EA mobile phone market to experience a period of growth

The East African mobile phone market is set for a period of growth as operators tap into the largely unexploited masses.

Experts estimate that out of the total population of 121.9 million only 37.6 million or 30.8 per cent are active subscribers.

However, as operators widen the net to capture the mass market, the average revenue generated per user is expected to fall forcing these firms to expand their Internet data offerings.

New services such as cable television and mobile money transfer will drive the strategic focus of players in the telecoms field in the region in the next five years.

According to a new report from industry researchers Frost & Sullivan on the region’s mobile markets, economic growth is expected to grow by 1.3 per cent for every 10 per cent increase in high-speed Internet connections.

Frost says there are over 19 companies angling for a share of the mobile market that will be worth $9 billion in five years.

At the top of every company heads agenda is how to create business synergies for the growth of trade within the region.

“As much Kenya is a focus for us, we exist in a region that is set to grow exponentially. How do we tap into that growth? This is what informs strategy,” said Mickael Ghossein, Telkom Kenya CEO.

Frost says although 65 per cent of the total revenues for mobile firms are expected to come from voice segment in the next five years, new areas like mobile money transfer and data beckon.

The realisation of a large regional economic bloc encompassing Burundi, Kenya, Rwanda, Tanzania and Uganda with a combined population of more than 125 million people, and a combined Gross Domestic Product of $60 billion, represents enormous opportunity to any investor.

For ICT firms, the shift in policy that has seen the formalisation of the East African bloc is secondary to the cross-border growth that has seen subscriber numbers escalate at super normal rates over the last ten years.

The signing of the EAC Common Market Protocol last year, is being seen by industry as the catalyst for cross-border growth.

“Our strategy has always been crafted at a regional level; we play in all markets and the EAC will bring about more opportunities for us to leverage the footprint we already have in place,” said Dorothy Ooko, Nokia’s Communication Manager for the region.

The key drivers in these markets include strong gross domestic product growth rates, increasing demand for mobile money transfer services and declining handset costs.

“East African consumers are spending more on mobile communications due to the low fixed-line network coverage, underdeveloped banking systems and the current limited availability of inexpensive handsets,” said Frost & Sullivan ICT analyst Jiaqi Sun.

This is due to the low level of fixed-line market penetration and the high proportion of population using voice service as a means for telecommunications.

Kenya has the highest number of active subscribers and revenues among the four countries studied by Frost in its review of the region’s mobile markets.

Tanzania, Uganda and Rwanda are, however, likely to witness a significant surge in growth over the next seven years due to increasing network investments, continuing product innovation and reduced handset costs.

Tanzania and Rwanda promise the biggest growth markets — growing by 29.4 per cent and 25 per cent respectively.

Tanzania most competitive

Tanzania is among the most competitive markets in the region, playing host to seven operators ­— with four more expected in the near future ­— earning it the highest score on competitiveness in Frost’s report.

The country’s economy has been showing solid growth rates of between 5 per cent and 8 per cent every year since 2000.

Growing at more than 40 per cent per annum, the mobile market passed the 14 million mark mid last year with just four companies ­ —Vodacom, Zain, Tigo and Zantel ­ —in operation.

At a penetration level of less than 40 per cent, growth is set to continue even as average revenue per user continues to fall.

“The driver is mobile. Mobile is an attractive option for those interested in the sector,” said John Nkoma, director-general of the Tanzanian Communications Regulatory Authority.

Often painted as the poster child for regional ICT development, Rwanda has been tipped by Frost to enjoy the highest rate of growth.

Although it is the least competitive and price sensitive market ­ with just two operators, Rwanda’s annual compound growth rate is estimated to hit 29.4 per cent this year.

Mobile penetration is still significantly below the regional average, mostly due to a vicious genocide and a monopolistic market where South Africa’s MTN operated alone until 2006, but now competes with Rwandatel and Millicom.

The prospect of intensified competition has sparked a new subscriber growth phase with over 100 per cent per annum, but at the same time the average revenue per user has fallen below $10 per month.

Frost predicts Uganda will enjoy sluggish growth this year, with the highly competitive market set to continue being highly price sensitive.

Intensified competition has meant that monumental amounts have been invested into new infrastructure, but it has also led to an unsustainable price war.

ARPUs in Uganda, which is host to five mobile firms, have already started to fall as competition nips into profits, calling for a realignment in business operations for operators.

Orange Uganda recently selected Alcatel-Lucent to build, operate and manage the Orange Uganda mobile network, by providing technical support, repair, field maintenance, and program management services.

“Our goal is to focus on our core business, and Alcatel-Lucent helps us achieve this by providing a comprehensive maintenance services portfolio, global delivery capability, and strong technical skills we need to help us deliver enhanced services more reliably to our customers,” said Philippe Luxcey, CEO of Orange Uganda.

Similar developments are taking place in Kenya, where a similar infrastructure deal was signed between Zain and Nokia-Siemens.

Frost says Kenya’s growth rate is set to decline as the market nears saturation, with the country expected to enjoy just 17.6 per cent growth in its annual compound growth rate.

Data use has also surged over the last year, with the number of mobile Internet users overtaking those accessing through traditional means in just 12 months.

“Despite tough economic times in the past year, people continue to adopt technology such as mobile browsing especially when it helps them overcome their hardships,” said Jon von Tetzchner, CEO Opera Software.

With players in all markets facing declining ARPUs, Frost recommends adopting data services like mobile Internet access by leveraging the revenue-generating ability of mobile handsets and increasing minutes of service usage.