African mobile firms face obstacles

21 December 2011

DUBAI: Concerns over pricing and "uneven" regulations could block the future growth of African mobile services, a report from Booz & Company has suggested.

In the new study, Connecting Africa: The Next 10 Years of Mobile Growth, the consultancy said that the category's ultra-competitive nature and concerns over the way governments set licencing fees could deter investors and prevent infrastructure improvements over the long term.

According to World Cellular Information Service figures cited by the Booz analysts, there are now more than half a billion mobile phones in Africa, equivalent to around half of the continent's total population.

Mobile penetration is currently growing at a rate of 26% a year, with this rate having soared to over 50% during the mid-2000s.

But the report warned that mobile infrastructure on the continent is lagging behind. As much as $25bn needs to be spent on networks if web-enabled smartphones are to enter the African mainstream, Booz added.

"Hesitancy on the part of investors could jeopardize Africa's next wave of telecommunications investment and growth, the rise of 3G-enabled mobile broadband, or the widespread adoption of the Internet in Africa," the report claimed.

One of the main factors behind this lack of development was found to be the continent's difficult regulatory environment.

The report added: "Substantial risks remain in the consistency and rigor with which they license operators; and the lack of well-structured regulatory frameworks creates an uncertain investment environment."

Growth has also brought about increased competition, putting strong downwards pressure on prices.

"Basic" feature phones are now being sold for around $10 and low-end smartphones for $100. In order to gain customers, some networks are being forced to sell pay-as-you-go minutes at a loss.

Between 2009 and 2010, revenue-per-minute rates were found to have dropped by -8% in South Africa, -32% in Egypt and -49% in Tanzania.

"A new and value-destroying race to the bottom in pricing has taken hold in most markets, with operators using short-term promotions to entice rapidly churning customers," the report added.

Data sourced from Booz & Company; additional content by Warc staff