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Price wars hit voice, VAS & Data new frontiers

o Dennis Mbuvi
14.04.2011 kl 15:15 | CIO East Africa

Mobile operators in Africa are now focusing on data and other value added services as voice revenue, formally a cash cow and declines. This has seen several mobile operators acquire stakes in Internet Service Providers (ISPs) as they anticipate to reap from services such as fiber to the home, triple play services and opportunities in the TV segment. Value added services have had mixed reactions depending on each operators strategy, with some blamed for endless products with no value. These were the outcomes of the 2 day East Africa Com conference held at the Kenyatta International Conference Centre between 5th and 6th of April 2011. Organized by Informa, the conference drew various mobile and fixed telecom industry players from the continent and beyond.


Mobile operators in Africa are now focusing on data and other value added services as voice revenue, formally a cash cow and declines. This has seen several mobile operators acquire stakes in Internet Service Providers (ISPs) as they anticipate to reap from services such as fiber to the home, triple play services and opportunities in the TV segment. Value added services have had mixed reactions depending on each operators strategy, with some blamed for endless products with no value. These were the outcomes of the 2 day East Africa Com conference held at the Kenyatta International Conference Centre between 5th and 6th of April 2011. Organized by Informa, the conference drew various mobile and fixed telecom industry players from the continent and beyond.

Africa mobile industry growth

Africa has 120 million mobile phone subscribers. Informa expects this figure to increase further as Ethiopia liberates its telecommunications sector, data connections and fixed market opportunities.

Predictions by HIP Consulting firm is that the level of penetration in the market is reaching saturation in voice while at the same time seeing an increased number of players in the market. This has resulted in pricing pressure across the region as operators rush to out-compete each other by lowering prices. HIP Consult goes further to caution that though there is massive demand in data services in the region, data growth does not result in similar growth in revenue.

It also emerged in EACOM that most infrastructure initiatives in the continent are being led by governments. An example is the East African Marine Subsystem (TEAMS) - a Kenyan led sub-marine cable and a proposed national LTE wireless network in Kenya.

This presents a new opportunity for operators as they can further reduce their operating expenditures by leasing off infrastructure -- given that most of the continent's providers have excess capacity. By 2012, Africa will have sub-marine fiber capacity of 20 Terra bits per second.

Data wars: mobile to win over fixed?

Telcos in Africa are further cautioned to learn from the more mature European and United Sates markets where most firms that started out as data providers have now gone bankrupt. Judah Levine, CEO of Hip Consult says, "Providing data is not trivial, we should not repeat their (European/US operators) mistakes."

Levine says that fixed data is difficult because mobile data, which it competes against, can scale with demand while fixed data requires a lot of capital expenditure investment before usage. The advantage mobile operators can maximise is that they can cross-subsidize data operations by offering them along with other services on the same equipment. In addition, mobile operators already have a large client base which they can leverage upon.

At the end of the year, the Lower Indian Ocean Network (LION) cable would be extended to Mombasa. LION joins the South Atlantic 3/West Africa Submarine/South Africa Far East Cable (Sat3-Wasc-Safe) at the islands of Reunion and Mauritius. Sat3-Wasc-Safe is a pair of cables running from Spain and Portugal through several West African Countries, on to South Africa and onwards to India and Malaysia.

Mikhael Ghossein, Telkom-Orange Kenya CEO says that France-Telecom has a 51% stake in Orange Kenya has the second biggest stake in Sat3-Wasc-Safe at 12.08%. Orange Kenya is positioning itself for a major data battle in the East African market targeting both corporate and home users. At the moment, the company is rolling out 3G on its GSM network. Unconfirmed reports also indicate that the telco has spruced up the nationwide fiber network it purchased as part of Telkom Kenya.

Ghossein says that the firm has consolidated all its offerings under a single platform - billing and customer care services for all of Orange's technology are served from a single unified platform unlike in the past when they run from individual platforms. The universal platform is also friendlier to the customers as it results in a single scratch card for all products and services. Ghossein says that Orange was considering convergence of its services rather than outsourcing. "Outsourcing is good for customers and bad for employees," he says.

Trenching costs in Africa however still accounts for 97% of fiber installation costs, according to Jabulani Dhliwayo, business development manager at Corning Optical Fibre. Dhilwayo advocates for the use of overhead fiber which he says is cheaper and easier to support in case of cost or repairs.

Triple play demand high, exploitation low

Richard Bell, Group CEO of the Wananchi group, is placing his bets on Zuku which is termed as Africa's first and only triple-play provider. Bell is a seasoned player in Africa having founded Swift Global, Africa Online and Kenya Data Networks -- all major players in the East African market. "The next 10 years is about home entertainment," says Bell.

Bell, together with the late James Gachui, Jimnah Mbaru, Ali Mfuruki and Richard Essex, formed East African Capital Partners, an investment body which -- together with Njeri Rionge (Ignite Consulting) and Joe Mucheru (Regional Lead Sub-Saharan Africa at Google) started Wananchi group. Wananchi group has stakes in several service providers including Simbanet, a data solutions provider ISP with a focus on corporates and Zuku, a triple play service provider.

According to Bell, enabling macroeconomics environments, market segment environments, capital sound management and sound business strategies are critical success factors for businesses. East Africa presents several advantages in the form of integrated market grouping of the East African Community, especially with the recent integrations of South Sudan and Ethiopia. An added advantage is the increasing urban middle class which has the ability to afford data services and political will from East African states through dedicated ICT ministries.

Bell lauds the initiative of the TEAMS cable in that it has helped the region avoid monopoly and oligopoly in cable services, like what happened in West Africa.

"Zuku is not a cable TV operator, not an ISP/broadband provider nor a voice/telephone provider," says Peter Reinartz, CEO of Zuku Kenya - Wananchi group's retail/small office home office triple play provider arm. Reinartz says the firm is fully expanding and launching new products and services in the East Africa market.

Zuku plans to launch Direct to the Home (DTH) Satellite TV to 10 East African countries. This is in addition to its Hybrid Fiber Coaxial (HFC) which the CEO says goes very deep with fiber to almost street level. A single node is capable of serving between 150 and 250 homes. Zuku has partnered with leading technology vendors such as Cisco. This has resulted in advanced network technology which is DOCSIS 3.0 ready meaning that it can deliver up to 100 Megabits per second (Mbps).

Other services that the provider is looking to launch include a video on demand service in 2012. At the moment, costs for triple play start at Ksh 999 (1$ = Ksh 85) for 1 Mbps data only , Ksh 2299 for data and cable television on 1 Mbps and 3299 for data, vable television and telephony on 1 Mbps. Corresponding prices for an 8 Mbps connection are Ksh 3499, Ksh 3999 and Ksh 4999. Reinartz says that Zuku is not planning to engage mobile providers on price wars as it focuses on quality instead. Howver, Zuku to Zuku calls are free as a value add.

Phase 1 of the Zuku triple play is already complete and covers Killeleshwa, Kilimani, Lavington, Hurlingham and Langata areas of Nairobi.

Phase 2 is currently in progress, divided into 4 phases that see overhaul of its existing network in Westlands , Parklands and expansion into South B, South C, Runda, Loresho , Muthaiga and the Nairobi Central Business District. Phase 3 in 2012 will cover Eastlands, Buruburu, Donholm, Embakasi(Nyayo), Fedha and Umoja. 2013 will see phase 4 covering Panagni, Eastleigh, Kasarani and Ruaraka. Reinartz says that the triple play HFC service usually achieves a 20% penetration rate 2 months after roll out.

Other than provision of Zuku triple play data, telephony and TV, Wananchi is also investing in its own content. This will be in the form of 4 channels. Piracy of content has remained a pertinent issue though.

Value Added Services: Hit or miss? Rural areas present challenges

Most of Africa's population is rural and has been the target of value added services (VAS) from operators. Dr. Carol Murithi, chief product development officer at Swift Global lists some as lower rural average revenue per user (ARPU), remote configurations for 'Chinese handsets' (Mediatek based devices) and the affordability of handsets.

Neil Ahlsten who is charge of New Business Development in Africa at Google says that Kenyan traffic to its mobile sites such as Maps and YouTube has doubled in the 1st Quarter since the launch of the low cost Huawei IDEOS Android Smartphone. Google's strategy sees it working with operators to distribute content and new products which result in more users for Google and more data usage for operators. At the moment, Google Voice which encroaches on mobile operators voice turf is unlikely to be launched soon in the region due to regulatory issues.

Neil warns against the SMS value added services that target the bottom of pyramid which operators have been looking to as a holy grail. Google says that the SMS applications have not worked for the company as they do not offer as good an experience as the Internet. The company has therefore shifted its strategy to low cost handsets.

Safaricom however presents a different story when it comes to VAS. The Telco enjoys caller ring back tones penetration rate of 40% against a typical 10% - 15%. Rita Okuthe, Safaricom's Head of Consumer Segment says that the introduction of M-PESA top up for prepaid customers. This has resulted in increase in late night calling and more revenue. Other M-PESA services that have been well received include the pay bill service.

For high value customers, Safaricom has introduced salary processing and payment for enterprise customers who have adopted it for payment of wages. A new product is the M-PESA credit card which is suitable for travelling customers and can be topped up via M-PESA.

iDJ, a music playback service offered by Safaricom has enjoyed good reception. Okuthe attributes this to proper pricing of the service by Safaricom. Another aspect that brings out the importance of pricing is Safaricom's introduction of low cost unlimited SMS bundle. This has added more values to its customers who are able to use SMS intensive apps like Twitter on the network.

Various brands of phones offer different means of performing configuration tasks such as internet setting configuration , top -up amongst others. Safaricom provides a solution to this problem through a Unstructured Supplementary Service Data (USSD) menu.

Shenar Shah, Head of Orange Money at Orange Kenya says that the firm was looking to be different from the start as a last entrant against established competitors like M-PESA. This saw Orange Moeny partnering with Equity Bank to launch the service as a bank account mapped onto a mobile money transfer service. Orange Money also offers other financial products such as loans.

Shah prefers that mobile money agents to be well regulated and to be allowed to be non-exclusive to one operator. This he says allows the against to be as profitable as possible by offering competing services from an established base.

Michael Nyitigeka, Head of Corporate Relations Office and an ICT lecturer at Makerere University says that price cuts caught mobile operators with their pants down. Furthermore, most operators base their innovation on market research rather than research and development.

Nyitigeka says that this has resulted in operators endlessly churning products which end up losing their customers in translation, with many short codes to cram. He explains that this no longer gives them a competitive edge as the cost of replication has been reduced. He instead advises them to establish brand ambassadors tarting with their employees, "Companies leading globally have delighted their employees and are not just churning endless products."

Bayan Monadjem, Director Network & Capex Planning Airtel Africa, states that rural deployment of networks offer a challenge to mobile operators. While revenue is 5 times lower than urban areas, the cost of deploying a base transceiver station (BTS) was 2 times higher while the operating expenditure was 3 times higher.

Monadjem advises that customers are more interested in a better experience rather than the enabling technology.

Price wars: predatory or strategy?

Henry Njoroge, Marketing Director, Airtel Kenya says that the firms decision to slash prices was not predatory but was after a review of key drivers that would win them more customers. It took a single day, 18th August 2010 for the firm to decide to lower prices from Ksh 8 to Ksh 5 before setlling at Ksh 3. Njoroge says that this saw the firm gaining between 60,000 to 17,000 customers a day.

Airtel's Kenya reduction in international calling rates saw the amount of outgoing traffic increase three fold. The move was reached at since most international calls were incoming with very few outgoing calls especially for those who had relatives abroad.

From the price reductions, Airtel Kenya had gross subscriber additions increase by 200%, gross revenue increase by 30%, minutes per customer increased by 200% in the last quarter. Subscriber base for the company increased from 2 million in July to 4 million by December 2011. Njoroge says that Airtel Kenya has perfected the minute model which he explains is "the most perishable product in the World."

Barre also says that operators need to develop the market beyond voice and look for new sources of revenue. Orange Uganda has only 50,000 data customers, though their ARPU is 10 times that of voice only customers. The key to successful data adoption is simplicity, dongles should be as simple and connecting them and they work. Orange is also looking at financial services as the next battle ground.

Orange is also holding technology expos to educate consumers on their products and had already held one in Uganda and plans to hold one in Kenya. Other value added services that the firm is looking at include m-pedigree and text to change which are both health awareness products.

The 8th annual East Africa Com returns to Nairobi on 17-18 April 2012.

Keywords: Telecommunication  
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