Those closely following the Libyan crisis may have noticed that governments and regional organizations in sub-Saharan Africa have been somewhat less vocal in their opposition to the Gaddafi regime than, for example, the Arab League. There is certainly room for legitimate differences of opinion in this complex matter, but a cynic – moi? – might also point out that Libya has invested heavily in the region, including in the communications sector.

The Libyan African Investment Portfolio, a sovereign wealth fund, owns 100% of the LAP GREEN Holding Company, which in turn holds controlling interests in

• Oricel Green (Cote D'ivoire, 75%)
• Rwandtel Rwanda, 80%)
• Sonitel (Niger, 51%)
• UTL (Uganda, 51%)
• Zamtel (Zambia, 75%)

The potential difficulty is that the Libyan African Investment Portfolio is one of the entities whose assets were ordered frozen by UN Resolution 1973, adopted by the Security Council on 17 March. 

Now, having one’s parent company’s assets frozen would not necessarily be a bad thing for an entity that has no need of external funding – “Sorry, the UN won’t let us pay you dividends, we’ll just hang onto the cash until you get this straightened out.” Alas, most of Libya’s sub-Saharan operators are not in the happy position of having no financing needs.

• UTL is in a dispute with MTN, the dominant mobile operator in Uganda, over interconnection fees. MTN claims it is owed on the order of US$8.3 million and has threatened not to accept UTL-originated calls; UTL says is it is much less, US$ 1.5 million, but it is also looking at interconnect claims from Warid and Airtel.  
• Although bravely proclaiming its financial stability, Zamtel, formerly a fixed line operator, is in the middle of an extensive project to build out its fledgling GSM network, with more than a doubling of base station count anticipated.

Outside financing, including vendor financing, is still possible, but without any assurance that Libya’s oil money will continue to flow unimpeded, it is safe to say that borrowing may be more expensive. 

LAP GREEN’s mobile operators have, for the most part, relatively small shares of their markets. Nevertheless, their competitors, which include MTN, Orange, and  Airtel, stand to benefit from any financial difficulties that would impede the Libyan-owned operators as they try to grow share. 

 

Click here for information about SA’s most current forecast of the emerging markets of the Middle East and North Africa and Sub-Saharan Africa.

It is often noted that people in emerging markets spend much greater portions of their incomes on communications than they do in developed countries. Low-income Indian mobile users we recently surveyed reported spending about 4% of monthly income on mobile service. People in the lowest household income bracket (up to US$750 per year) had mobile phones that cost on average 5.5% of their annual household income. In contrast, we estimate that the average US mobile user spends less than 0.4% of household income on a handset.

Findings like these are frequently offered in support of the idea that demand for mobile communications in developing countries may be less elastic than we think: the utility of mobile communication may be great enough that people will spend what seems at first blush like “too much.”

 But the demand for gaining access to communications by getting a handset is different from the demand for using it by making calls and sending texts.

 The hardly radical concept that charging less for communications services will increase usage is being tested in several places in Africa, notably Kenya, where new entrant Bharti Airtel has started a price war: 

•   In August 2010 Airtel (then still Zain) cut tariffs in half, from 6 to 3 shillings (US$ 0.073 to US$ 0.037) per minute. Not content with that, in January of this year Airtel cut rates again, to 1 shilling for calls made between 6AM and 6PM. Airtel reports that MOU tripled after the first reduction.
• Market leader Safaricom, whose Uwezo tariff is 2.24 shillings on-net/3.39 off-net*, is less than amused by this latest cut and has publicly complained about it. Telkom Orange has also filed a complaint with the Communications Commission of Kenya (CCK).
• The CCK has blandly expressed a lack of concern, noting that “'We do not see the low tariffs having a negative impact to the economy.” Other parts of the government – particularly the revenue department, which saw airtime VAT collections drop by 37% in Q4 2010 – are not so blasé, and an inter-ministerial committee is being convened to study the impact of low tariffs.

 

But if inter-ministerial committees in Kenya move as slowly as those on the rest of the planet, Kenyan consumers should be able to enjoy current low rates for a good long time.

 

----------

*Strategy Analytics’ Teligen group provides detailed tariff information on dozens of countries, including Kenya, South Africa, and Egypt.

 

 

Update 7 March 2011. At least one senior regulator, Dr Bitange Ndemo, who heads the Ministry of Information and Communications, has come out in favor of price floors.  On the other hand, Prime Minister Raila Odinga was quoted a couple of weeks ago saying he thought a price war would be beneficial.  As I say, this could take a while to sort out.

 

 

The mobile market potential of the “bottom of the pyramid” has rightly aroused a lot of interest – including some from Strategy Analytics. The ability to profitably service the huge untapped market of the poor and rural will have a major effect on the long term emerging market prospects of operators like Orange, Vodafone, and Telenor, device manufacturers like Huawei and LG, and infrastructure vendors like NSN, Alcatel Lucent, and Ericsson.

But let’s not forget about the developing world’s middle class, which may number as many as 2.6 billion people. It is middle class consumers who, having some measure of economic security, are in a position to stretch just a little on their handset purchases, or sign up for that slightly frivolous entertainment service. The revenue from each of those stretches, times 2.6 billion, will help fund rural roll-outs and maybe, just maybe, add to the bottom line.

The 2.6 billion comes from Martin Revallion, an economist at the World Bank, who estimated the number of people in developing countries in 2005 whose daily consumption was between $2 and $13 a day, measured on a Purchasing Power Parity basis.

Now, if you are reading this in an industrialized Western nation you might be saying “$13 a day is my idea of poor, not middle class! And $2 a day is very poor.” And in your context you would be right, because that range does not describe the middle class where you live. (In fact, $13 a day was the US poverty line in 2005, which Revallion somewhat arbitrarily chose as his upper bound. $2 was the average officially reported poverty line in 70 developing countries he looked at.)  

The question is whether daily per capita consumption of $2-$13 supports a middle class life in the developing world. This in turn raises the question of what is “a middle class life,” which even those of us who live them find difficult to define. A Middle Class (Perhaps) Shopkeeper in Liberia

Fortunately, sociological precision is not always required to gauge mobile demand. The key element for our purposes is whether in the local context there is enough of a middle class sense of security at $2 a day – or $3 or $7 or some other number – to free up discretionary spending for non-basic communications services. This is a course of research that we will be pursuing in the next year, and we would welcome comments and suggestions.

For all the talk of mergers and buy-outs, entrances and exits, little has actually changed recently in mobile communications in North Africa.

The rancorous struggle between France Telecom and Orascom for control of Mobinil seemed destined to end in one party or the other beating an ignominious retreat from Egypt. Instead, after closed door meetings and $300 million changing hands, the two will continue to share control of Mobinil. Business goes on exactly as before.

• No, I tell a lie: FT can consolidate 100% of Mobinil’s revenues, versus 70% before the deal, which would have added 1% to operating revenues in 2009. Orascom has an option to sell out in a year or so, but then FT once had a court order to buy them out and look how far that got them.
• Elsewhere in Egypt, Vodafone indicated that its 55% stake in Vodafone Egypt might be available. This aroused interest from Telecom Egypt, the state-controlled wireline operator that owns the other 45%, but it turns out they only wanted to get a controlling interest, not take the whole thing off Vodafone’s hands. Talks terminated.
• ­But not to worry. Others were interested. Like Orascom. That’s right – the Orascom that still owns a big chunk of Vodafone Egypt’s largest competitor. Even a liberal interpretation of anti-trust might have some issues with that deal, but it had a certain superficial plausibility, particularly if Orascom left Mobinil and wanted to do something productive with all the cash it was to get from MTN for the sale of Djezzy in Algeria.
• Not so fast!, says the Algerian government, already miffed at Orascom. (See “Orascom: Growing, Shrinking, or Becoming Something Different.”) “Algeria refuses to continue being a market where other countries sell their products” according to a member of the governing FLN party. So South African MTN isn’t welcome. If Djezzy is sold, it will be to the Algerian government. Just don’t expect that to happen quickly or to produce mountains of cash for Orascom to buy out Vodafone Egypt.

Beyond the obvious – “it ain’t over til it’s over” – what’s the message here? With a population of 162 million, relatively high personal incomes, and a subscription penetration around 80%, North Africa’s mobile markets are worth fighting over. We expect continued interest and eventually some done deals. After all, Orange Tunisie finally launched as Tunisia’s third operator, after quietly plugging away for a year or so.

Barely two months after the break-off with MTN, Bharti is on a shopping spree once again. This time, instead of looking for big buy outs like MTN, Bharti is aiming at a smaller target: a 70% stake in Warid Telecom, the #4 operator in Bangladesh, for US$ 300 million. Warid has around 2.7 million subscribers, which is roughly how many Bharti adds every month in India. So clearly the story here isn’t the impact on Bharti’s bottom line, but rather what the acquisition says about the company’s growth strategy.  After having its fingers burnt twice with MTN, (for details see our recent report “Bharti Airtel- Looking to Start Afresh”) Bharti has now realized that deals of that scale happen once in a blue moon. If it is not content to stay only in India – and why would it be, since it competes with 10 or 12 price-cutting rival for low margin business? – it makes more sense to concentrate on smaller markets with growth potential. Not bad thinking really from the management. I don’t think Bharti will benefit substantially in the near term by foraying into nearby markets like Sri Lanka and Bangladesh, but if nothing else it will give jitters to the other multinationals competing there, like Telenor (majority owner of Grameenphone), NTT DoCoMo, which just last year bought 30% of Aktel, and Axiata, which owns 85% of Dialog in Sri Lanka. After all, here is a well-funded operator with a lot of experience in low ARPU markets, hoping to push a low-ranking operator further up the chart. Bharti’s timing is good, too, beating out Viettel, which was also interested in Warid. So is it a shift in Bharti’s foreign (acquisition) policy to give up on megadeals? It’s not right to say that there is a shift in policy but it’s proper to say that Bharti has become much more aggressive and opportunistic in looking at easier deals to do if they make strategic sense. We also suspect other operators will focus more on incremental expansion. Orange just announced it was done with megadeals, and Bharti competitors like Telenor and Etisalat have always expanded their emerging market footprints slowly and steadily. Might a mature North American operator look at home market saturation and consider a small presence in Africa? Might Telefonica think outside Latin America and look to potentially game-changing investment in a #3 or #4 operator in Asia, like Sun Cellular in the Philippines? And where will Bharti turn next? We shouldn’t be surprised to hear about Bharti acquiring a stake in some smaller African country like Tanzania. So keep watching this space.   - Rahul Gupta