The past 12 months can be written off as a dull kind of year for the telecoms industry, with economic turbulence making many players happy to survive rather than thrive. The chief development for Africa was undoubtedly the belated entry of the Indians, as Bharti Airtel took over the bulk of Zain’s African activities. Other than that there were a few price skirmishes, the axing of the telecoms minister in South Africa and the surprisingly low-key landing of the Eassy cable. Here’s a brief reminder of a few or the more interesting moments in a year that most of us have probably forgotten already. Let’s hope the industry regains its usual energy and joie de vivre in 2011.
The year began badly for Vodacom’s subsidiary in the Democratic Republic of Congo (DRC). A bitter clash with its 49% shareholder Congolese Wireless Network (CWN) saw CWN file papers in a Kinshasa court accusing Vodacom of “plundering” the company. CWN claims Vodacom illegally took up to US$180 million out of the DRC and repatriated the profits instead of reinvesting in the operations. Vodacom denied the allegations and initiated arbitration through the International Chamber of Commerce, which could take years to be resolved. Both parties agreed to keep discussions open to keep Vodacom DRC running, although Vodacom may decide to pull out of the country if arbitration looks likely to take too long, or if the relationship deteriorates further. South Africa’s third cellular operator Cell C had a better start to the year and awarded a US$378m contract to China’s ZTE Corporation to supply equipment and managed services to roll out a national 3G network. While ZTE was welcoming more open communications with the west, the Chinese government was less keen to embrace decadent western ways. Cyber attacks on Google and other companies led to escalated tensions between the US and China, although the government claimed it wasn’t to blame. US secretary of state Hillary Clinton called on the communist country to end online censorship, but Chinese officials said they would not tone down the way they censor the internet. The internet also went down for parts of Africa, although by error rather than design. A planned interruption on the Sat-3 cable connecting South Africa to Europe caused chaos with users unable to access international websites. Traffic was routed over a different cable to Asia, emphasising the need for multiple cables.
Nigeria’s government made yet another attempt to sell off its ailing incumbent operator Nitel. MTN Nigeria and Globacom were among six shortlisted bidders for a 75% stake, or to bid for stakes in some of its subsidiaries, including mobile arm M-Tel and its international gateway. The government went on to approve a US$2.5bn bid for Nitel, which was five times the US$500m that industry experts considered its maximum value. The deal went to the New Generation Telecommunications, a consortium of local and foreign investors including a Dubai investment house, Minerva Group. But by November, sources were saying some of the backers were getting cold feet and wanted an extension on the payment deadline. GiCell, a Nigerian company in the consortium, blamed the government for taking almost eight months to give final approval, making the foreign investors jittery about what exactly they were getting into. Further afield, the first images were transmitted back to Earth from South Africa’s Sumbandila satellite, a project that cost more than ZAR20 million to build and ZAR12 million to launch. The satellite is designed to strengthen the country’s technological capabilities, space resources and satellite engineering skills. Sumbandila can also collect imaging data during a national emergency such as floods. While the government can organise a presence in space, it’s struggling with the more mundane concept of TV. Plans to migrate from analogue to digital transmissions were delayed until April 2013 at the earliest, at least 18 months later than originally envisaged. The regulatory authority partly blamed anticipated delays in the availability of the set-top boxes needed to receive the new digital signals. It forgot to say that the delays were being caused by the government prevaricating over which technology standard to adopt.
After two aborted efforts to merge with MTN, the Indian operator Bharti Airtel finally began its African adventure by acquiring Zain’s African activities. The US$10.7 billion deals saw Bharti take over operations in 15 countries, and excluded Zain’s operations in Morocco and Sudan. Bharti is handing over a tidy sum of US$9 billion in cash and discounting US$1.7 billion of debt. Hopefully it still likes what it got, because the remaining US$700 million is due this March. Zain had been trying to sell its African networks for more than a year, despite initially denying that any such plans were afoot. Bharti now has 163 million subscribers, with Zain Africa’s 41.9 million looking rather paltry compared to Bharti’s home-grown user base of 121 million. So at least the feisty Indians should teach Zain a thing or two about economies of scale and serving low-income consumers. Bharti is expected to be a more formidable operator than Zain was, and is now a rival to MTN instead of the potential partner it tried to be. Yet MTN CEO Phuthuma Nhleko described suggestions that Bharti posed a serious threat and could trigger potential price wars as “exaggeration and oversimplification.” His comments were based on the opinion that a business model that works in India may not transport easily to a totally different environment. How well Bharti will manage to replicate its operations is still playing out, with a business model designed to serve millions of people in densely crowded areas now having to adapt to sparsely populated regions lacking basic facilities. Zain has rebranded as Airtel and has already slashed prices in Kenya to steal market share from Safaricom, Kenya’s dominant player.
After two aborted efforts to merge with MTN, the Indian operator Bharti Airtel finally began its African adventure by acquiring Zain’s African activities. The US$10.7 billion deals saw Bharti take over operations in 15 countries, and excluded Zain’s operations in Morocco and Sudan. Bharti is handing over a tidy sum of US$9 billion in cash and discounting US$1.7 billion of debt. Hopefully it still likes what it got, because the remaining US$700 million is due this March. Plans for Egypt’s Orascom Telecom to sell all or some of its African assets suffered a setback when the Algerian government said it would block the sale of Orascom’s subsidiary in that country. Orascom is the majority owner of Algeria’s Djezzy network, which is a key part of its operations and contributes 47% of its revenue. Algeria’s government would rather buy Djezzy using its pre-emptive rights as a minority shareholder than see it sold to a foreign entity. Analysts warned that the inability to sell Djezzy could scupper the sale of Orascom’s assets to potential buyers including MTN. That proved true, with MTN walking away from the deal. By November Russia’s Vimpelcom had agreed to buy a controlling stake in Orascom for US$6.6 billion. But as the year drew to a close those plans began to look increasingly shaky as Algeria remained a hurdle and regulatory issues also emerged in other countries. Orascom operates GSM networks in Algeria, Tunisia, North Korea, Canada, Pakistan, Bangladesh, the Central African Republic, Zimbabwe, Burundi and Namibia. As usual, Africa’s elite got looked after a whole lot better than its poor, when wellheeled consumers welcomed Apple’s new iPad device. The first models arrived via the grey market without the official support of Apple. The tablet computer is a multifunctional device with a 9.7-inch high-resolution screen, making it perfect for watching podcasts, videos, browsing the web, checking e-mail, reading magazines, watching movies and listening to music. It also runs close to 200,000 applications.
Network operator MTN said it had invested nearly ZAR450 million specifically for the 2010 Soccer World Cup in South Africa. It rolled out infrastructure to all the stadiums so fans could make calls and connect to the internet without sucking up all the bandwidth from businesses and consumers in the neighbourhood. At Soccer City in Soweto alone it erected 22 base stations. May also saw two of those occasions where something we already know is finally admitted in public. Firstly, the outgoing chairman of the Independent Communications Authority of South Africa (Icasa) admitted that the regulatory authority had failed the sector. “I concede we have failed you,” Paris Mashile told his stakeholders. In reply to complaints about how long Icasa took to deal with industry issues, Mashile said its performance had been “inexcusable and unacceptable” and had affected the telecoms companies in very serious ways. Mashile complained that the industry poached Icasa’s best staff and that it was beholden to the government for its budget. “We are not serving the sector well and it requires a turnaround strategy,” he said. The mea culpa was welcome, but there was little clue as to when or how a turnaround strategy may begin. The second “yes, we already knew that” came when a study by Ookla confirmed that Africa is poorly served for broadband. Ookla’s Net Index, based on millions of tests, ranks South Africa 93rd in the world for broadband download speeds. Uganda fares just a fraction better in 92nd place. The index found the average global consumer download speed is 7.7MB per second. The average in South Africa is 2.2Mbps. The worst countries in which to attempt a data download include Mali and Sudan.
June was a month in which plans went awry for several companies. MTN formally ended negotiations to buy the African assets of Orascom Telecom. The deal probably fell through because the Algerian government blocked the sale of the Djezzy network, which was perhaps the asset MTN most wanted to get its hands on. MTN instantly bounced back by declaring that growth in Nigeria is far from over, and announcing that it had raised another ZAR16 billion to expand its network there. The new infrastructure investment follows heavy investments in 2008 and 2009, which now lets MTN cover 83% of Nigeria’s land and 84% of its people. While MTN was raising money, Neotel was losing it in vast amounts. The operator licensed to rival Telkom in South Africa suffered a net loss of nearly ZAR1.6 billion in the 2010 financial year. It was the first time its majority stakeholder, India’s Tata Communications, had revealed the extent of the losses being clocked up by its subsidiary. Neotel was initially seen as a much-needed, much-delayed alternative to Telkom, so businesses and consumers had high hopes of enjoying decent competition at last. But Neotel has failed to set the market alight. Plans at Telkom also went wonky when the company announced that CEO Reuben September was resigning – in other words, his contract wasn’t renewed. Politics turned out to be the chief reason, with September and his chairman:
– government appointed Jeff Molobela
– repeatedly clashing.
He was replaced by Jeffrey Hedberg as acting CEO, with no news yet of who will become the permanent head.
The East African Submarine System (Eassy) undersea cable started commercial operations on July 30, remarkably ahead of schedule and about 10% below its US$300- million budget. Not bad for a project that’s literally been in the pipeline for seven years. The 10,000km fibre optic cable on Africa’s east coast links South Africa, Mozambique, Madagascar, Tanzania, Kenya, Somalia, Djibouti and Sudan with other submarine cables from Europe, Asia, the Middle East and the US. One change of plan was unexpectedly caused by pirates, as the consortium has chosen not to build a landing point in Mogadishu in Somalia yet because of pirate activities. About 25 telecoms operators are buying its bandwidth so far, and its investors include international bandwidth prices, as Eassy, Seacom and Sat-3 cables all charge roughly the same. Hay said Eassy simply wasn’t big enough to make a large impact, but it was a valuable redundancy option for telecoms operators and internet service providers, which still have vivid memories of the lengthy breakdown of Seacom. South Africa’s MTN, Vodacom, Telkom and Neotel, as well as Dalkom Somalia, Comoros Telecom and Mauritius Telecom. Chairman Trevor Martins said the cable had been launched with an initial 60Gb per second of capacity, which would be increased as demand grew. He expects to see a broadband capacity explosion in Africa between 2012 and 2014. Although Martins said the cable would provoke another sharp reduction in wholesale international bandwidth prices and cheaper broadband for consumers, that hasn’t been particularly noticeable. South African internet service providers say the cable has had little impact on the price of bandwidth so far. Neotel’s Angus Hay agreed that Eassy’s arrival hadn’t had a big impact on international bandwidth prices, as Eassy, Seacom and Sat-3 cables all charge roughly the same. Hay said Eassy simply wasn’t big enough to make a large impact, but it was a valuable redundancy option for telecoms operators and internet service providers, which still have vivid memories of the lengthy breakdown of Seacom.
South Africa’s largest cellular network Vodacom teamed up with Nedbank to launch the M-Pesa money transfer service. M-Pesa is already enormously popular in Kenya, where it’s operated by Safaricom and used by 10 million people. It’s also available from Vodacom in Tanzania. The technology was developed by the Vodafone Group to let cellphone users transfer money quickly, easily and securely from person to person. Vodacom CEO Pieter Uys said: “The beauty of this service is the ease and speed with which people can send money to each other anywhere in the country. As anyone can receive M-Pesa without having to be an M-Pesa customer or even a Vodacom subscriber, it has the power to reach all cellphone users.” Only Vodacom customers can send M-Pesa, but anyone on any cellphone network can receive it. Nedbank chief executive Mike Brown said cellphone penetration was extremely high in South Africa, but banking was far less widespread, with more than 13 million economically active South Africans not having a bank account. M-Pesa would make basic financial services accessible to all and help bring marginalised individuals into the economic mainstream, he said. Customers can register for the service and deposit money into their M-Pesa account at outlets including shops, spazas and all Nedbank branches. Once they have money in their account, they can send it to any other cellphone user in South Africa, and the receiver can collect the cash at any M-Pesa outlet or a Nedbank ATM. Customers access their accounts using a four-digit PIN code and as long as that PIN remains secret their transactions are secure.
Price war skirmishes have become a regular feature in East Africa, and bubbled up again as Kenya made some drastic cuts in mobile call fees. Analysts said that posed a huge competitiveness challenge to its regional counterparts following the launch of the East African Common Market. High cross-network call rates force many subscribers to buy multiple Sim cards to call cheaply on one network then swap cards to call another network. Kenyans had been making crossnetwork calls at the equivalent of Ushs 300 a minute, with Uganda charging Ushs 340. But the price difference changed dramatically after the Communications "South Africa’s largest cellular network Vodacom teamed up with Nedbank to launch the M-Pesa money transfer service." Commission of Kenya halved the interconnection rate. Kenyans now call for an equivalent of Ushs 75 a minute across all networks. In Rwanda, the rate is about Ushs 270 a minute, while Tanzanians pay about Ushs 7.5 per second, and MTN Uganda charges Ushs 9 per second. When the Uganda Communications Commission tried to force down interconnection rates from USh180 to Ushs 131 last year it was immediately sued by MTN, which claimed that was well below the actual cost of the service and the fee should not drop below Ushs 151. Then Warid Telecom instigated a price war by slashing cross-network calls to Ushs 5 per second, making it the cheapest in the market. Warid said the new rate was half its previous fee, and was designed to make cellphone services affordable to more people. Next Bharti Airtel led a price war in Kenya by cutting call rates by up to 45%. Bharti said usage soared by 50% after the cuts, and within eight weeks its revenue was back to normal as higher usage offset the lower call fees.
Few tears were shed when a shake-up in South Africa’s cabinet saw Communications Minister Siphiwe Nyanda unceremoniously axed. Nyanda was replaced by the former deputy communications minister Roy Padayachie, seeing the return of a man who once showed far greater promise than the late minister he served under, Ivy Matsepe-Casaburri. Nyanda had allowed the department to totter from crisis to crisis. First he bought two extravagant BMWs then racked up massive hotel bills at the taxpayer’s expense. He never shook off allegations that he benefited from dodgy tenders. Then a spectacular clash saw him fire director-general Mamodupi Mohlala, who wanted to change the tendering processes. As internal wrangling absorbed much of the minister’s time, the state-owned signal distributor Sentech and the SABC were allowed to keep spiralling downwards through mismanagement, corruption, boardroom spats and failure to deliver on business plans. Analysts agree that Padayachie is a great choice, but given the department’s appalling track record for more than a decade, anyone with a touch of common sense and motivation ought to be an improvement. October also saw South Africa’s fixed line monopoly Telkom launch its new mobile services. The mobile offerings, dubbed 8ta, include a full range of prepaid and contract packages for consumers and corporate customers. Its “ultra-competitive contract offers” starting at R90 a month were designed to encourage more usage of mobile voice and data services, said 8ta’s Managing Executive Amith Maharaj. “We will provide more minutes for your money than any other network.” Telkom has erected 800 base stations of its own and has a roaming agreement with MTN to cover areas it has not yet reached. The initiative has already cost ZAR205m in operating expenditure and a further 3,200 of its own base stations are planned.
The long-awaited switch from analogue to digital broadcasting in SADC countries by 2015 looked set to be delayed by another five years as countries argued over which technology to adopt. The prediction of long delays came from Mgqibelo Gasela, head of regulatory affairs for MultiChoice Africa. He advised SADC leaders not to bow to pressure from Japan and Brazil to adopt a technology that is cheaper but less robust than the one they initially supported. Engineers in the Southern African Digital Broadcasting Association strongly recommend the adoption of DVB-T over the Brazilian and Japanese ISDB system, but politicians were being swayed by political pressure from those countries. “SADC should choose a standard that is the best standard worldwide and the latest,” Gasela said. And that meant DVB-T. He urged ministers to vote in the best interests of the region and not for political expediency. In January 2011, everyone breathed a sign of relief when South Africa’s Communications Ministry announced that SA would adopt DVB-T2, the latest version of the European standard. The Southern African Digital Broadcasting Association called the decision “visionary. Meanwhile, research by Informa Telecom declared that Africa now has 506 million active cellphone subscribers. Africa accounts for 10% of the world’s mobile subscriptions as user numbers in the continent rose 18% from last year due to demand for new services such as mobile internet access. In Ghana, a change of ownership took place as Kasapa Network was sold to Dubaibased Expresso Telecom. Kasapa serves 400,000 customers as the fourth operator behind MTN, Tigo and Vodafone. Expresso operates the Intercellular network in Nigeria and holds new licences in Mauritania and Senegal. CEO Isham Ayub said his company would upgrade the network across Ghana to enhance coverage, attract more users and offer a more customer-oriented service.
As the year limped to a close, MTN finally declared that outgoing CEO Phuthuma Nhleko would be replaced by Sifiso Dabengwa on Apri 1. Nhleko will stay on as non-executive deputy chairman. Dabengwa is currently the chief operating officer (COO) and was seen as the obvious choice, since he worked closely with Nhleko in driving MTN’s growth strategy. The COO position will be scrapped and a new position, CEO of MTN International, will be created to focus intensely on opportunities abroad. No candidate has been name for that yet. Christmas was grim for employees at South Africa’s fixed and mobile operator Neotel with retrenchments looming. Neotel has more than 1,000 staff, which cynics would say almost outnumbers its customers. The company’s debt providers have apparently brought in independent management consultants to assess the situation. Neotel will consult staff in January and February, with retrenchments expected in April. Neotel says it is evaluating its business strategy, operational performance, efficiency and competitiveness with a view to achieving long-term sustainability. Staying in South Africa, the government pledged to build 18 information and communications technology centres in 2011 to take technology to the rural poor. The ZAR180 million scheme will provide broadband internet access and computing resources in underserviced areas to help raise the country’s appalling low broadband penetration rate of 4% to double digits. Bringing us full circle, we end back in the Democratic Republic of Congo (DRC), where Vodacom and its minority shareholder Congolese Wireless Network (CWN) have agreed to appoint investment bank NM Rothschild & Sons to explore options to settle their acrimonious dispute and keep their network viable.
And a quick look at what's brewing for 2011:
Bharti should make a big impact in the countries where it aquired the networks of Zain. Expect more price wars, more innovative offerings and a general slashing of any flabby bits in the operating expenses. In South Africa the mobile interconnection fees finally fell, but the Independent Communications Authority of SA (Icasa) didn’t really get its way against wily operators Vodacom and MTN. It will try again in 2011 with plans to cut call termination rates in March. Consumers are advised not to hold their breath.