With 2G growth slowing down in Africa, 3G network rollout is starting to pick up pace in many urban areas across the continent
Mobile growth in Africa has been spectacular during the last decade. From pretty much a standing start, the continent now boasts an average mobile penetration of over 40%. In some countries, such as Ghana, Egypt, Nigeria and South Africa, mobile penetration is much higher. Yet the overall pace of annual African mobile growth is on the decline, and has been for a few years. Informa Telecoms & Media, a research firm, calculates that annual mobile subscriber growth in Africa was 26% during 2009, compared to a 35% growth rate in 2008 and a 42% jump in 2007. With 2G growth weaker than before, 3G is creeping up the agenda of many African operators as a potential way to bolster revenue growth through mobile data and internet access services, particularly in urban areas where fixed-line broadband is patchy and expensive. But it is still early days for African 3G. According to Informa, GSM represented 93% of the continent’s mobile subscriptions as of Q1 2010, with 3G/WCDMA and 3G/EV-DO accounting for market shares of only around 3.4% and 0.5% respectively. Moreover, of the 3.4% of WCDMA users (which represent 16 million subscriptions), Informa calculates that fewer than five million actively use the 3G data services. The remaining WCDMA subscribers in Africa use their 3G service only for voice. Despite the low 3G subscriber take-up so far, figures supplied by both the GSA (Global mobile Suppliers Association) and the CDG (CDMA Development Group) indicate that 3G network rollouts for both WCDMA and EV-DO are gathering pace in many parts of Africa, and not just in the comparatively more developed economies, such as Egypt and South Africa (see ‘HSPA brings faster 3G to Africa’ and ‘CDMA growth in Africa’). “In many African markets, the main revenue driver for 3G is still internet access rather than internet-enabled applications,” adds Said Irfan, a research manager at IDC who covers the African markets. “In Africa, there is a clear opportunity to give people their first experience of accessing the internet over a mobile network rather than through fixed, given the lack of a proper fixed infrastructure in many parts of the continent.” Irfan highlights the rapid headway that mobile broadband is making in Morocco, where the total number of mobile broadband subscribers has surpassed the number signed up to fixed broadband services. “Mobile broadband in Morocco has even caused a significant drop in fixed broadband growth,” adds Irfan. Greater enthusiasm for 3G in Africa cannot only be explained as a response to lower growth prospects from 2G. “Some regulators are only getting around to releasing 3G spectrum now,” says Robert Schumann, a lead consultant at Analysys Mason. “The prices for 3G equipment are also coming down, which, in some cases, means that 3G can be added at little extra cost in the course of normal equipment replacement cycles.”
THE BHARTI FACTOR
The arrival of India’s Bharti on the African continent, following its US$10.7 billion purchase of the majority of Zain Africa's mobile assets in March 2010, may well drive down 3G kit prices even further. Deep-pocketed Bharti, which is eyeing up large-scale 3G rollout in India, would have the purchasing muscle to drive better deals with 3G suppliers through greater economies of scale. “Although Bharti’s strategy has mainly been about keeping a low cost operation, I don't think they would be averse towards rolling out 3G in the continent, judging from their current bid for an Indian 3G licence,” says Irfan. “Nonetheless, the pace of the rollout depends on how high the license prices are initially set. Given that 3G spectrum is considered a scarce resource, governments in Africa tend to set a price that in the end could prove harmful for operators' business case in a low- ARPU market.” Thecla Mbongue, a senior research analyst and African markets specialist at Informa, points out that Bharti runs 3G networks in all of its other international operations: Guernsey, Jersey, Sri Lanka and Seychelles. But out of the 15 Zain operations sold to Bharti, 3G is only available in Ghana, Nigeria and Tanzania. So, one might reasonably conclude that 3G expansion in Africa is on Bharti’s agenda. “Bharti’s focus does lie in running more efficient networks, but we don’t think that it will refrain from following 3G opportunities if the market environment is favourable,” says Mbongue. But Schumann warns that 3G is unlikely to revolutionise mobile operations in Africa in the near to mid-term, and that some markets will have a much better chance of 3G success than others. “Mobile data still accounts for a small part of mobile revenue, and rollouts are concentrated in urban areas,” he says. “A key success factor for any mobile data proposition is revenue density, which makes Egypt [due to population concentration] and South Africa [due to urban income levels] more likely markets for 3G success, and, indeed, they are at the front of the pack now.” In Egypt, observes Schumann, Vodafone is already the leading broadband provider (ahead of Telecom Egypt in terms of subscriber numbers). In South Africa, Vodacom took the broadband subscriber lead from Telkom, the country’s fixed-line incumbent, in Q2 2009.
CABLING UP THE 3G BUSINESS CASE
Although licence terms and conditions, as well as the high-value contract wins for suppliers, invariably grab all the 3G headlines, there is a less glamorous but equally important side to the 3G business case. The ability to reduce network operating costs, particularly in highly competitive markets, will be necessary if operators are to provide attractively-priced retail mobile data packages without wreaking havoc on their profit margins. And for many mobile operators in Africa, particular in East Africa, the availability of more international and national bandwidth capacity – at cheaper prices – should increase their chances of achieving that. In July 2009, a second submarine fibre-optic cable connecting South Africa to the rest of the world went live. The 17,000- km cable, built by Seacom—a Mauritius-based private-sector vehicle—at a cost of US$600 million, runs from Mtunzini in KwaZulu-Natal to India and Europe, via landing stations in Madagascar, Tanzania and Kenya (and so connects East Africa to the global fibre-optic cable network for the first time). With a capacity of 1,280Gbps, Seacom is far larger than the existing SAT3 cable (120Gbps) that runs up the west coast of Africa, which is operated by South Africa’s state-owned Telkom. EASSY, another privately-held international submarine cable connecting East Africa, is due to be completed in June 2010, and will bring an additional 1,400Gbps capacity. Despite the availability of cheaper wholesale submarine cable prices, which reportedly undercut pre-Seacom prices by ten times or more, Schumann is cautious they will have a dramatic and positive impact on every mobile operator – and not simply because some operators are still tied into paying pre-Seacom prices on long-term contracts. “This is partly because there remain constraints on the radio capacity, on the backhaul from base stations to a switching centre, and on end-user devices that remain limited in their ability to consume large amounts of data,” he says. “Laptops also remain stubbornly above US$200, compared with US$20 for a 2G handset and approximately US$40-50 for a 3G handset. Inelasticity of customers’ demand, and marginal utility they derive from new technologies, will limit the uptake of mobile data.” Even so, some mobile operators, such as South Africa’s MTN, are making concerted efforts to boost network capacity by investing in terrestrial fibre-optical cables, which will also connect to the undersea cable systems. By investing heavily now in network capacity, MTN hopes to reduce operating costs in the long term. In partnership with Neotel, South Africa's second national operator – and Seacom's main anchor tenant – MTN is rolling out a 5,000-km internal fibre-optic cable network. During 2009, MTN reports that 245km of the fibre-optic cable was completed along the Gauteng-Durban route. The southern and northern rings of the Gauteng fibre projects are expected to be completed by July 2010. “We have been fairly active in the submarine cable area, not as a speculator but primarily to provide capacity for our own operations and hopefully, in the process, reduce the costs,” said Phuthuma Nhleko, president and CEO of the MTN Group, in a March 2010 analyst conference call to present the group’s 2009 financial results. “To date [we have invested] almost $85m and we've most probably got commitments close to $200m over the next few years.” MTN fibre-optic investment is running in parallel with 3G network rollout in Ghana, Nigeria and South Africa. In South Africa, MTN’s 3G capacity increased 22% during 2009 compared with a 12% increase in 2G capacity. Moreover, MTN’s 3G population coverage increased in South Africa from 35% in December 2008 to 48% in December 2009. “Operators that have a stake in cross-continent data networks, such as MTN's UUNet and Vodacom's Gateway, would certainly benefit in more ways from the availability of extra capacity than pure mobile operators by way of their ability to offer more services to clients,” adds IDC’s Irfan. “Also to benefit early are mobile operators with IRUs [indefeasible rights of use] on the subsea cables, as they would be able to gain a first advantage in accessing the extra capacity.”
Moving forward, Schumann expects more 2.6GHz spectrum to become available in Africa in the near future, which fits well with 802.16e mobile standards). It is likely, however, that 802.16e – due to considerations of cost and regulatory restrictions – will be used more for fixed and nomadic broadband services rather than as a true mobile service (and a direct competitor to cellular 3G). UHF (TV) spectrum will also become available on the continent once the digital switchover gets moving – there is a regional deadline of 2015 for Africa to complete the transition from analogue to digital TV. Again, that should provide more opportunity for 3G growth across the continent. The availability of more spectrum does, of course, throw the spotlight on regulators as to how they allocate it. As in other regions of the world, Africa has not been immune to spectrum disputes. In Kenya, for example, operators aiming to break the 3G monopoly held by Safaricom have complained to the regulator that the US$25 million licence fee is too high and will jeopardise the 3G business case. “Some governments do indeed auction 2.1GHz spectrum at a high price, since it is a sought after spectrum band by GSM operators in need of upgrading to WCDMA,” says Informa’s Mbongue. “So far, the most expensive 3G spectrum fees [in the 2.1GHz band] were recorded in Egypt where the frequencies were sold for over US$700 million to Vodafone and Mobinil in 2002. Nigeria has recorded the second highest fees as four operators each paid US$165 million for 10MHz in the 2.1GHz band in 2007. Usually the price per population has been around US$1 [US$1.24 in Nigeria], but in Egypt it was around US$9.” Yet Africa, on the whole, appears to have learned some 3G licensing lessons from developed economies – at least according to Schumann. “Many regulators are now avoiding the temptation to consider 3G to be a cash cow,” says Schumann. “Mozambique and Botswana, for example, have not attached large price tags to 3G or WiMAX spectrum. This is both for pragmatic reasons. Governments recognise that the hype around Europe’s 3G licence awards was not replicable and because, in simple terms, the spectrum is only valuable when it is being used productively. Demanding exorbitant fees simply leads to delays, court battles, investor uncertainty and substantial fees paid to banks and financial advisors who help to raise new capital.” If governments can refrain from charging exorbitant licence fees, and mobile operators can reduce their network operational costs – and the price of devices continues to fall – 3G has every chance of success in Africa.
Sidebar 1: 3G TECHNOLOGY SNAPSHOT HSPA AND HSPA+
Suppliers of 3G equipment, based on WCDMA technology, talk enthusiastically about software upgrades that will allow operators to achieve peak downlink speeds of up to 14.4Mbps. The technology, known as HSPA (high-speed packet access), is available in three flavours: peak downlink speeds of 3.6Mbps, 7.2MBps or 14.4Mbps. The first two are becoming more and more popular in Africa, but no mobile operator on the continent has yet to adopt the 14.4Mbps version (see HSPA brings faster 3G to Africa). Beyond HSPA there is HSPA+, which uses higher order modulation schemes (from 16QAM up to 64QAM) and more advanced antenna technology (known as MIMO). The first HSPA+ step is to deliver peak downlink speeds of 21Mbps, but Germany, Italy, Singapore and Switzerland – according to survey information published by the Global mobile Suppliers Association (GSA) in April 2010 – already boast commercial HSPA+ networks that deliver up to 28Mbps on the downlink. Orange, which has invested heavily in HSPA networks in Africa, has gone one better. In Austria, Orange now offers a commercial 42Mbps peak downlink service in the town of Weiner Neustadt. Ericsson, the world’s largest supplier of mobile equipment in terms of sales, anticipates that the combination of multicarrier MIMO and 64QAM modulation will enable peak HSPA+ bit-rates of 84Mbps and, eventually, 168Mbps.
Sidebar 2: HSPA BRINGS FASTER 3G TO AFRICA
The overwhelming majority of WCDMA-based 3G operators are turning to HSPA (high-speed packet access) to boost downlink and uplink speeds. Africa is no exception. According to data supplied by the GSA (Global mobile Suppliers Association), 38 countries in the Middle East and Africa (MEA) had either commercial HSPA networks up and running by April 2010, or had operator commitments to do so. MEA, according to the GSA, accounts for 25% of countries in the world who either have HSPA commercial services or network rollout commitment. Europe (36%), Americas (20%) and APAC (19%) account for the remaining distribution of countries around the world that have commercial HSPA. The list of commercial HSPA rollouts in Africa is growing fast. According to the GSA, there are commercial HSPA operators in Angola, Botswana, Egypt, Ethiopia, Ghana, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Reunion, Rwanda, Senegal, Seychelles, South Africa, Sudan, Tanzania, Uganda and Zimbabwe. Of the 186 commercial HSPA networks around the world, just over half (54.5%) support a peak downlink of 7.2Mbps or above, says the GSA. The majority of HSPA operators in Africa, however, only deliver peak rates of 3.6Mbps or under. Even so, there is a growing list of HSPA operators on the continent that go beyond 3.6Mbps. Mobinil and Vodafone (Egypt); Safaricom (Kenya); Orange (Mauritius, Réunion and Senegal); Méditel (Morocco); MTC (Namibia); Vodacom and Telkom (South Africa); Sudatel, Zain and MTN (Sudan); and Vodacom and Zain (Tanzania) each offer peak downlink rates of 7.2Mbps. There are no African mobile operators, however, that offer HSPA at peak rates of 14.4Mbps, or any that has opted for HSPA+ that can reach to 21Mps, 28Mbps or 42Mbps. Of the 341 commercial HSPA operators around the world, GSA says that 52 have launched HSPA+ (across 32 countries). Although the majority of HSPA+ launches are in developed economies, there are exceptions: Bulgaria, Croatia, Greece and Turkey each have HSPA+ operators, which might suggest that HSPA+ will also have a place in some of Africa’s markets. CDMA GRO WTH IN AFRIC A Africa accounted for only 5.4% of all CDMA subscribers in the world as of December 2009, which translates into nearly 30 million, according to figures provided by the CDG (CDMA Development Group). However, the rate of CDMA subscriber growth in Africa between December 1997 and December 2009, at 31%, is faster than any other geographical region in the world. Although the CDMA subscriber statistics provided by the CDG include 2G CDMA2000, CDMA WLL (wireless local loop) systems – as well as 3G – it shows that Africa has a fairly large and strongly growing base from which to evolve CDMA networks to their faster and higher-capacity 3G versions, such as 1xEV-DO Rel. 0 (peak downlink speeds of 2.4Mbps) and 1xEV-DO Rev. A (3.1Mbps peak downlink rates). Yet of the EV-DO subscriber total worldwide as of December 2009 (142.1 million), Africa still only accounts for 3% (4.2 million). North America and the Asia-Pacific make up the bulk of the world’s 1xEV-DO subscribers with 54.3% and 34.3% market shares respectively. With nearly a doubling of 1xEV-DO subscribers during 2009, however, Africa is showing stronger CDMA-based 3G momentum than other regions in the world. According to the CDG database (as of April 2010), commercial 1xEV-DO Rel. 0 cellular networks are up and running in Angola, Cameroon, Lesotho, Liberia, Malawi, Mauritania, Mauritius, Morocco and Namibia. Commercial 1xEV-DO Rev. A cellular networks are available in the Democratic Republic of Congo, Morocco, Senegal, Sierra Leone, Sudan and Tanzania. The CDG also reports that Wana, a privately-held telco in Morocco – and which already operates commercial Rev. A and Rel. A networks – is planning to launch a 1xEV-DO Rev. B network. Rev. B networks can offer peak downlink speeds of up to 9.3Mbps (or up to 14.7Mbps with a hardware upgrade). A key driver for CDMA growth in Africa is Huawei and ZTE. Both Chinese vendors have invested heavily on the continent and have historically managed to undercut many of their western supplier counterparts on price. Again, referring to the CDG database, Huawei accounted for 64 of the publicallydisclosed CDMA contracts (2G, 3G and WLL) in Africa as of April 2010, while ZTE accounted for 37. Motorola, Nortel and Star Solutions are the only publicly-disclosed western suppliers with a CDMA presence in Africa, but they can only claim a handful of African CDMA contracts in total among them.