African Mobiles Double Landlines
By Carlo Longino, Wed May 05 16:45:00 GMT 2004

The ITU says Africa is the world's fastest-growing mobile market, but tremendous price pressure threatens growth.

"Emerging markets" is a phrase that comes up again and again in mobile companies' sales reports, and generally it refers to India and Russia, two hotspots of growth, particularly in handset sales. But a new ITU report says that mobile use has grown 65% annually over the last five years, making Africa even hotter.

Clearly the continent is at the beginning of its growth curve. More than half its population lives out of the range of mobile networks, and mobile penetration is just 6% -- though that's more than double the 2.8% fixed penetration, the lowest in the world.

An upshot of the mobile growth is that it has the power to drive uptake of Internet access. With fixed-line penetration so low, the mobile Net is many peoples' best option. SMS and WAP are catching on, and GPRS looks set to grow as well. There's even talk of a 3G network in Angola. There's a clear opportunity for mobile and wireless to become the predominant Internet access standard on the continent, whether it be over mobile networks or using newer technologies like WiMax.

There are some speed bumps along the growth road, however. The ITU says regulation and policy issues need to move past simple licensing, they need to engender competition and provide a transparent marketplace. But the main stumbling block could be the low incomes on the continent, requiring some crafty thinking across the food chain.

Equipment vendors are delivering networks that can turn a profit on an ARPU as low as $5, allowing operators to set prices low -- but they must fall even further to boost penetration. The operators must find solutions to make this happen, such as using incoming roaming revenues to subsidize local costs, or recycling handsets from other parts of the world.

Africa presents a unique challenge to the industry. While it's certainly ripe for growth and underserved, it's not the most enticing market because of its low incomes. Handset vendors are already worried about slipping average handset prices, and entering yet another emerging market -- possibly the world's biggest -- could pull them down even more. And for the most part, African operators aren't widely interested in advanced networks, to keep their capex low.

Any major growth on the continent will have to come on its terms, with prices dropping to meet incomes, and this calls for some serious innovation. In the long run, building out Africa with a modern telecommunications infrastructure is probably worth losing a few margin points.