Breaking the barriers

Africa is a continent of unrivalled opportunity for the telecommunications sector, but numerous challenges and pitfalls continue to stifle growth, according to delegates speaking at ITU Telecom Africa in Cairo in May.

Much has been heard about the opportunities in Africa in recent years, as investment pours in and international companies consider entering the market.

Indeed, the UK's GSM Association announced in October 2007 that its industry members planned to invest some US$50 billion between 2008 and 2012 in networks in Africa, covering 90% of the population.

The organisation also announced at the time that the number of mobile connections in Africa had risen by 70 million to 282 million.

But for most companies considering entering the African market, the initial enthusiasm is tempered by problems such as corruption and widely dispersed populations, which can make it difficult and costly for operators to establish comprehensive networks.

The subject was the focus for a panel of industry experts including Mohamad Omran, chairman, Etisalat, Tom Phillips, chief government and regulatory affairs officer, GSM Association, and Russell Southwood, founder and CEO, Balancing Act, South Africa, speaking in May at ITU Telecom Africa in Cairo.

As chairman of Etisalat, which operates in 11 African countries, Mohamad Omran has a clear view of Africa's positive and negative points. "When we decided to enter Africa we saw many opportunities for us to add value to Africa," he said.

"We have invested in many countries in Western Africa. The governments of these countries have welcomed investment because they see that it will attract further investment. But it can be very complex and hard work.

Indeed, Omran said there are some serious challenges on the continent, not least with governments sometimes failing to provide companies a consistent business environment.

In some countries, the governments accept certain regulations, and then they change their mind. This is often the case in Sub-Saharan African countries and some others," he said. "If there are the right regulations, there are very good opportunities.

"Sometimes when there is a change of government, there is a change of rules. I have heard some operators say that they won't touch Africa. Some heads of state ask how they can encourage investment?" Omran said that governments need to establish tax incentives to encourage inward investment.

Omran added that another big problem is that some governments in Africa issue telecom licences purely to raise cash, which can lead to problems for the existing players by creating too many competitors.

Perhaps one of the most pressing difficulties for a new foreign entrant to the African market is a lack of skilled ICT professionals in Africa.

While this problem exists on a global level, it is exacerbated in many African countries, whose governments impose restrictions on how many foreign workers a company can bring into the country.

"We just started in Nigeria. There is a shortage of skilled labour and the Ministry of Labour says that companies can't bring foreign labour into the country," Omran said. "Sometimes we might need foreign labour for a certain length of time.

We have built an academy in Dubai and we have trained people from other countries. But until local labour is developed, I need to get foreign people in to work in local markets."

Reducing regulation

For Tom Phillips, the GSM Association's chief government and regulatory affairs officer for public policy, over regulation in many African markets is hampering the efforts of private companies to invest in their businesses.

We think that overall there is globally a trend to increase the burden of regulation on mobile business and we see that as a bad thing," he said. "Regulations are an increasing concern and potentially an increasing burden to us.

Phillips pinpointed international gateways as one area that is in dire need of liberalisation in African countries. "As the mobile industry we have made very substantial commitments.

Back in West Africa in Kigali last year we committed US$50 million into the African continent in the next five years but one or two things are holding us back.

If we don't liberalise, market by market, the international gateway facilities, many of which continue to be monopolies, we will not get investment in there and we will not get rid of the bottle necks. The prices will stay high and demand will not be met at the price it needs to be met," he said.

"I would urge all governments that continue to support monopoly international gateways to liberalise those facilities and bring in competition.

And while some people involved in the telecom sector have called for national regulators to work closer together, and even for the creation of a pan-European telecom regulator, Phillips urges caution.

"I think there are two sides to this argument and they need to be carefully weighed up and evaluated," he said. Best practice, yes - it's very important that National Regulatory Authorities share best practice and put together the experience that they can learn from other markets.

That is very important and in that regard, regulators getting together as they already do - not least under the auspices of the ITU - to share best practice and get input from quarters is very important.

The GSM Association is committed to supporting that process. But a super national body would not be helpful.

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I am not a fan of European Commission's proposals to create yet another layer of regulation that sits above national bodies. It would add nothing but cost, expense and bureaucracy. We are opposed to that and I think that most national regulators are also probably opposed to it.

"The root solution lies in co-operation, collaboration, sharing best practice, not in creating some bureaucratic layer that sits above and tries to harmonise things that usually can't be harmonised, because markets vary."

Taxing times

Unfair taxes also continue to undermine the mobile phone sector in parts of Africa, according to Phillips. Indeed, while mobile phones are now recognised as a necessity in developed countries - and as a key tool to help raise GDP in developing countries - many African governments continue to levy a luxury tax on mobile phones and airtime.

"Today more than 25 governments in Sub-Saharan Africa continue to levy luxury taxation on handsets and eight levy luxury tax on airtime," Phillips said. "The mobile phone is an absolute necessity for social and economic growth.

It is not in any way shape or form a luxury. For every 10% increase in mobile penetration, year on year, economies have been shown to boost their GDP by 1.2% or more.

"So I would urge every government that has the ability to do it to reduce and eliminate luxury tax or discriminatory tax on mobile phones, be it on handsets, base stations or services.

Aside from regulations and tax, Africa's telecoms sector also faces a lack of energy infrastructure, with many base stations off grid.

Many of these base stations are powered by diesel generators, and with the price of oil now hovering well over US$100 a barrel, this is causing headaches for operators already reeling from falling ARPU.

Africa has only 4% of the global electricity capacity and a lot of the base stations and network equipment are off grid," he said.

"The majority of base stations that will be built in rural areas in the next five years will be off grid. It is a huge issue," Phillips said. "We have seen diesel prices doubling and those new off net base stations will be diesel powered," he added.

"Many of them will not be accessible by road and many of them will potentially have security issues. We need to work closely in partnership with governments to ensure that we have the right support and infrastructure, otherwise our costs will substantially increase.

Broadband threats

The growth of Africa's mobile broadband sector is also threatened by a lack of bandwidth, and one possible answer to the problem is for unused spectrum to be released for use by broadband operators.

Mobile broadband is already very strong in Africa and will grow further, driven by technology and demand from businesses. Spectrum availability, particularly from the lower frequencies is absolutely crucial," Phillips said.

"At the moment we see a general co-ordination plan to release analogue spectrum from analogue TV broadcasters below 900 megahertz.

"Each and every country in the ITU must drive through its practical implementation of that framework, delivering so called ‘digital dividend'. We will have twice the cost if we cannot get access to digital dividend spectrum and twice the cost effectively means half the people connected," Phillips warned.

Despite these challenges, Africa remains a market that operators in the Middle East and beyond find difficult to ignore. Russell Southwood, founder and CEO, Balancing Act, South Africa, and moderator of the ITU panel discussion, said that opportunities are enormous in Africa.

Falling costs

Southwood said that the development of the market is evident from falls in the cost of bandwidth on the continent, and added that about six and a half years ago, it cost some US$12,500 per meg to buy international bandwidth.

"The new fibre optic cable projects that they are building on the east coast are bringing the cost down to $3000-$5,000 a month per meg, so the cost of bandwidth has come down enormously.

"If bandwidth internationally is costing between $500 and $1000 per meg a day, then if you want to go from Mombassa to Nairobi then it seems to me that you can't be charging more than that $500 or $1000, so the prices of national bandwidth will go down," he added.

Southwood added that this is important because when national and international bandwidth falls below $1000 a meg, penetration rates start to rise rapidly.

You have a kind of tipping point because prices seem to come down. You begin to see the kind of offers, such as triple play, which customers find irresistible," he said. "I think you will find in the next year triple play come seriously to this continent."

Souttwood added that the M-Pesa service in Kenya, which allows people to make mobile money transfers is heading towards 2 million users and is now also being rolling out in Tanzania.

For Southwood, the way African countries are responding to the challenges and opportunities puts each nation in to one of two categories, the ‘slow track' or the ‘fast track'. "If you are in the fast track there are great opportunities," he said.

"When you do the appraisals for investors there is a great long list of things - what's the rate of VAT, how much duty is charged on equipment when it comes into the country, what is the tax on airtime, all these things people look at.

"Is your country in the fast track? If not then there might be opportunities but you will not be part of them."