According to McKinsey shareholder returns on telecom assets are down 60% over the last 4 years in the Middle East Africa (MEA) region. (https://www.mckinsey.com/industries/telecommunications/our-insights : Telecommunications industry at Cliffs edge). The main culprit is stagnating growth. MEA includes mature markets like those in the Middle East where (mobile) penetration levels are close to 150% as well as high growth markets like Ethiopia where penetration is below 50%. It is thus not useful to undertake analyses on an aggregate basis.
The mature markets are where data revenues are starting to show signs of rapid growth –but the markets are saturated. In many African markets – particularly in Sub-Saharan Africa[1] – the decline in ARPU (average revenue per user) is no longer offset by subscriber growth and there is soon to be a decline in revenues and profitability.
In order to profit from the explosion of data services mobile network operators (MNO’s) need to address the complex and costly challenges of (a) upgrading network infrastructure to 3G and 4G; (b) getting suitable and affordable devices (smartphones) into the hands of their customers and (c) ensuring that the services are affordable/accessible by reducing data tariffs. This is not a one size fits all solution and there will be variations across the region based on local circumstances. The solution for Zambia will be different from that for South Africa and so on. Further, while voice has traditionally subsidized data and is still makes up to 70% of revenues, globally tariffs are in sharp decline putting further pressure on data as the primary revenue growth strategy.
The key challenge to any operator is to ensure its long-term viability and to ensure that it continues to achieve the profitability metrics demanded by the market such as high EBITDA margins (40%+ in MEA ) which can only be maintained by ruthless cost cutting and innovative revenue generation. I contend that too many African operators are obsessed with augmenting their declining voice revenues with data services. The challenges to this are alluded to above. The segment of the population that can afford these services is small and probably already at their limit of affordability.
To date the mobile (mainly voice) market is largely made up of pre-paid customers ( 97% +) and the balance a very small elite of post-paid customers. The majority of pre-paid customers ( over 50% of them ) have at least 2 SIM cards so that they can always benefit from promotions and deals. Their ARPU has declined roughly from $10 (per month) down to below $4 in most markets in Africa.
There is another market segment that remains untried and untested that should be targeted if MNO’s are to maintain or even grow profitability. These are the potential customers at the bottom of the pyramid (BOP) who today don’t even have a phone. They are the unconnected.
Why would one want to target them? They aspire to be connected. The chances are they know someone with a phone. It may be a family member or a work colleague. Even though that person may live somewhere else. Nevertheless there is a mutual desire for communication.
We hear from the analysts that Africa has a billion and a half mobile phone subscribers. For reasons articulated above the fact is that the number of (unique subscribers) is closer to half of that because of multiple SIM card ownership. Many Africans have never made a call. There is an opportunity for MNO’s to connect many of these new customers by allowing them to make ‘free’ calls.
These free calls will be a call to action for a connected customer to call back. It is the natural evolution of the missed call phenomenon. Today missed calls account for up to 40% of voice calls on many networks and are responsible for tying up significant network spectrum and capacity. Missed calls are made to convey a message, pre-negotiated between A and B (caller and called), usually – ‘please call back’.
Today in order to make a missed call – the subscriber needs to have a phone, a pre-paid subscription and a minimum balance in order to be able to initiate the call. Most Africans don’t have that. They can barely put food on the table let alone put airtime onto a mobile phone.
By putting special SIM cards into the hands of these BOP customers MNO’s will be able to ‘light up’ a new market segment. The so-called O3B – the other 3 billion people on the planet who are not connected. These SIM cards with zero balance but suitably configured will lead to the generation of incremental calls (back to them) by the empowered (existing) base. There is a new generation all IP MVNO that is delivering this solution to MNOs virtually, in the Cloud, without any capex/opex and without any change in mass missed calling behaviour.
After many years of IPR development and engineering the company has created a smart core signalling technology for delivering the ‘missed call’ info to existing subscribers without hogging network capacity. A highly distilled switch that delivers over a billion connections per day on a single node. There is thus no incremental network investment required. The existing network infrastructure suffices. The asset is sweated. The incremental revenues go straight to the bottom line as there is minimal cost associated with the new traffic. Trials have been held in Africa and in India. The take-up of the service has been strong and the benefits to the MNO manifest.
Voila! The MNO’s challenge of maintaining profitability is met.
[1] For Sub-Saharan Africa you can replace with South East Asia where the dynamics are the same.
