The year 2001 was another year of stupendous growth for markets in Africa and the Middle East, confirming the region's position as an oasis of growth at a time when markets in industrialized countries have reached saturation.
The Pyramid perspective
Another year of stupendous growth…
The strong growth recorded in 2000 carried over to 2001, with the total subscriber base in Africa and the Middle East rising to about 60 million. The African subscriber base rose by about 50 percent to almost 22 million, after more than doubling last year, while Saudi Arabia and Turkey led the Middle East to one of the best subscriber uptakes in the past few years. Revenues are following a similar upward trend, having expanded to more than five billion dollars in Africa alone.
Cellular was confirmed as the platform of choice for basic voice
The year 2000 solidified the position of cellular technology as the platform of choice for basic voice services. The group of markets with more mobile users than fixed lines expanded in 2001, welcoming the likes of Mozambique and Kenya. In markets such as South Africa and
Morocco, this fixed-mobile substitution was a major driver of a contraction in fixed penetration, as operators disconnected close to 1 million fixed lines.
Falling ARPUs and smaller addressable markets are leading operators back to the fundamentals of profitability
ARPU (Average Revenue Per User) levels continued to deteriorate in Africa as low-end prepaid users entered the market. Most markets now record ARPU lower than $25, with some operators seeing their ARPUs fall below $15. In turn, operators have sprung to action, disconnecting low-end or non-paying users and focusing on subscriber value rather than market share at all costs. This may help operator margins, but it does not bode well for market penetration.
Some closed markets finally opened up …
Some of the last holdovers of mobile market monopoly finally started enjoying the fruits of competition in 2001. In particular, markets such as Nigeria, Kenya, and Cameroon recorded growth rates between 200 percent and 600 percent from their year-end 2000 levels. The Nigerian development was particularly notable, coming after years of failed efforts to liberalize the sector. The liberalization of the Algerian market was a highlight of the year as well, as it unlocked one of the African continent's last markets of promising potential.
New players launched operations in Turkey and South Africa, rejuvenating markets that may have been drifting toward lethargy. On the flipside, the Africa/Middle East region remains home to some of the few monopolies still existing in the global mobile market. This is particularly true in the Middle East, in markets such as Saudi Arabia and the United Arab Emirates, where governments have made few efforts to introduce competition.
… At a high cost to new entrants
The cost of playing in Africa's mobile game has risen substantially, a trend confirmed during 2001. Nigeria sold three licenses for $285 million apiece. Likewise, the Algerian government sold a mobile license to Orascom Telecom for $737 million. In Turkey, Telecom Italia paid $2.25 billion in license costs, not including $344 million in value-added tax payments. In an ironic twist to this inflation in license costs, the government of Tunisia rejected the $381 million offered by the highest bidder, an offer that fell short of the $500 million reportedly sought by the government. The global telecoms downturn may mitigate the inflation in license costs—indeed, it may have been a factor in the Tunisia case—but overall, market entry costs are poised to stay extremely high.
SMS became part of the market's landscape
The past year confirmed the emergence of SMS and SMS-attached services as a major value-added services segment. In mature markets, like South Africa and Turkey, SMS traffic volumes are rising exponentially; in turn, SMS's share of total market revenues is steadily rising, and should reach around three to five percent over the next few years. Even in the
Middle East, we observed an uptake in SMS offerings, as initial obstacles—notably with Arabic characters—are increasingly overcome. South Africa continues to lead the region, with about 30-35 SMS messages per user, with other markets recording about 5-10 SMS per user.
On the whole, however, voice traffic is on the rise as well, and continues to account for at least 90 percent of overall traffic.
Some sagas came to a close, others continue
The licensing saga of the third mobile operator in South Africa finally came to a close with the selection of Cell C as a preferred bidder and the confirmation of Cell C by the Ministry of Communications, after more than a year of delay. The episode affected the South African market in many respects, discrediting the market's regulatory authority, SATRA, which was later replaced by a new entity. Cell C had to review its business plans after launching service more than one year later than anticipated.
In Lebanon, the row between the government and operators Cellis and Libancell continues, after the government rejected a financial offer by the companies to convert their build-operate-transfer (BOT) agreements into fully-fledged licenses. The government now seems determined to proceed with a new tender.
Instability hit a number of markets…
Economic and political upheaval negatively affected operator performance in some key markets. In Zimbabwe, an acute economic and political crisis sharply cut into disposable income and made the cellular market almost trivial in the scheme of things, with no obvious prospects for a rebound over 2002. Cote-d'Ivoire was another market that suffered from uncharacteristic political and economic crises. Subscriber uptake came to a virtual standstill during the year, but the market had started to recover in the fourth quarter of 2001, a rebound that should carry over to 2002.
In Turkey, operators took drastic measures to mitigate the effect of a sharp economic downturn, notably by raising prices and cutting capital expenditure. For new operators Istim and Aycell, the timing of market entry could hardly have been worse, coinciding with the economy heading for the doldrums. While subscriber uptake was substantially lower than in 2000, it remains strong considering the circumstances, and will likely rebound in 2002 and 2003.
Economic downturn points to uncertain immediate future, but demand fundamentals remain strong
The events of September 11 drove the US economy into a recession that threatens to send global markets into a downward economic tailspin. The traditional uncertainty in markets in the region may be exacerbated, particularly in markets such as Israel and Saudi Arabia at the forefront of military actions. On the supply side, the much tighter access to capital is redefining operators' strategic approach, forcing them to proceed cautiously in deploying new technologies. Demand fundamentals remain strong, however, ensuring continuous growth in subscriber uptake and revenues over the next few years.
Guy Engon Zibi, Pyramid Research
This Perspective provides Pyramid’s view on a significant development in the communications industry. Perspectives are a component of Pyramid’s Advisory Services.
© 2001 The Economist Intelligence Unit Ltd. All rights reserved. Pyramid Research is a division of the Economist Intelligence Unit
© 2002 Mena Report (www.menareport.com)
