The fi­nal fron­tier

Con­sol­i­da­tion ahead for African mar­ket as play­ers get set for growth

Finweek English Edition - - Communication & Technology - BENE­DICT KELLY

AFRICA’S telecom­mu­ni­ca­tions mar­ket is set for rapid con­sol­i­da­tion over the next few years. That’s the view of Vin­cent de La Bachelerie, global telecom­mu­ni­ca­tions leader at Ernst & Young, who says while the tele­coms mar­ket in the de­vel­oped world is highly con­sol­i­dated there’s still a high de­gree of frag­men­ta­tion in that mar­ket in the un­der­de­vel­oped world – more specif­i­cally, Africa.

De La Bachelerie says over the past few years there’s been a strong fo­cus on the mas­sive growth in mo­bile users in both China and In­dia. How­ever, as those mar­kets ma­ture, there will be a switch in fo­cus to Africa, which is still con­sid­ered the last real growth op­por­tu­nity.

Marc Chaya, part­ner at Ernst & Young’s busi­ness ad­vi­sory ser­vices, says part of the rea­son for ex­pan­sion into Africa is that growth in Asia has en­abled cell­phone man­u­fac­tur­ers to drive down the cost of their hand­sets to a point where they’re af­ford­able for most po­ten­tial cus­tomers. Says Chaya: “In Asia we’ve also seen the pen­e­tra­tion grow­ing in even the poor­est coun­tries, such as Bangladesh and Pak­istan, in­di­cat­ing there’s the po­ten­tial for mo­bile ser­vices to pen­e­trate far deeper into the mar­ket than pre­vi­ously thought.”

In ad­di­tion, Chaya says there’s ev­i­dence that even in ar­eas viewed as un­eco­nom­i­cal to de­ploy tele­coms in­fra­struc­ture, the pro­vi­sion of tele­coms ser­vices acts as a po­tent stim­u­lus for eco­nomic ac­tiv­ity.

De La Bachelerie says Africa’s pop­u­la­tion growth over the next 40 years is also ex­pected to out­strip that of China and In­dia. “United Na­tions fig­ures show the pop­u­la­tion of Africa will grow to 2,15bn by 2050 from the cur­rent fig­ure of around 800m. Africa has be­tween 10 and 12 ma­jor play­ers in the tele­coms field but what’s in­ter­est­ing is that those are no longer bound by the classical colo­nial bound­aries. You need only look at MTN, which op­er­ates in a num­ber of French­s­peak­ing coun­tries, and France Tele­com (which re­cently bought Kenya Telkom) to see how the mar­ket is chang­ing.” De La Bachelerie says op­er­a­tors are in three main groups, based on where their head­quar­ters are: African, Euro­pean and Mid­dle East­ern.

Ju­lia Lam­berth, lead tele­coms di­rec­tor at Ernst & Young, says one of the anom­alies of tele­coms in Africa is that 40% of op­er­a­tors con­trol only 1% of the mar­ket and those small com­pa­nies are the likely ac­qui­si­tion tar­gets.

How­ever, de­spite the pres­ence of strong play­ers, Chaya says no sin­gle op­er­a­tor has yet been able to build a true pan-African op­er­a­tion. He says in­dus­try in­sid­ers have been sur­prised at the level of con­sol­i­da­tion thus far, ex­plain­ing that a few years ago they would have been ex­pect­ing more than the 10 ma­jor play­ers that cur­rently ex­ist.

Lam­berth says the mar­ket is start­ing to see the big op­er­a­tors po­si­tion­ing them­selves for ac­quis­i­tive ac­tion, such as Zain (pre­vi­ously MTC/Cel­tel) re­veal- ing it has US$500m to lever­age ac­qui­si­tions through­out Africa.

How­ever, op­er­a­tors will be faced with the pit­falls of vastly dif­fer­ing reg­u­la­tory regimes con­ti­nent-wide. “The key fac­tor that tele­coms op­er­a­tors need to worry about is the sta­bil­ity of reg­u­la­tion,” she says, adding: “That was seen in Benin, where MTN had to shut down its net­work when the gov­ern­ment changed the terms of its li­cence with very lit­tle no­tice.”

Some coun­tries have very open reg­u­la­tory sys­tems while oth­ers (such as Ethiopia) still re­strict ac­cess to the mar­ket. Ethiopia is con­sid­ered one of the last “vir­gin” mar­kets in Africa, as it has less than 1% mo­bile pen­e­tra­tion and a pop­u­la­tion of more than 50m.

Due to the ex­pected growth in tele­coms in Africa, Ernst & Young is ex­pand­ing the reach of its Global Telecom­mu­ni­ca­tions Cen­tre to in­clude Africa. It also has cen­tres in Paris, Bei­jing and

In Asia we’ve also seen the pen­e­tra­tion grow­ing in even the poor­est coun­tries,

such as Bangladesh and Pak­istan.

Mumbai. De La Bachelerie says in­stead of cen­tral­is­ing its African cen­tre in a sin­gle lo­ca­tion it will have a pres­ence in Jo­han­nes­burg and Abid­jan, in the Ivory Coast. “That de­ci­sion was made to ac­com­mo­date the fact that our ex­per­tise on the con­ti­nent is fo­cused on those two hubs and it sim­ply didn’t make sense to force peo­ple to re­lo­cate.”

Fo­cus switch­ing to Africa. Vin­cent de La Bachelerie Reg­u­la­tory sta­bil­ity vi­tal. Ju­lia Lam­berth

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