Africa’s telecoms sector at inflection point: PwC

Africa’s telecommunications sector is at the inflection point where high potential starts to turn into high growth, according to a report from financial services group, PricewaterhouseCoopers (PwC).

Strong growth in the telecommunications sector is being driven by increasing investment, rapid progress in technological and communications services and some deregulation across the African continent. But for many reasons these achievements, to date, are only just the beginning as Africa’s future potential dwarfs the growth seen so far, PwC said.

Johan van Huyssteen, PwC communications leader for Southern Africa, said: “With billions of dollars of international investment flowing in and subscriber numbers rising across the continent, Africa’s communications market is at the inflection point where high potential starts to turn into high growth.”

According to estimates by Business Monitor International-TechKnowledge Group, total combined fixed and mobile cumulative capital expenditure made in Africa is set to grow from $78.8 billion in 2008, to $145.8 billion by 2015.

“This rising tide of investment is undergoing an accelerating shift away from investment in fixed-line services and infrastructure, towards mobile,” said van Huyssteen.

As a result, by 2015, the mobile sector will account for over two-thirds – an estimated 68.9%, or $100.1 billion – of cumulative investment in African telecommunications, states PwC’s publication: Communications Review: Telecoms in Africa: innovating and inspiring.

The number of mobile operators, excluding mobile virtual network operators (MVNOs), rose from 158, in the first quarter of 2008, to 175 at the end of 2010 – of which 60% are affiliated with the major telecommunication groups, according to statistics issued by Africa & Middle East Telecom Week.

Van Huyssteen said further that big opportunities are still to come in the light of the remaining potential for new subscribers, which may even be bigger due to multi-SIM behaviour.

According to a report in 2011 issued by Gfk Retail and Technology, about one in ten phones sold in the Middle East and Africa are reported to be dual SIMs.

Although Africa is commonly characterised as a single marketplace, it is made up of 56 individual countries, and its markets can be considered in some ways more diverse than those of Europe.

“Alongside their varying levels of maturity, what further distinguishes African markets are their diverse regulatory structures. Regulation plays a vital role in the development of all communications markets, but especially ones changing and growing as rapidly as those in Africa,” PwC said.

Creating a solid foundation for growth

The combined use of mobile devices, the increasing complexity of network infrastructure and the competitive pressures within the market has placed significant pressure on the performance of telecommunication networks.

“A lapse in network performance affects the bottom line of the business in that it leads to reduced usage, increased assurance costs, and lowers customer satisfaction,” said Van Huyssteen.

“The investment balance between ‘new’ and ‘old’ is important as operators around the world are busy investing in the deployment of next generation networks, while restrained by sometimes lesser investments in their existing networks, costs in network operating expenditures and a decline in average revenue per user.”

Assessing older networks

After many years of aggressively building a 2G network to compete on coverage and capacity, many operators are potentially left with a cobweb of “stranded assets”, insufficient network capacity, inefficient processes and a jumble of tools.

“To contemplate rolling out another technology, such as 3G or even 4G, after the long 2G phase could have negative results, manifested as network quality problems and overall delays in the rollout of the new network,” van Huyssteen said.

He said further that operators that take stock of their networks at the end of the 2G phase and before they roll out the next technology tend to perform better because knowing more about their existing network helps them make the necessary changes faster for a 3G rollout.

As operators around the world are either launching or getting ready to launch next generation networks, this may be an opportune time for them to conduct a due diligence exercise so that they can build “newer” networks on a solid foundation.

Economic uncertainty

Companies in every sector globally have expressed concern about the recent economic uncertainty. This pessimism is more marked among CEOs in the telecommunications sector with 55% believing the global economy will decline over the next 12 months, compared to the overall average of 48%.

However, 50% of the communications CEO’s are very confident they can generate higher revenues in the next 12 months, compared to the average in the total sample of only 40%.

PwC interviewed 42 communications CEOs in 23 countries. Many CEOs in the communication sector are pinning their hopes for future growth in the emerging markets, while less than half (40%) are very confident in their ability to hire the people they require.

“Africa is one of the world’s dynamic telecommunications markets and is also one of the most innovative – a global testing lab for mobile enabled applications in areas like payments, commerce, health and education.”

“As well as building networks and revenues, the industry is also acting as an engine of social and economic development across the region,” van Huyssteen said.

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Africa’s telecoms sector at inflection point: PwC