Telkom announced 8ta as South Africa’s fourth mobile operator in 2010, however, management consulting firm A.T. Kearney says its incredibly rare to find a profitable number four operator anywhere in the world.
A.T. Kearney notes that in Africa today, there are over 3.5 mobile operators per market, with some countries such as Tanzania or Nigeria with over 8-9 operators.
“This situation is untenable given the importance of scale effects in the telecoms industry – in fact, it is incredibly rare to find a number four operator profitable anywhere in the world,” said Laurent Viviez, partner and head of Africa Telecoms practice.
Indeed, in its most recent results on Monday (19 November), 8ta only added 551,000 new revenue-generating subscribers to total 1.495 million, from 944,000 in September 2011.
Telkom highlighted active mobile subscribers of 1.495 million, a 2.2% market share in SA (0.9% September 2011), with a blended ARPU of R68.62.
A.T. Kearney highlights recent growth in the adoption of telecoms services in Africa, largely driven by mobile voice services. There are now over 730 million mobile subscriptions, corresponding to a SIM-card penetration rate of over 65% and total revenues of US$40 billion.
In South Africa that penetration rate exceeded 128% in H2 of 2012, according to A.T Kearney.
The group stressed, however, that multi-SIM ownership stands at approximately 30-50%, which means that real penetration rates are in reality closer to 35%.
“As a result, the African telecoms market still offers ample room for growth from the current real population penetration rate of 35% to what we estimate to be saturation penetration rates of circa 60%-70%. Further adoption of data and Internet services, still in their infancy, will provide additional momentum to the development of telecoms services in Africa,” Viviez said.
A.T Kearney argues that the African telecoms market is at a crossroad. The market will shift from being focused on upper classes and largely voice-centric, to a mass-market with a much more significant share of data services, it says.
“This paradigm shift certainly offers substantial long-growth prospects. However, the transition process period, underway in most countries, might prove challenging given the adjustments required in price levels, cost base, offers and investments,” Viviez said.
A.T. Kearney said that telecoms operators in Africa have committed substantial investments to build networks with sufficient coverage and capacity. However, following more modest revenue growth and pressure on margins, reducing capital expenditures budgets has been the main driver of free cash flow appreciation for many operators active in the region.
“To the extent that Capex budgets for some operators are now at dangerously low levels, at 10%-12% of revenues in some cases,” the group said.
Pressure to increase capital expenditures is mounting intensely – networks are saturated in dense urban areas, the launch of 3G/4G services requires substantial investments in new radio and transmission capacity and most operators need to embark in heavy network modernisation programs, particularly for their core network.
“As a result, we expect a surge in capital expenditure requirements over the next three to four years,” Viviez said.
Kearney puts capital expenditure for mobile operators in South Africa and Nigeria at $25 per subscriber, while mobile operators in mature markets spend $56.
Not all is doom and gloom, though, according Viviez. In fact, data connectivity and valued-added services (VAS) are poised to grow strongly – starting, admittedly, from a particularly low base.
The market for data and mobile VAS in Africa is expected to grow at 16% per annum to reach US$14 billion by 2016 – representing close to 32% of total mobile revenues, according to research conducted by the consultancy.
Mobile data services (including SMS) represent on average 12% of African telecom operators’ total revenues right now. But, A.T. Kearney said that the average is skewed by a few tier 1 markets such as South Africa and Kenya.
In most other African countries, mobile data services are still at particularly low levels, with an average of 6% of total revenues. This is substantially lower than in other emerging markets and, naturally, developed economies, Viviez noted.
In summary, A.T. Kearney believes that the African telecoms market still offers room for growth, estimated at 2% per annum, over the 2012-2016 period. This growth will be essentially driven by data/VAS services, with voice revenues eroding slightly.