Findings of a research report, drafted by global management consultancy firm A.T. Kearney, indicate that Africa’s telecommunications sector has reached a crossroad. Although the sector has experienced several years of growth, the rate of new subscriber acquisition has fallen and intense competition is driving a free-fall in prices, placing pressure on margins.
Presenting the report to media from the company’s offices in Johannesburg, Laurent Viviez, partner and African ICT sector specialist, said the sector is in transition and projections for the next five years suggest the landscape is set to change dramatically – and there will be casualties.
“The broader African telecom market has reached a turning point. We have seen staggering growth rates in the telecom sector, but this is changing. At the same time we are seeing a shift in the sector, until now has been focused on voice services, on the masses and for telecom operators it was really about rolling out networks and base stations. Now, the environment is becoming more complex, more about data services,” says Viviez.
“This turning point will define the winners and losers in the industries, there will be casualties.” Viviez added. “Growth rates have declined from 30/40% to 10%.”
The casualties Viviez refers to are service providers that are not able to adapt to these changes, keep up with demand or have the required infrastructure and resources to sustain operations.
According to A.T. Kearney this paradigm shift offers substantial long-term growth prospects, but may prove challenging given the adjustments required in price levels, cost base and investments.
Characteristics that now define the market at present, including focus high and middle class (urban), high prices and fragmented landscape, is expected to move into the mass market, a highly segmented and bipolar market, with affordable pricing and more concentrated.
The advice the company gives is for industry leaders, with support from local governments/ regulatory authorities, to be proactive and find new, robust growth paths in the long-term.
Data connectivity and Value-Added Services (VAS) are poised to grow strongly, despite starting from a particularly low base.
Issues such as Long Term Evolution (LTE), mobile money and intense competition for market share were all identified as major influencers going forward.
“With over-supply, competitive intensity has been amplified by the deliberately aggressive pricing strategies of some players in an attempt to gain market share and grow the market. For instance, Bharti Airtel, following its acquisition of Zain’s African assets in 2010, tested its minute factory model inKenyaby halving price levels. Price reductions in the last two years have been, in some markets, quite staggering: from US$c 20/min to US$c 6/min in Nigeria for instance,” the company’s report stated.
“The impact of these market changes will be substantially different across markets – we expect markets with already high penetration levels and a large number of players (such as Nigeria, Ghana, South Africa) to face more challenging times than less competitive and developed markets (e.g., Togo, Zambia),” it added.
Chris Tredger, Online Editor