African telecoms comes of age: Mobile explosion changes the face of African communications. (Cover Story).

A new revolution is sweeping the continent: in 1996, there were one million mobile phone users in Africa; today, there are 28 million. This, we are told, is just the beginning of what could prove to be one of the most important changes in Africa's economic history.

In this comprehensive survey of the state of Africa's telecoms sector, Rob Rose highlights the advances and some of the retreats countries in East, West and Southern Africa have made thus far.

During 2001, the African telecommunications sector finally began to deliver on the promises that it had been making to the continent's business sector for decades. Up until last year, business leaders were aware that a precondition for economic growth was an increase in teledensity as well as a reliable communications infrastructure, but this seemed a pipe dream unlikely to reach fruition within the near future.

2001 witnessed a watershed for African telecommunications as sub-Saharan teledensity finally broke through the 1% barrier, the benchmark considered as essential for economic growth and development. The catalyst for this revolution? The mobile phone!

A new voice for Africa

Addressing the International Telecommunications Union (ITU) telecoms Africa summit, held in November in Johannesburg, the organisation's secretary general Yoshio Utsumi said the mobile revolution had given Africa a new voice. "In three years, the continent's telecommunications have been reinvented. Africa's new voice uses a new network. It is a mobile network, no longer bound to homes and offices. Africa's new voice can be heard in the streets, in shops, on the beach, in cars and in trains. In short Africa's new voice can be heard everywhere Africans are."

Utsumi might have been speaking with the rhetoric of revolution, but the statistics support his case. In 1996, there were only 1m mobile users in Africa, compared to 14m fixed-line subscribers. By 2001, mobile subscribers reached 28m, overtaking fixed line subscribers (22m) for the first time.

By 2005, the ITU estimates that there will be over 100m cellular phone users across the continent, dwarfing fixed line use which is expected to grow to 31m users in the same year. The question is why did it take so long for this rapid revolution in African telecommunications? Why the sudden demand for telephony, a demand that mobile networks are meeting, and fixed-line operators aren't?

Pre-pay drives mobile uptake

The reasons are many, but they include the liberalisation of many African telecommunications markets, increased competition and the startling popularity of pre-paid mobile services. In a phenomenon unknown to Western markets, pre-paid mobile phone users constitute over 80% of all cell-phone subscribers in Africa, more than double the global average. This figure rises to over 90% when South Africa is removed from the equation.

Kenya's Safaricom mobile service provider, for example, has a 100% prepaid subscriber base, while Egypt's ClickGSM boasts 85% on prepaid. By contrast, only 8% of subscribers in the USA and 29% of users in the Asian Pacific region use a prepaid service. One of the reasons for this, analysts explain, is that African consumers are often spurned by fixed-line utilities that typically require a hefty deposit and, on occasion, even a credit ratings.

As Utsumi explains: "The first hundred years of African telecommunications were about government monopolies and long waiting lists. Now you can purchase a mobile phone off the shelf at a supermarket and buy prepaid minutes from a street vendor."

While the accessibility of mobile phones has proven attractive to African consumers, they are also being given increased options due to a newly competitive environment. In 1995, only 7% of African countries could boast more than one mobile service provider; by 2001, 56% of countries boasted a competitive mobile environment. In addition, mobile telephony was only available in 51% of African countries in 1995, a figure which has since risen to 89%.

Since multiple competitors and companies have slashed their prices to woo customers, it has become easier than ever before for African consumers to buy and use cell-phones.

Mobile is undoubtedly the star performer of the African teledensity surge, but things are less rosy for fixed-line network operators.

While the number of fixed-line subscribers rose from 20m subscribers in 2000 to 22m in 2001, the growth is far more muted than that of mobile. Research house BMI Tech-Knowledge estimates that while African mobile subscribers are increasing by 50% a year, fixed-line growth stands at 25%.

African nations are only now beginning to liberalise many of their top-heavy telecommunications utilities that have been operating in a monopolistic environment for decades.

Liberalisation is the new religion

Most governments have started the process of privatising their national fixed line telecoms utilities, encouraged by the prospect of securing a windfall through doing so. Guinea Bissau and Sao Tome set the trend in 1989 when they sold off stakes in their national operators, and were soon followed by other countries including Guinea, the Central African Republic, Madagascar and Senegal.

In 1995, Cote d'Ivoire sold a 51% stake in its national operator for $220m, South Africa sold a 30% stake in its national operator for $1.2bn in 1997, and in 2001, Nigeria secured $1.3bn for a majority stake in its utility, NITEL.

So while every week seems to herald progress on telecoms liberalisation in Africa, some countries have shown little regard for this option. Kenya, for example, has twice backtracked on the privatisation of Telkom Kenya hoping for a higher price but as it dithers, call costs remain high and investors grow more wary by the month.

Zambia is also another weak spot. The Zambian government was only willing to offer a minority stake in its national operator - and for this it expecting to reap in billions. The national operators of Malawi, Mozambique and the Democratic Republic of the Congo also remain in the hands of the state and in all these countries a low teledensity rate predominates.

"African countries often overestimate the net worth of the company they are trying to privatise to potential investors and never get what they want. They should come to the liberalisation, see the highest bid and take it, instead of going through the whole process again," said BMI-TechKnowledge Africa analyst, Dobek Pater.

South Africa, keen to float its state-owned telecoms firm, Telkom, on the stock market during 2001, has had to endure delays to its privatisation process as the government awaits an upturn in the global telecoms market.

No takers for fixed-line?

It shouldn't hold its breath, according to the ITU African telecoms Indicators report. In blunt terms, the report stated that "most African countries probably could not give away, let alone sell, fixed-line licences." The reason for this, the report argues, is that the prevalence and affordability of mobile services could stymie demand for fixed-line telephones.

Additionally, investors would also be less than enthused by the prospect of narrow profit margins due to the price structure of the incumbent operators. The report points to privatisation measures in African countries that sold off a stake in their national operators during the last two years, including Uganda, Tanzania, Mauritius, Lesotho and Morocco. In these instances, it said, the prices paid were relatively modest while investor interest was reported to be "lukewarm".

Significantly, both the Ugandan and Tanzanian government's netted a considerable amount more cash as they promised their successful bidders the option of expanding into mobile operations. The smarter African nations are now awakening to the fact that the asking price for a stake in a fixed-line operator can be greatly boosted by punting a combined fixed-line/cellular licensing option.

New regulatory landscape

Another new feature of the African telecoms landscape is the creation of independent regulatory authorities. In the past, the function of regulating the country's telecoms sector was typically performed by the single fixed-line operator or by the government that owned that operator.

Foreign investment, however, would gravitate towards a regulatory environment presided over by transparent and independent regulatory bodies - which meant changes had to be made.

Pater is optimistic that investors will now flock to a newly liberalised African telecoms environment. "Africa presents a lot of opportunities for investors. The growth potential is high. Provided the regulatory framework is right - and this is on the right track in most countries - and provided governments make sound business decisions regarding privatisation, there is much growth potential for companies on the continent."

Sizwe Nxasana, CEO of SA's Telkom, cautions however, that privatisation and regulatory changes are no cure-alls for an industry that has, in most instances, languished in a monopolistic morass for decades.

"Privatisation and deregulation will, of course, not fill Africa's communications vacuum. What is needed is a model that incorporates both privatisation and appropriate regulations combined with measures that will ensure that service obligations, including roll-out obligations, are met."

Rewiring Africa in 2002

The entire African telecoms environment could change, however, if ambitious plans to 'rewire' Africa with fibre-optic cables reaches fruition. There are two main fibre-optic schemes with the potential to dramatically reduce costs for African consumers, both of which are due to be rolled-out during 2002.

The first of these, Africa One, aims to encircle the entire African continent, entailing placing over 32,000km of cabling. This project, estimated to cost about $1.6bn, aims to have 'landing sites' in as many African countries as possible.

The second plan, Sat-3/WASC/SAFE, is set to extend from Europe to Asia and then around Africa.

Ambitious plans

Once these projects are completed, it would present a high-speed transmission platform with capacity of at least 80 Gbps, saving the continent an estimated $300m a year in international bandwidth charges.

Ambitious plans, but the continent will continue to lose vast sums of money unnecessarily if the bandwidth issue is not addressed.

According to BMI-TechKnowledge's Bandwidth report on Africa, "nearly 80% of Africa's telecommunications revenue flows out of the continent simply because many African countries lack infrastructure and are forced to rely on foreign operators to route their traffic."

While there are positive indications of telecommunications progress in Africa, it is crucial to keep this in perspective. Mobile might be sparking a telecommunications revolution in Africa, but the path to parity is still a long one: reports last year suggested that the UK still has 50% more mobile subscribers than exist on the whole African continent.

Paradigm has changed

Yet the paradigm has changed in the last decade and, as Yoshio Utsumi pointed out, it does little good to dwell on the failings when we should be celebrating the gains.

Utsumi said that in contrast to the 20th century, the next hundred years of African telecommunications will be demand-driven and not supply constrained. "Africa's future telecommunications will be wireless, prepaid, competitive and shared," he concluded.

RELATED ARTICLE: ARE COMPUTERS MALE OR FEMALE?

A pastor of one church, who was previously a sailor, was very aware that ships are addressed as "she" and "her". He often wondered in what gender computers should be addressed. To answer that question he set up two groups of computer experts. The first was composed of women, the second of men.

Each group was asked to recommend whether computers should be referred to in the feminine gender, or the masculine gender. They were asked to give four reasons for their recommendation.

The group of women reported that computers should be referred to in the masculine gender because:

1) In order to get their attention, you have to turn them on.

2) They have a lot of data but are still clueless.

3) They are supposed to help you solve problems but half the time they are the problem.

4) As soon as you commit to one you realise that if you had waited a little longer you could have had a better model.

The men, on the other hand concluded that computers should be referred to in the feminine gender because:

1) No one but the Creator understands their internal logic.

2) The native language they use to communicate with other computers is incomprehensible to everyone else.

3) Even your smallest mistakes are stored in long-term memory for later retrieval.

4) As soon as you commit to one, you find yourself spending half your paycheque on accessories for it.