DENVER, United States-Nearly 10 years after the introduction of cellular services in West Africa, the number of mobile subscribers has increased to such an extent that it is rapidly becoming the epicenter of the communications market in the region-the focus shifting from fixed to mobile networks.
This shift occurs concurrently with the gradual liberalization of local markets and the slow emergence of the Internet. In sheer volume, the mobile market penetration in West Africa may not be as high as that of other African countries, especially South Africa with a mobile density of 12.9 percent per every 100 inhabitants. In comparison, in West Africa, Burkina Faso has a mobile density of 0.38 percent per 100 inhabitants, and Gambia a teledensity of 3.3 lines per 100 inhabitants. Analysts, however, believe that the explosion of cellular is one of the market shocks altering the West African communications landscape.
According to an in-depth report, Communications Markets in West Africa, recently published by Pyramid Research, Nigeria has the potential of becoming the largest market in sub-Saharan Africa. Core d’Ivoire, Ghana and to some extent Senegal, were among the first to liberalize their mobile markets. This emancipation has resulted in unbelievable subscriber growth, averaging 200 percent or more since 1996. Ghana is the exception, as multiple standards and inadequate regulations have hampered market growth. Cameroon and Nigeria have been slower to open up their market, but appear ready to catch up with the rest of the region over the forecast period (2000-2005).
“The cellular market has become the communication’s market largest segment in revenue terms,” says Guy Zibi from Pyramid Research. “By 2005, revenues from voice and data telecom services are forecast to be at least equal to fixed-line and datacom revenues over the forecast period in Cameroon, Nigeria, Senegal and Cote d’Ivoire.”
Nigeria could well boost the predicted figures if the rollout of GSM mobile networks-Nitel, MTN and Econet-follow the projected pattern. Nitel plans an initial 118,000-subscriber base from takeoff date, and MTN and Econet each plan between 500,000 and 800,000 lines within the first year of operation. MTN expects to initially launch 100,000 lines. Meanwhile, Nitel has cut off more than 40,000 of its landline subscribers in four weeks as part of a desperate attempt to raise revenue in the face of the competitive market that looms ahead due to privatization that will occur during the last quarter of 2001.
Ghana, on the other hand, will experience a different pattern as the cellular market will not be large enough to generate revenues that surpass those generated in a competitive fixed-voice and data market. “In Ghana, the cellular market will not be large enough to generate revenues that surpass those generated in a competitive fixed-voice and data market,” says Zibi.
Ghana was one of the first telecommunications markets in Africa to introduce competition. With limited regulation, this was seen as a recipe for rapid expansion of the market. In reality, the three mobile carriers chose different systems-AMPS, ETACS (extended total access communications system) and GSM-making it difficult for customers to change service providers. As a result, subscriber numbers remain rather low compared to West African markets, and the landline penetration still exceeds mobile penetration, an oddity in West Africa. The Ghanaian cellular subscriber base remains smaller than that of neighboring markets, numbering slightly more than 145,000 subscribers at year-end 2000, compared with more than 200,00 in Senegal and more than 400,000 in Cote d’Ivoire.
Cameroon’s mobile market awoke from its slumber in 2000, after a largely inefficient monopoly gave way to competition. If the first months of competition are any indication, the market is poised for substantial growth during the next few years, mostly thanks to inexpensive prepaid packages. Zibi, in his West African analysis, predicts that the deployment of next-generation systems is not likely to happen for quite some time in West Africa and in fact will be limited to narrowband services like short messaging service (SMS).
“A case, however, could be made on market-to-market basis for general packet radio services (GPRS),” says Zibi. “We believed EDGE (Enhanced Data rates for Global Evolution) and W-CDMA (wideband Code Division Multiple Access) are not worth the hassle, at least not over the next five years. GPRS, if introduced, would have to focus on supporting relevant applications and be targeted to business or end users, a small addressable market. At this point only the Nigerian market appears large enough to justify some of the investment required to establish GPRS systems.” It would be more cost effective for operators to deploy fixed broadband wireless solutions to meet the clients’ needs.
Mobile services, however, could still be unaffordable for many users. Pyramid Research’s service affordability model estimates that less than 1 percent of the population at the low end (Nigeria, Ghana in 2000) and about 18 percent at the high end (Cameroon, Senegal) can afford the minimum cost of picking up mobile services in most countries. In more developed markets, the addressable markets will expand, generally accounting for around 20 to 25 percent of the population by 2005.
Three major business models are found in West Africa: prepaid only, blended with a focus on postpaid and a blended service with a focus on prepaid. Sentel, the only carrier in the region to use the first model, perhaps offers the most cost-effective platform for more end-user services. Increasing prices is not an attractive option. SIM, Cote d’Ivoire’s carrier, offers a blended service but tends to favor postpaid users.
West African mobile ventures are very profitable and are likely to become even more so. According to Zibi, “The profit margins are in the 20- to 40-percent range, return on investment (ROI) is at least 20 percent, though this is decreasing as the cost of mobile licenses go up. Over the longer term, this margin will shrink slightly, but the businesses will remain profitable.”
