Rarely has an industry been as celebrated as the African mobile industry over the past decade - and deservedly so. From its unprecedented ability to alter human interaction and communication, change the fabric of entire economic sectors, and attract massive infrastructure investment, the contribution of the telecom sector to African development over the past 15 years has been truly transformational.
But the fundamentals that have long underpinned the success of Africa's mobile telecom sector are now under significant threat, and the future of individual operators is far from certain. Xalam Analytics' latest research suggests that the African mobile market has entered a phase of acute turbulence, at the exit of which many players will come transformed, no longer mere telecom operators, but full-fledged platforms for digital service innovation. Others will not make this great trek, felled by the combined effect of OTT service cannibalization, destructive competition, regulatory apathy and shortsightedness, voracious and misguided tax policies, weak supporting infrastructure, shareholder impatience, and their own inability to realize they're in trouble and take appropriate corrective steps.
Part of Xalam Analytics' "Future of Telecoms" series, The Future of African Mobile Profitability provides a comprehensive overview and analysis of the dynamics that underpin mobile profitability in Africa. Building on extensive quantitative analysis, a dozen interviews with market players and one of the region's most extensive quantitative databases, the report proposes some answers to some of the most critical questions facing African operators, such as:
- What has been the evolution of mobile subscriptions and revenues?
- What will be the long term contribution of mobile data?
- Is Africa's golden age of mobile over? Why?
- Will data services cannibalize voice and messaging revenues?
- How are OTT players impacting operator revenues?
- What are some approaches to dealing with OTTs?
- Can African mobile operators monetize data?
- Should operators leapfrog 3G to jump into 4G?
- What is the outlook for voice revenues?
- Is there a future for messaging revenues?
- Does mobile money really make a difference to the bottom line or is it mostly hype?
- What is the outlook for African mobile capex?
In The Future of African Mobile Profitability, Xalam Analytics lays out the roadmap for African mobile operator transformation from mere telcos into full-fledged digital platforms.
Sample key findings of The Future of African Mobile Profitability include the following:
- The overall African mobile revenue picture reflects the evolution of different phases of market growth. Between 2005 and 2010, the size of the African mobile market more than doubled, leaping from around $21 billion to nearly $50 billion. Those times are gone. Between 2010 and 2014, compound average annual revenue growth has been essentially flat.
- Profitability has been tough. Xalam Analytics estimates that at least half of the operators analyzed for this study have seen a sharp contraction in their profitability over the past few years. Only around 25% of the operators we analyzed have shown recent positive growth in free cash flows.
- The broader outlook for mobile Internet revenue in Africa is excellent - Xalam expects mobile connectivity revenue to double over the next five years. But the fundamental question now at the heart of the African business model is whether the data boom will ultimately translate into higher overall revenue and margin growth for mobile operators.
- African operators face a major predicament in monetizing data - investing in new technologies while not funding the instruments of their own demise. The challenge posed by OTTs in Africa, if not well addressed, is substantially more pernicious than the threat to mobile operators in more developed economies. In African countries the OTT risk is to both revenue floor and upside. It is a threat to the very structure of the African mobile service provider model. The pathway out of this challenge will require more aggressive investments in IP infrastructure.
The Future of African Mobile Profitability is published in PDF format.
Table of Contents
EXECUTIVE SUMMARY: AFRICA'S GREAT TECHNOLOGY TREK IS UNDERWAY, FROM VOICE TO DIGITAL PLATFORMS
I. A MACRO VIEW OF AFRICAN MOBILE: THE REVOLUTION WAS NOT OVERSTATED - BUT THE GOLDEN AGE IS OVER
- 1.1. The Africa Mobile SIM Base - 825m in 2014
- 1.2. Mobile Penetration - The 100% Barrier Is Mythical No Longer
- 1.3. A 2020 View - Breaking the 1bn Subscription Barrier
- 1.4. Africa Mobile Revenue: The Golden Age of African Mobile Is Over
II. A MACRO VIEW OF AFRICAN MOBILE PROFITABILITY
- 2.1. Three Phases of African Mobile Growth - From The Scramble Phase To The Data Phase
- 2.2. Africa Mobile Profitability: A Macro View - When FX Wreaks Havoc on EBITDA
- 2.3. Africa Mobile Profitability: Two-Thirds of Non-Top Tier MNOs are Unprofitable
III. THE REVENUE SIDE: CHALLENGING TIMES FOR AFRICAN MOBILE REVENUES
- 3.1. A Macro-View of African Mobile Revenue: Flat or Declining
- 3.2. Drivers of Revenue - The Marginal Impact of Subscriber Additions
- 3.3. Mobile Voice Revenue: Commoditized, or the Core of the Business?
- 3.4. Mobile Voice Revenue: The Impact of MTRs and International Wholesale
- 3.5. Mobile Voice Revenue: The OTT Impact
- 3.6. Mobile Messaging: Falling Towards Zero
- 3.7. Entering the Data Era
- 3.8. Waiting for 3G (Somewhat) and 4G (Definitely)
- 3.9. A $15bn Mobile Data Revenue Target by 2020 - 25% of Revenues
IV. THE COST SIDE: OPEX UP, CAPEX STABLE
- 4.1. Opex Keeps Going Up, and Up, and Up..
- 4.2. A Macro-View of the Structure of Operating Expenses
- 4.3. African Mobile Capex - $75bn Spent Over The Past Ten Years, Trending Flat
- 4.4. African Mobile Capex - A Conservative Outlook
V. TACKLING AFRICA'S DATA MONETIZATION VORTEX: OF REVENUE CANNIBALIZA-TION AND OTT IMPACT
- 5.1. The Mobile Data Monetization Challenge and the OTT Impact
- 5.2. The Rise of OTTs In Africa & Implications For CSPs
- 5.3. OTTs In Africa: Friends or Foes?
- 5.4. OTT Impact In Africa: Looking for the New Revenue Floor
- 5.5. Quantifying the Data Cannibalization Effect: Mostly Myth, But Inching Towards Reality
- 5.6. Messaging Bearing the Brunt of Data Cannibalization
- 5.7. Defining - and Assessing - the Net Revenue Contribution of Data
- 5.8. Data cannibalization Effects and Voice/Data Arbitrage
VI. OUR THEORY: A DATA MONETIZATION IN THREE PHASES - THE BAD, THE UGLY, AND THE VERY GOOD
- 6.1. A Theory of Data Monetization in African Markets
- 6.2. Phase 1: The Mobile Data Initial Contribution Phase
- 6.3. Phase 2: The Mobile Data Negative Contribution Phase
- 6.4. Phase 3: The Data-Centric Phase: Mobile Data Positive Contribution
- 6.5. In Focus: Is Safaricom a Model of Digital Transformation?
SECTION VII: TACKLING CRITICAL QUESTIONS
- A. Is 4G worth the hassle?
- 7.1. The African 4G Predicament
- 7.2. The African 4G Case: Don't Burn the 3G Bridge Just Yet
- B. Do Tower Sales Make a Difference to Operator Performance and Profitability?
- 7.3. The Triple Case for Tower Outsourcing
- 7.4. The Opex Case for Tower Sales - We Don't See It - Yet
- 7.5. The Capex Case - Collecting Cash and Moving Liabilities off the Balance Sheet
- C. Is Mobile Money More than Hype?
- 7.6. Africa Mobile Money Registered vs. Active Users
- 7.7. Africa Mobile Money Contribution to Revenue
- 7.8. Africa Mobile Money: Where Is the Upside?
VIII. AFRICAN MOBILE OPERATOR VALUATIONS: THE END OF THE AFFAIR
- 8.1. African Mobile Value Is Trending Down
- 8.2. Transaction Database - 80+ Transactions Since 2000
IX. PAN-AFRICAN PLAYER REVIEW
- 9.1. Overview: Pan-African Players Still Dominate
- 9.2. Pan-African Player Overview - Presence and Subscriber Base
- 9.3. Pan-African Player Overview: Revenue, Profitability and Capex
- 9.4. Pan-African Player Regional Focus - Pivoting to North Africa
- 9.5. Pan-African Player Overview: Free Cash Flows Under Strain
- 9.6. Millicom's Zantel Acquisition - Beyond the Headlines, a North Africa Pivot, Consolidation and a Shrewd 4G Play
- 9.7. They Came, They Saw, But Did Not Conquer: Warid, Lap Green, Essar and Others
- 9.8. In Focus: What's Next for Sudatel?