Mobile telephony is changing Africa, for the better. Once called the Dark Continent, the mobile phone revolution has lightened up the possibilities of economic prosperity in Africa. According to GSMA Mobile Economy Africa Report 2016, in 2015 mobile technologies and services generated 6.7% of GDP, or $150 billion, in Africa and this is further likely to increase to 7.6%, or $210 billion, by 2020 as mobile services increase productivity.
Mobile phones have not just transformed the way people communicate long distance, they have also changed the way they make financial transactions. If there is one real example of how mobile money has transformed the lives of people, it is Kenya’s m-Pesa. An MIT study last year found that M-Pesa has lifted 2% Kenyan households out of poverty between 2008 and 2014.
If not for the various challenges faced by telecom service providers in the continent, this transformation could have been more visible and even faster.
Africa poses varied and unique challenges for the service providers. The first being severe lack of basic infrastructure in most countries of the continent. Persistent and long power outages hamper service providers from offering a more comprehensive coverage and seamless services. In the absence of continuous power supply, telecom operators fall back on the use of generators, which significantly increases their operational costs.
Being mostly an underdeveloped region, the Average Revenue Per User (ARPU) in Africa is lower compared to other regions. Operations at such low ARPU is difficult to sustain given that the cost of setting up and maintaining networks is very high. Increasing the tariff beyond a limit, though, is not an option for the service providers as the spending capacity of the subscribers remains limited.
Reason: the GSMA report quoted earlier suggests that countries in Africa have among the highest total cost of mobile ownership as a proportion of income, particularly for those at the bottom of the income pyramid.
Low paying capacity among subscribers makes it difficult for the service providers to increase prices. Faced with shrinking margins telecom companies are up against a vicious circle. Unless telcos expand their services to bring more people under network coverage, they cannot expect better margins, and unless they have better profitability, they cannot really grow. Only 46% of the African population, or 560 million, use mobile phones.
Margins are further put under strain by competition from IP-based players such as WhatsApp and Facebook Messengers, which offer free voice and video calls. In a recent survey by Analysis Mason in Africa, 42% respondents said they use WhatsApp for free voice calls. As a result, telecom companies are now facing slowing revenue growth which may drop from 6% in 2016 to 1% in 2020, according to GSMA report.
Technology to the rescue
When in trouble, think innovation. Businesses across the world, over the years, have known this survival mantra. Telecom operators in Africa would have to come out with new strategies to arrest the fall in fortune. They have to realize the aping the network strategy which worked in developed markets may not work here.
Telecom service providers will have to leverage technological solutions and breakthroughs to offer services at prices affordable for the majority of the population. They can do so by using innovative technologies to cut cost. Cloud computing and automation provide an immediate solution to keeping cost lower. Cloud allows service providers to use the basic infrastructure of a third party to offer their services without having to spend a fortune to begin operations.
Small form-factor solutions, which are easy-to-install and support many technologies on the same platform, can further bring the cost down for service providers.
However, unless these countries provide the infrastructure, there is limited scope for innovations. If governments cannot deliver these infrastructures on its own, they must allow new players in the market who may come up with their own support like optic fibres, and rent it to existing players.
The same can be done to address the power outage issue. New and alternate power solutions like solar and wind energy may help tackle this problem in many areas.
2G: Old but not irrelevant
Would dumping 2G technology for 4G services make for a better strategy in a continent where over 50% population is yet to use any kind of mobile phone services, mostly because of inability to afford these services?
Keeping in mind the low paying capacity of telecom subscribers, chucking 2G for a better yet expensive technology is a bad idea. A 2G service provider by leveraging the advantages of Network Function Virtualisation (NFV) and Software Defined Networking (SDN) can offer better services at affordable prices. A 2G network that is easily upgradeable to 3G or 4G and consumes much less power with higher RF output is sure to help in the faster spread of telecom services.
This, especially, since 2G technology is more prevalent on the continent. According to GSMA report, more than 60% subscribers in Africa use 2G technology and 43% would continue to use this technology even in 2020. Besides 2G is the most promising and possibly the most deployed platform for Machine-to-Machine (M2M) perspective. It is also believed to be robust for international roaming, where other technologies may face some challenges. So, 2G is going to be relevant for a long time and it makes perfect sense to deploy its virtualised form, which is easy to install and upgrade with low cost of ownership. Going for an improved and upgraded version of the technology will not only spare service providers the enormous investment that they may incur in deploying an entirely new 4G technology but it may also help in the more inclusive growth of telecom network on the continent.
There is an opportunity in the Africa market for telecom service providers despite its set of challenges. Out-of-box thinking and judicious use of technology can help them surmount the problems and increase profitability.
By Rajesh Mishra, Co-Founder, President and CTO, Parallel Wireless