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Worldwide, MVNOs have been the talk of the mobile industry for the past two years. They have come across as the new breed of operators which are expected to solve all of the problems faced by traditional network operators: Slowing subscriber growth, lack of consumer segmentation, and excess network capacity. However, in Africa, network operators face a different set of problems. Most markets are experiencing pent-up demand, customer segmentation has only started to be a buzz word, and capacity is scarce. So seemingly, there is little need for MVNO in this region, since major network operators have yet to lose their dominant position and “make room” for any operator, let alone a virtual one. Nonetheless, the sheer scale of demand for mobile telephony is a healthy indicator that MVNOs in Africa may not be too far behind.
The Region Does Not Meet the Requirements for MVNO Deployment
Western European and North American markets were the first to welcome MVNOs in 2002. The reason for their success in these markets stems from the fact that traditional network operators, with their homogenous marketing campaigns, began to falter in 2002–2003, resulting in single-digit growth rates for the country as a whole. Recognizing this, regulators in these markets have sought to introduce alternative players in order to spur growth, infuse competition, and increase the level of choice available to consumers. Besides the regulatory push, network operators are also willing to embrace virtual competition to (a) utilize spare capacity available on their networks and (b) generate an additional revenue stream for their shareholders in times of slowing growth.
The dynamics of telecoms markets in Africa pose a completely different proposition. First, subscriber growth in the region is at record levels, with individual countries recording triple-digit growth in many instances (e.g., Algeria and Nigeria). At YE2004, Africa’s total mobile subscriptions stood at about 84m; this corresponds to a 54 percent growth over 2003. Pyramid Research estimates operators in the region to have closed out 2005 with 142m subscriptions (a 68 percent increase over 2004). Secondly, with less foreign investment flowing into the region’s telecoms markets (compared to investments made in the markets of Western Europe and North America), network operator capacity is generally stretched to the limit, resulting quite frequently in poor call quality, high drop call rates, and poor call completion rates. Thirdly, and more importantly, prepaid ARPS are dropping fast, with most markets showcasing prepaid ARPS below US$10 and some even below US$6 per month. At such ARPS levels, MVNOs cease to become a viable option for growth, as the marginal subscribers they are expected to add will showcase an even weaker tendency to spend on mobile telephony than existing subscribers.
However, MVNOs in Africa Are Not Too Far Behind
Despite all the hurdles and obstacles currently impeding the entry of MVNOs in the region, we believe virtual operators in Africa can potentially play a substantial role in fostering uptake and usage in the market while co-existing with traditional network operators.
To read the complete analysis of the MVNO opportunity in Africa, please purchase the latest issue of the Africa & Middle East Market Perspectives in our online store.
Also available is the Pyramid Research report MVNOs in Emerging Markets.
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