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AFRICA INSIGHTS:

Telecommunications sector to drive economic growth and inclusion

The growth of the African telecommunications (Telecoms) sector over the last 20 years stands out as one of the continent’s great commercial success stories. Prior to the widespread adoption of hand-held mobile devices, communication within and across Africa was constrained by limited fixed line networks , while existing networks were inefficiently operated by state-owned monopolies.

Today Africans have near universal access to mobile phones, which has allowed local economies to forgo the need for direct line communications entirely – the expansion of undersea cables through public-private partnerships with local governments has also brought internet connectivity to every region of the continent. Meanwhile, improvements in technology and concerted efforts towards market liberalisation in a number of African countries have lowered the cost-ceiling for mobile and internet solutions, bringing these services well within reach of even low-income earners that form part of the continent’s emerging middle class.

The next few years will be an  important period for the telecoms sector, with old technologies being phased out and new ones emerging to take their place. Opportunities will present themselves in providing for both individual consumers and larger enterprises, provided that firms are willing to shoulder the burden of unforeseen expenses i.e. additional infrastructure costs to cater for the lack of stable electricity supply.

1. Improvements and innovations in the African telecoms sector

Market liberalisation leads to expansion in the telecoms space

Since the 1960s the African telecoms space has traditionally been subject to restrictive monopolies where state-owned or majority state-owned enterprises have held sole rights to operate in their respective industries. By the start of the new millennium it was clear that this arrangement had crippled the development of the local communications sector, with mobile coverage being viewed as a cure-all solution in helping African countries “leapfrog” the need to develop fixed line networks first.

At the onset of the new millennium only Nigeria had effectively privatised its telecoms sector, however, over the next two decades numerous other countries including Ghana, Morocco, South Africa and Uganda all followed suit. By 2018 no less than 18 African countries had privatised their formerly state-owned telecoms firms, with even traditionally protectionist markets like Ethiopia and Zimbabwe beginning to open up this space to some foreign investment. With the mobile industry still in its infancy there was little institutional challenge to liberalisation as compared to fixed lines where competition with state-owned telecoms firms was a real concern for governments. Mobile competition, or at least strong steps towards such, has become the effective norm in politically stable African countries. That said, it is important to stress that perfect competition is far from the norm. Early market entrants, like local giant MTN, have in some cases used their financial strength to capture large bands of the continental market, particularly in West Africa, which has prompted pushbacks from local governments. Whilst private companies have done much to expand mobile coverage, the onus for ensuring local broadband connectivity still lies with national governments.

The mobile revolution and the transformation of African telecoms

In the year 2000, comparative access to mobile vs fixed line systems stood at 16.5 million and 9.2 million, respectively. However, just over a decade later, mobile services increased their reach exponentially with over 648 million subscribers currently across Africa, surpassing the EU and the US. Meanwhile,  fixed line systems had barely increased in comparison and stood at 12.1 million connections continent-wide. This has been made possible by successive improvements to mobile technology in the shape of cheaper mobile phones and 2G, 3G and 4G networks, which have enabled an ever-greater degree of high speed access to the internet with every new iteration. The expansion of communications technology has democratised communication infrastructure in such a way as to enable economic participation, particularly among the poor. The telecoms industry is on average responsible for about 7.7% of Africa’s GDP and close to 3 million jobs, making it a key contributor to the rise of the continent’s new middle class.
However, this newfound dependency on mobile technology as the backbone for the African telecoms industry comes at a cost. The physical infrastructure used for mobile connectivity, at present, is simply not as stable and efficient as fixed line systems. To achieve coverage and speeds that can comfortably compete with fixed line networks, a dramatic expansion of mobile infrastructure has been required. Such developments are expensive, but have and will continue to play a key role in the continued liberalisation and expansion of the industry.

Undersea cable projects unleash Africa’s broadband capabilities

In January 2020, internet networks along Africa’s Atlantic seaboard experienced a sudden drop in network quality brought about by a dual failure of Openserve’s WACS submarine cable, which runs along the continent’s west coast. Full connectivity was only restored in some places by March, which was later exacerbated by economies being brought under lockdown to curb the spread of Covid-19. Estimates note that  nearly all data that crosses the world’s oceans goes through these cables, meaning that far flung corners of the world such as Australia and southern Africa are at the mercy of submarine cable infrastructure. Local governments have, however, been hard at work to help address the problem through the formation of public-private partnerships with global telecoms firms. Some early examples include the South Atlantic 3 cable upgrade in the year 2000, which linked southern Africa with Portugal, and the EASSY, which stretches from South Africa’s eastern KwaZulu-Natal province to Port Sudan in Northeast Africa. Other major cables on Africa’s eastern and western seaboards include  SEACOM and TEMS; and Lion, GLO1, ACE and WACS, respectively. These expansions have dramatically improved the speed and stability of African networks, allowing for the roll out of 3G, 4G and LTE services by local mobile service providers. By early 2019, largely thanks to these developments, the continent’s overall data speed stood at 520GB per second.

Source: GSMA, Digital Trends Online, Connecting Africa, Pew Research; 2015-2020

2. Opportunities to explore in the telecoms space

Three generations of wireless

The next five years will be a vital transition period for mobile networks in Africa and emerging markets generally. Early age 2G networks, long the continent’s mainstay, are gradually expected to be phased out in favour of 3G, which is anticipated to reach 61% coverage and serve as the continent’s main communication backbone by 2025. The next two years will be focused on phasing out 2G networks across the globe with Africa following suit, albeit potentially at a slightly slower pace. While 2G networks represented 77% of sub-Saharan coverage in 2015 they currently only represent 38%, with 3G networks expanding to fill this gap as they represent a compromise for consumers between the affordability of earlier mobile network generations and the utility of newer smartphones. Some of Africa’s largest service providers including Orange and MTN are aware of this need and have begun offering specialised yet affordable (sub US$40) smartphones like the Sanza and the Freetec Ice 2 ,which rely on the rollout of 3G connectivity.

3G will also eventually be surpassed by 4G’s ever expanding footprint, while 5G will see its first commercial-scale rollouts across the continent. In July 2020, several African countries including Madagascar, Malawi and South Africa, saw their first commercial 5G rollouts. Though individual subscribers are expected to be minimal initially, the wealth of opportunities 5G technology presents for local enterprises will compensate for this until widespread adoption starts to take place. By combining the speed of 5G with the coverage of miniaturised Internet of Things (IoT) systems and the analytical ability of machine learning algorithms, firms will be able to unlock sizable opportunities for enhancing efficiency within their enterprises. For cyber security reasons, among others, companies will seek to create their own internal communication networks. Early market service providers in this space are the most likely to benefit as it will likely precede general consumer adoption by some time.

The ITU Telecom world forum session 2018. The rollout of 4G LTE, and more importantly, 5G infrastructure in commercially vital areas, will allow for African industries to maintain price and speed equality with their rivals in other developing regions.

Image courtesy: Flickr/ITU Telecom World 2018

Universal smartphone access to drive supplementary industries

Smartphone adoption is not yet as universal in Africa as is the case in other markets, but the gap is closing fast. By 2025 North African countries will have a smartphone penetration rate of 71%, closely followed by West Africa at 70% and other regions in the 60% and up range. Smartphones represent a step up from their older more analog counterparts due to their functionality. Whereas previously telecoms firms were providers of voice and data services first and foremost, the versatility of the smartphone means that they can now diversify into a variety of other services, including banking, education and even telemedicine.

Nowhere is this reflected more than within the African mobile money market, which has drawn considerable investor interest over the past few years, but only truly exploded in the last 18 months. In 2019 alone, over US$450 billion-worth of transactions were made, highlighting the critical role the telecoms sector has come to play in the provision and facilitation of financial services and financial inclusion. Similarly, mobile health has benefited substantially from the rollout of mobile telecommunications infrastructure and pushed the value of sub-Saharan Africa’s mobile health sector from just US$4.5 billion in 2013 to US$24 billion in 2018. The digitisation of health systems also allows for national governments to provide service in previously inaccessible areas. In July alone, Telecom26 rolled out connectivity for TB, HIV and Covid-19 testing centres across Ghana, Mozambique and Zimbabwe. The portable nature of the smartphone means that through a single full-suite application it can serve as the main avenue by which future African consumers make payments and access services, provided there is sufficient coverage and connectivity. Vodafone has already begun exploring this avenue launching the Alipay payment app in July of this year.

Enabling connectivity in rural areas without mobile coverage through low orbit satellites

Though mobile connectivity is making leaps and strides in terms of enhancing access, it still shares the same old encumbrance faced by the fixed line telephone infrastructure, namely distance. Given population density in urban areas, service providers who are involved in fibre and mobile rollout will prioritise these areas based on a cost-benefit basis, potentially excluding rural customers due to higher up-front costs. This is where low earth orbit (LEO) satellite technology can play a vital role.

Although satellites are outclassed by conventional terrestrial networks in terms of latency, they compensate for sheer coverage by several orders of magnitude. Previous attempts at rolling out such systems in the early 2000’s failed, mainly due to poor uptake to cover initial costs, but the changing manufacturing and consumer landscape since then has made this idea viable once more. Satellite launches and component manufacturing and assembly are now cheaper, and the development of a new customer base in rural areas, including those in Africa, means that there is sufficient demand for such services in markets where terrestrial providers are not as readily available. Over 700 such satellites are expected to be in orbit by the end of this year through major future service providers in this space, including Amazon, Kepler Communications and Space X.

Each has already announced launch windows and debut dates for their services, initially only at higher latitudes, but gradually providing services towards the equatorial regions, targeting primarily rural consumers. Kepler Communications has stated that it will specifically focus on enabling 5G and IoT services for logistics and supply chain management, followed by other industries, whilst Amazon’s Kuiper System would offer an entire suite of Amazon web services to consumers directly, bypassing legacy providers.

Sources: World Bank, GSMA, African Telecom News, Statista, Internet World Stats, 2017-2020

3. Key considerations in the African market

Low electricity coverage remains a barrier to growth

With 650 million Africans still lacking access to regular electricity, the provision of power poses a dilemma both for telecoms service providers and consumers alike. This problem affects at least 30 African nations to varying degrees. This could be as a result of insufficient infrastructure rollout, as is the case in central Africa and portions of East and West Africa, or the result of aging infrastructure, as is the case in southern Africa where outages are a regular occurrence. The problem is acute to the point where in 2019 the Middle East and Africa division of French telecoms giant Orange SA offered solar power setups to its operators in Africa, while MTN – Africa’s largest locally-based mobile service – has been investing in renewable energy setups since at least 2015. Though these measures fulfill their purpose they should not be seen as a sustainable solution. Unexpected additional costs, such as the need for self-generated electricity, raise the price of doing business in regions where firms are already often hesitant to invest, and can lead to price increases for Africa’s already cost-sensitive consumers.

Infrastructure, regulatory challenges continue to hamper broadband rollouts

While the continent has made commendable progress towards expanding its network coverage, sizable gaps remain. Regardless of what products are offered at present, it will require over US$100 billion to ensure full connectivity across Africa by 2030. Widespread 4G connectivity within this timeframe, in the absence of LEO satellites, would take no less than 250 000 mobile base stations and 250 000km of new fibre cables. In the absence of fibre cables, towers need to maintain contact wirelessly, which can cause latencies severe enough to bring even higher-end networks down to 2.5G speeds in tough conditions. This problem is particularly felt in central African countries like Chad, Central African Republic and the Democratic Republic of Congo, but it also impacts lower density areas across the continent. While this certainly represents an ongoing opportunity for firms involved in the construction of telecommunication facilities, it adds the existing cost of maintaining African operations which may not be present in other more developed markets.

 

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