomes an easy turn of phrase to say at points like this that Africa is facing a “turning point”.

Everything over the last decade has been a turning point but now it becomes harder because the business challenges are much harder. Everyone involved has to have the courage to change their thinking so that they can re-invent the industry for the next decade ahead.

By Balancing Act

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The inconvenient truths of African telecoms