Operators take plunge in Congo

Several service providers are prospering in the fast-growing but unpredictable telecoms market of the Democratic Republic of Congo, writes Paul Hamilton of the World Markets Research Centre

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By  Richard Agnew Published  November 28, 2004

|~|base-station1.gif|~||~|By Paul Hamilton The Democratic Republic of Congo (DRC) offers a challenging environment for investors, considering its uncertain security situation, risks entailed in the upcoming elections, unclear regulations and numerous licensing, interconnection and spectrum allocation difficulties. However, a few key foreign operators that have been able to overcome these difficulties are being rewarded with rapid subscriber growth. Roughly the size of Western Europe and with a population — 58.3 million — similar to that of France, the DRC is a vast, sparsely populated country with some two-thirds of the population living in rural areas. Politically, the country is currently administrated by a two-year transitional government of national unity, which formally took power in July 2003, with incumbent President Joseph Kabila staying on as head of state. The interim government will administrate the country pending the first democratic elections since 1960. The Pretoria Accord has paved the way for the withdrawal of all foreign armies involved in the Congolese civil war, as well as a slowdown of the conflict in nearly all parts of the vast country, apart from the North-East and East. However, in light of two recent attempted coup d’états and a new rebellion in the East, a serious question mark has been raised over the future of the transitional government and the long-awaited elections in mid-2005. A greater degree of regulatory certainty will be introduced to the sector following the creation in 2002 of a new industry regulator, the Autorité de Régulation des Postes et des Télécommunications du Congo (ARPTC). The new regulator will help to address the licensing, numbering, spectrum allocation and interconnection difficulties encountered by the existing operators. Nevertheless, most foreign telecoms investors have entered the Congolese market through joint ventures with existing operators in order to mitigate the investment risks and successfully navigate the prevailing business environment. The most notable of these have been the entry of Vodacom in partnership with Congolais Wireless Network, as well as Millicom and Chinese and Korean investors in partnership with the state-owned fixed-line incumbent operator, Office Congolais des Postes et Telecoms (OCPT). There is a large, suppressed demand for communications in DRC, not just from the under-served and often still internally displaced population, but also from companies and organisations with deep pockets — the military, non-governmental organisations (NGOs) and mining companies tapping the country’s vast mineral resources. Furthermore, significant growth across the hydrocarbon, forestry, construction and manufacturing sectors, together with evidence of a growth in external trade, is driving demand for domestic and international communications. DRC was the sixth largest cellular market in sub-Saharan Africa at the end of December 2003. Having grown from 560,000 subscribers in December 2002 to one million subscribers in December 2003, it is continuing this rapid growth trajectory, rising to some 1,425,000 three months later, by March 2004. Fixed-Line and Rural Telephony Formerly known as Zaïre, DRC once had a teledensity of 0.08 main lines per 100 people, but due to a general decay and dilapidation of the network — much of which was further destroyed during the civil war that followed after 1997 — this has dropped to 0.02 lines per 100. According to the ITU, OCPT had some 10,000 fixed lines by end-2003, of which between 3000 and 4000 were operational by early 2004. Within Kinshasa, a number of private-sector operators have been established using fixed-wireless networks. These operators include Africanus.net, InterConnect, Raga, Afrinet and Roffe Hitech. Principally ISPs, these operators offer wireless local loop (WLL), international voice over IP (VoIP) and predominantly serve corporates for data-connectivity and internet access. They typically use satellite international links, combining very small aperture terminals (VSAT) and fixed wireless access to provide upstream and downstream connectivity. Cellular Market In 1986, DRC was the first African country to install a cellular network — the analogue AMPS system operated by Comcell (later to become Telecel). The Congolese cellular market is now not only one of the largest in sub-Saharan Africa, it is also among the fastest growing. By reaching the one million-subscriber mark by the end of December 2003, it became the sixth largest market in the region after South Africa (16.86 million), Nigeria (3.15 million), Kenya (2.56 million), Côte d'Ivoire (1.2 million) and Cameroon (1.1 million). With the total subscriber base increasing by 42.5% in the first three months of 2004 alone to 1.425 million, the market is still in an early stage of growth. The compound annual growth rate (CAGR) of DRC’s cellular market has grown from 20% in 1998/99 to 78.6% in 2002/3. Moreover, with cellular penetration standing at 1.89% by December 2003, this indicates there is substantial growth potential left in the market. By 2004, cellular networks will cover the main cities and transport routes, principally from Kinshasa to Matadi, and also the southern cities en route to Lubumbashi via Mbuji-Mayi. Satellite Transmission The OCPT has little in the way of transmission infrastructure outside Kinshasa and DRC poses vast distances to span, with little operational infrastructure such as roads or electricity. The Panaftel network built during the 1980s used to link Kinshasa with Matadi to the South-West and Zambia to the South-East by analogue microwave, although the operational status of this is not clear. As a result, operators need to deploy their own digital transmission infrastructure. The pattern of network roll-out provides a telling insight into how operators are overcoming such operational difficulties. In order to reach new towns and expand their networks countrywide, the two leading mobile operators have invested in satellite transmission. MSI Cellular — now re-branded as Celtel — announced in February 2002 that it had bought satellite operator LinkAfrica from Intercel and is also building a microwave transmission network across parts of the country. Nine months later, Vodacom International signed a five-year contract with Intelsat to lease capacity on the Intelsat IS-904 satellite and carry traffic to and from more than 20 base stations and switching centres around and inside the DRC,Tanzania and Mozambique. Crucially, the contract covered the implementation of a satellite backbone network and a point-to-point plesiochronous digital hierarchy (PDH) microwave radio network for short-haul applications in urban environments. Outlook and Implications Remarkable progress has been made on the political transition front and economic prospects remain good for DRC as it stands to received US$3.9 billion in financial assistance from the international community between 2004 and 2006. Of this sum, 70% is expected to be invested in basic infrastructure, while the remainder is earmarked for social programmes and poverty reduction. Furthermore, the country could qualify as soon as 2005 for debt relief under the Bretton Woods Heavily Indebted Poor Countries initiative and could receive debt relief amounting to US$9 billion out of a total external public debt of US$10.6 billion at the end of 2003. However, DRC remains subject to a plethora of risks, including government mismanagement, widespread corruption, insurgency and secessionist movements. First and foremost, a significant setback in the peace process and resumption in armed conflict will inflict a serious blow to economic growth. The major risks to economic growth in the DRC are that of a severe deterioration of the political and security situation ahead of the 2005 general elections. Instability in the eastern part of the country and internal bickering within some of the ex-rebel movements indicate that Congolese security and political stability are still fragile. Another major downside economic risk is that of delays in disbursement of external funds, which would push back massive infrastructure-rebuilding programmes. There are numerous upside risks as well. Investments could surprise on the upside, as investors might be willing to take higher risks and enter the DRC early, even before the elections scheduled to take place in mid-2005, to take advantage of its vast riches. If the government privatises the companies in charge of airports, trains, communications, railways and ports over the next 12 months, we could see much higher investment rates and stronger economic growth. Paul Hamilton is a telecoms consultant at the World Markets Research Centre, a leading provider of country intelligence.||**||

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