Africa: the telecom landscape looks good; A fibre optic submarine system around Africa is scheduled for completion in 2008. It will lead to a 65% drop in the cost of internet bandwidth access. In tandem with Voice Over Internet Protocol (VOIP), which is catching up in Africa, the continent should be on the roll. It is very good news. Kgomotso Nyanto reports.

A communication failure in any facet of life has disastrous consequences. And it has often been said that an indispensable key to Africa's growth and domestic stability lies with telecommunication. The ability to trade with other Africans without an intermediary will go a long way to foster intra-African trade, and a lower cost of doing business. Not to mention regional integration and ultimately African unity. In an increasingly competitive world, speed is of the essence. So what is happening on the telecoms front in Africa?

The history of African telecoms makes interesting reading. In the area of telephony, rapid development has taken place in mobile and wireless communications, while fixed lines have stagnated.

Cellular or mobile telephony has outpaced the landline for practical reasons and convenience. Access is instant with a handset and pre-paid card. A far cry from the long-waiting period required to obtain a landline.

Also due to convergence technology, the ubiquitous cellphone is able to function as many things and anything. Watches and alarm clocks are going out of fashion. It is possible to do your banking over your phone, take photos, make videos, access the internet, and download music. It is an investment most Africans are desperate to make despite meagre resources.

It is therefore not surprising that mobile subscriber numbers in Africa have increased by over 1,200% between 1998 and 2006. Mobile user numbers have long passed those of fixed line, which stood at 25.1 million at the end of 2003. The rise of mobile usage has also been driven by a combination of factors: demand, sector reform, the licensing of new competition and the emergence of major strategic investors, such as Vodacom, MTN, Orascom, MTC, Vodafone, Millicom and Celtel.

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South Africa's role

South Africa is the hub of telecoms in Africa. Its telecom companies have made accelerated moves into the continent, bringing benefits to all. Telkom, the South African fixed-line operator, with interests in Vodacom (a major mobile provider), is making considerable effort in linking Africa with the rest of the world. Telkom's installed telephones and lines account for about 40% of the total lines installed in Africa. One of Telkom's efforts is the joint participation with African operators and global telecom investors to build a submarine cable wrapping around Africa, from Europe to the Far East.

Telkom has committed $100m to the project, which will cost $600m to complete. This is Africa's most innovative undersea fibre optic cabling project. It is estimated that about 80% of Africa's country-to-country telecoms revenue flows out of the continent, due to dependence on foreign operators to route Africa's international traffic.

It is anticipated that the new system will save the continent over $300m a year, and the link will enable direct access to each other as well as enhance global connection.

It is called the East African submarine system (Eassy) and stretches from Port Sudan in the north to Durban in the south.

MTN South Africa, a cellular service provider, has a vibrant presence on the continent. This company provides services, among others, to Uganda, Rwanda, Swaziland, Cameroon and Nigeria where it has transformed the industry. Vodacom also provides services in other parts of Africa, such as Congo, Tanzania and Lesotho.

With the region's limited fixed-line penetration effectively curtailing internet access via more traditional access methods, mobile technology now has the power to drive the uptake of internet. So-called second generation services such as WAP (Wireless Application Protocol) or SMS (Short Messaging Service) are gaining ground, with South Africa topping the monthly SMS league table with 25 messages per month, putting it firmly ahead of the global average of six.

Sustaining market growth

There is huge potential in the African market as the fastest growing and least penetrated mobile market in the world. The major players are from Egypt, Kuwait, South Africa and the UAE. South Africa's MTN is set to become the largest mobile operator in Africa and the Middle East.

It has expanded into 11 other countries in addition to the 10 it already operates in on the continent. It has made a $5.5bn transaction for 100% of Investcom. The combined group will match the size of the big companies in Europe and the Middle East.

A third cellular licence has just been won in Egypt by Etisalat. Kenya also has tendered for a second fixed-line operator as well as Senegal. Mergers and acquisitions are in full swing as the competition grows. Vodafone has increased its stake in the South African giant operator Vodacom to 50% by buying out Venfins' 15% interest. Vodacom paid $2.4bn for it. Vodacom has also increased its interest in Safaricom of Kenya to 49% by buying an additional 9% stake. MTC has also bought 61% shares in the Sudanese operator, Mobitel, for $1.3bn. Elsewhere, Millicom has taken 100% of Mobitel's operations in Tanzania, Sierra Leone and Ghana, buying out its local partners.

MTN has also bought into four new operators in the last year. Loteny Telecom in Cote d'Ivoire, Telecel in Zambia, Mascom Wireless in Botswana, and Liberties Telecom in Congo. It also took a 49% stake in Iran-cell, Iran's second mobile network. Celtel has also taken a majority stake in Madacom of Madagascar from Distacom for $97m.

Nigeria is the second largest market after South Africa but at current penetration levels of 17.1%, Nigeria is set to overtake South Africa in the next three years. No wonder, MTN, which invested $285m in buying a Nigerian licence, is grinning from ear to ear.

With some of the world's lowest percapita incomes, the cost of services becomes crucial in Africa. Unless prices decline further, growth might stagnate. Yet operators will need to be able to extract revenue in order to make operations viable. Mobile faces the challenge of how to sustain its growth in the face of constraints on affordability. Short-term growth will hinge on potential users being able to afford the services which operators are offering. If new subscribers can be reached quickly, then operators will see a faster return on investment.

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Increasingly cheaper handsets and prepaid cards are now becoming common in most African countries. Demand for the services is there, but it must be effective demand. The challenge is to successfully meet this demand based on different growth scenarios for the mobile market in 2010.

The future is VOIP 

Voice Over Internet Protocol (VOIP) is shaking up the telephony landscape. An incestuous relationship currently flourishes between the internet and wireless--the internet using wireless, wireless using the internet.

When the American company, Skype, created software that channelled voice through internet cables and base stations, cellphone companies saw red. With convergence between the internet and cellular telephony, costs have fallen dramatically. Now cellular and fixed-line operators are getting nervous. Mobile phone masts are far more expensive to install and the quality of VOIP has become very good. It is now adapt or die. Handset manufacturers have already come to the party with a dual mode handset which detects when an internet WIFI signal is available, and switches back to a cellular network when it is not.

The result has been a crackdown in some countries. Ethiopia and Namibia have made arrests on suspicion of someone using VOIP. It is like an attempt to roll back the sea. VOIP is big in Egypt and fast rising in South Africa where Telkom and MTN are catching up on the game. In Kenya it is legal and accounts for 25% of international calls. Algeria has embraced it. VOIP calls are now three times cheaper than normal rates--60 cents to 20 cents for VOIP.

It may be an answer to the cost factor in African connectivity. In tandem with internet broadband access, VOIP will be a key factor in bridging the digital divide. It is an area where African governments should embrace with speed if they are to avoid trailing the world. As usual any delay will almost definitely arise from political/business interests to the detriment of the national interest. Sub-Saharan Africa has 10 times the cost of internet access compared to Europe and Central Asia.

The reason: African governments are struggling to sort out their interest as fixed-line public telecom operators (where they have a monopoly) and their interest as policy makers in opening up the telecoms market. Not to mention the familiar greed factor--individual policy makers and regulators with a stake in these entities.

The East African Submarine System is scheduled for completion in 2008 and will close the fibre optic ring around Africa. The cost of internet bandwidth access will drop by 65% and end the days of African calls and emails being routed through Europe.

In tandem with VOIP, Africa should be on the roll. Intermediaries will take the backstage and good communication networks will ensure that Africa can talk to Africa. And when there is harmony at home, Africa can get down to the serious business of growing the family.