- Thursday, January 6, 2011 11:30 - 0 Comments

Change Has A Name: Mobile

Steve Song
… is the founder of Village Telco, a social enterprise that develops low-cost, Open Source, telephone network technology for use in under-serviced areas. He has spent the last three years as a fellow at the Shuttleworth Foundation in South Africa developing both advocacy and technology to drive down the cost of access for those who can least afford it.

Mobile telecommunication networks in Africa have profoundly changed the face of social and commercial life in Africa. But understanding the scale and impact of this change can be a challenge for several reasons.

First, mobile networks and related services are growing at an unprecedented rate. Measures of network size must be continually revised, as the landscape of mobile access can change significantly over a few months.

Second, the medium itself is evolving. Not so long ago, we considered mobile phones were just that, phones for voice conversations. Now more and more mobile phones are also generic Internet access devices, which opens up a whole new world of access through the same network.

The third challenge to understanding mobile networks in Africa is obtaining relevant usage data. Network operators regard detailed information on network usage and growth as confidential business information that might give their competitors an advantage. Most of the available information is therefore the product of third-party research. Unfortunately, the appetite of funders to support publicly-accessible, broad- based empirical research appears to be modest at best. As a result, comprehensive information on communication patterns and affordability of access is not widely available and we are left to intuit the gaps in our understanding.

So what do we know about the impact of mobiles in Africa? Perhaps the most significant indicator of the impact and importance of communication networks is their very pervasiveness in such a short space of time.
High level macro economic studies by Leonard Waverman of the London Business School and others have made credible claims that the spread of mobile infrastructure has had a direct positive impact on GDP. At the micro level, many anthropological studies have profiled the use and impact of mobile phones on specific communities. Between these macro and micro levels, however, much is still guessed at.
There is a seductive tendency when talking about the continent of Africa to refer to it as a single country. The mind boggles at the thought of characterising 53 different states and economies and we tend to seek out broad brush strokes to help cope with the dazzling complexity of the continent. This is true as much in the telecoms sector as anywhere else. And superficially the development of telecommunication infrastructure across countries in Africa looks very similar.
Most African countries have struggled with market liberalisation, with the separation of government investment in formerly incumbent telecommunication operators, and with the kind of tacit influence if not outright corruption that such a lucrative market inspires. Yet, the closer we look, the more it is evident that there are no simple formulas for stimulating growth and competition, that each country has unique challenges and opportunities.

Let’s take a look at Kenya and South Africa as examples. On the surface the telecommunications sector of these two countries have much in common.

• Both have an independent communications regulator whose job is to ensure healthy growth of the telecommunications market. In both countries, these regulators have adopted pro-openaccess regulation for licensing telecommunication companies. This policy approach aims to separate infrastructure from services with the intention of stimulating independent competition for the provision of infrastructure as well as for the services that run on that infrastructure. Thus, the company that brings copper wire or wireless connectivity to your home need not be the same company that sells voice, Internet or other services through those connections.
• Both Kenya and South Africa are recent beneficiaries of new undersea fibre-optic cables which provide orders of magnitude for greater Internet and voice capacity. Both countries are actively positioning themselves as regional hubs for that access.
• Kenya and South Africa have a former monopoly fixed-line incumbent telecommunications service provider in which their respective governments retain a substantial investment. Furthermore, the largest mobile operator in these countries, Safaricom in Kenya and Vodacom in South Africa have Vodafone UK as their most significant shareholder. Both countries currently have four mobile operators.
• Kenya and South Africa have roughly 10% Internet penetration.
• Finally, both Kenya and South Africa have mobile enabled money transfer and payment services. Notably, the biggest mobile money success story in Africa, Safaricom’s mPesa service, was recently launched in South Africa.

Given this list, the development of telecommunications infrastructure in Kenya and South Africa appears very similar. On a closer look, however, we find that the differences significantly outweigh these similarities.

Kenyans spend a much larger percentage of their disposable income on mobile services than do South Africans. Ground-breaking work by ResearchICTAfrica (http://www.researchictafrica.net), has shown that, within the bottom 75% of earners in Kenya, people spend an incredible 63.6% of their disposable income on mobile services. In South Africa, within the same demographic, that figure is 38.2%. This difference can be attributed in large part to a higher average income in South Africa but there are other factors at play as well.
South Africa has a much larger fixed-line infrastructure than Kenya, with 40% of urban areas having fixed-line services in SA versus a little over 11% in Kenya. This means that urban users in South Africa may rely more on fixed-line for some services such as Internet or some voice services whereas in Kenya far fewer people have that choice.
While both countries have four national mobile opera-tors, Kenya is dominated by Safaricom whose market share is over 80%. This is perhaps the most interest-ing difference between South Africa and Kenya. With that kind of market dominance, Safaricom has been in a position to dictate its terms to the market. One would imagine that this would lead to a less competitive environment than in South Africa where the market is somewhat more balanced. However, in the last two years, Kenya has seen more price competition than South Africa, Moreover, Kenya has managed to maintain interconnection charges between telephone networks that are half those in South Africa.
One might also argue that Safaricom’s massive size enabled the huge success of mPesa in Kenya, a success which curiously has not been replicated to the same degree anywhere else on the continent. South Africa in particular has not seen a tremendous uptake of mPesa since its launch. The factors underpinning this are complex and worth exploring further.

More significant than any of the above points, however, is the arrival of Bharti-Airtel in Kenya through its acquisition of Zain networks in Africa. Zain Kenya is the second largest mobile operator in Kenya. Indian-owned Bharti-Airtel comes from a more aggressive, competitive telecommunications environment in India and has brought operational and pricing models that have sent shockwaves through the Kenyan mobile market. In August 2011, Bharti-Airtel (Zain) dropped mobile prices by over 60%. Safaricom held out for a couple of weeks but eventually dropped their prices to match. Overnight Kenya became one of the most competitive telecommunications markets on the continent.
Prior to buying Zain, Bharti-Airtel had been in negotia-tion with MTN to buy their networks in Africa. MTN is South Africa’s second largest mobile operator. It is interesting to speculate whether, had Bharti-Airtel bought MTN instead of Zain, South Africa might be the most competitive telecommunications market in Africa.
Regardless, there is now a massive difference in telecommunications costs between Kenya and South Africa. Looking at Safaricom and Vodacom, two companies with the same parent in Vodafone UK, voice calls are 8 times more expensive in South Africa than in Kenya. Individual SMSes are three times more expensive. For bulk purchases, SMS costs are up to 20 times more expensive. For data services, out-of-package data rates have the same kind of distortion. Mobile data costs are three times more expensive in South Africa. More than anything else, these figures suggest that the South African mobile market is relatively stagnant and uncompetitive.
Interestingly, this situation contrasts dramatically with the Internet service provision market in South Africa which has seen increased competition and drops in price for pure Internet services of up to 80% in the last 18 months. Internet Services Providers (ISPs) have had healthy competition for many years but until recently have been hamstrung by having all international access throttled by Telkom South Africa, thanks to their control of the SAT3 undersea cable. It took about a year after the arrival of the Seacom cable in June 2009 for prices to move but 2010 has seen an avalanche of change with ADSL Internet costs dropping as much as 70%. Kenya is experiencing similar price drops in the ISP market although there is much more demand for mobile Internet in Kenya due to the lower density of fixed-line infrastructure.
We can also see significant differences in the mobile Internet market. Facebook, arguably the fastest grow- ing Internet-based service in Africa, is an increasingly good proxy for measuring mobile Internet use on the continent. Facebook is the top mobile Internet destination in both Kenya and South Africa. And while there are many more Facebook users in South Africa, nearly 3.5 million in South Africa as compared to about a million in Kenya, there is a different growth pattern across the two. Facebook use in Kenya has grown 27% in the last six months compared to 16% in South Africa.
Similarly, we can see mobile ad growth in Kenya exploding at 116% in the last year versus 18% in South Africa. And while mobile Internet use in general is growing in both countries, we see 279% growth in Opera browser statistics in Kenya versus 129% in South Africa. However, as with all statistics, this evidence needs to be examined in context. The massive popularity of MxIT as a messaging platform in South Africa may partially account for the difference in rate of Facebook uptake. Also, there is evidence that use of the mobile Internet through dedicated “apps” such as a mobile Facebook or Gmail app is more popular than using the same services through a browser such as Opera.

This tale of two African telecommunications markets underscores the complexity of communication markets in Africa. Nonetheless, we can draw some telling conclusions. We know that demand for mobile services is growing by leaps and bounds and we know that cost remains a barrier to uptake. We know that with Kenya and a few others as notable exceptions, mobile markets remain uncompetitive in Africa making costs high for those who most need it but can least afford it. The greatest barrier to access on the continent and to a growing wave of African innovation is the cost of access and enabling real competition is the key to driving prices down.
Unfortunately enabling competition in the telecommunications marketplace is not as straightforward as simply allowing new competitors into the market, although that is obviously a factor. The key to participation in the market is access to wireless spectrum. The rising price of copper as a commodity makes it increasingly impractical as a last mile solution. Its increase in value also makes it more appealing as a target for theft. The only practical option for service delivery is wireless. However, one cannot use just any wireless spectrum. Mobile phones are designed to work within specific wireless spectrum bands thus regulators are constrained to assign specific ranges of spectrum for mobile use.
The result is that most of the spectrum allocated for mobile use has already been assigned to existing mobile operators. This “administrative scarcity” of spectrum is something that urgently needs to be addressed by regulators. More spectrum needs to be made available whether through the licensing of new spectrum bands, sharing of existing bands, or increased use of unlicensed spectrum like WiFi.

Enabling more competition through increased access to wireless spectrum is an opportunity that could help drive down the cost of access on the continent. To date we have seen great increases in efficiency through access to mobile infrastructure in Africa. If we can drive down the cost of access to the point where mobile users don’t need to think about how much they are spending at every access, we’ll begin to see a wave of innovation in African products and services that will astonish the world.

Sources:
- Research ICT Africa: http://www.researchictafrica.net
- CIA World Fact Book: https://www.cia.gov/library/publications/the-world-factbook/
- Social Bakers – Heart of Facebook Statistics: http://www.socialbakers.com/
- Admob – Mobile Metrics: http://metrics.admob.com/
- Opera – State of the Mobile Web: http://www.opera.com/smw/
- Internet World Stats: http://www.internetworldstats.com/af/
- Vodacom: http://www.vodacom.co.za
- Safaricom: http://www.safaricom.co.ke