Focus on North Africa

North Africa is a vibrant region that is just recovering from the Arab Sping
Africa, Algeria, Telecoms

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With telcos and investors regaining trust, investment in infrastructure and service updates is going ahead full steam.

Markets in North Africa are showing signs of maturity and though voice revenues are still growing, albeit at single digits, there are signs of mobile data services exploding into high double digit growth in the region.

Political instability that previously crippled the industry in a few countries is not really a limiting factor anymore, as shareholders are beginning to regain trust and invest in future deployment of infrastructure.

Josep Ma Moya, partner and head of North Africa & West Africa at Delta Partners, says that the telecoms sector is going back to the thriving growth rates of 2005-2008. “The booming growth rates of the North African telecom sector during the years 2005-2008 are clearly following the major economic crisis and the Arab Springs which contributed to a slowdown at the beginning of 2010. However the beginning of 2012 witnessed a new trend of recovery, experienced mainly in Morocco, Algeria and Tunisia while Egypt is still expected to face some growth challenges in 2012,” Moya says.

He adds that during the Arab Spring in Egypt, internet users grew by 7 million, reaching a grand total of 26 million subscribers in the country. Moya attributes this growth to the role that the internet played as a key media source for information and political campaigning.

Nokia Siemens Networks’ (NSN) Soenke Peters, sub-region head for North East Africa, agrees with Moya and says that the company expects 3G mobile data usage to start picking up, driven by an increasing need for information. He says: “Current mobile broadband user penetration is only around 1-3% but it will grow rapidly and reach levels of 40% and above by 2015.”

Moya also says that Algeria could see accelerated growth in the coming year due to the launch of 3G services in the country. Fixed line and broadband is also expected to see minimal growth with penetration rates reaching 4% of the population.

Sameh Atalla, CEO of Mobiserve Holding, a solutions provider for telecommunication infrastructure and engineering services in the Middle East and Africa, holds a slightly contrasting view. He believes that the sector is witnessing “serious challenges” because of the political instability that is still present in North Africa. “Challenges will soon disappear once the political situation stabilises and the countries regain security,” he says. “There is a lot of opportunity as 3G has yet to be deployed in Algeria during 2012, and 4G technology will soon be deployed in Egypt, Tunisia, Libya and Morocco.”

Speaking about drivers for growth, Atalla says: “Growth was slow, but expected to resume its way upward once security is reached. Growth will also be driven by new technologies such as 3G and 4G, or by different ways for telecom operators to achieve cost savings such as network tower sharing or outsourced services like tower building.”

In terms of how active operators have been in the past year, Moya believes that they were quick to recover and have been busy undertaking large scale projects, launching new services and rolling out network infrastructure.

“In Algeria, Nedjma (Wataniya) has increased its CAPEX by more than 20% in 2011 and the trend for 2012 is even higher (175% YoY growth of the CAPEX in 1Q12 compared to 1Q11) to cope with network roll-out objectives,” he says.

Commenting on Egypt, Moya adds: “France Telecom has boosted its stake in Mobinil to 94%, and according to FT’s CEO, the move on Mobinil showed the company’s strong belief in the Egyptian economy, despite political uncertainty.”

Atalla adds that certain regions are looking at conserving resources, whereas others are looking at expansion. “Operators in Egypt, Tunisia and Morocco are pretty much up to date and have the latest technologies installed on their network so they were looking more towards cost savings through ways such as network tower sharing with other operators.”

“Operators in Libya and Algeria will have a massive roll out in order to deploy 3G technology and upgrade their networks,” Atalla adds.

Algeria’s growth is perhaps next after Egypt where its three operators, namely Nedjma, Djezzy and Mobilis provide coverage to more than 97% of the population.

Peter Lange of research firm BuddeComm says that most subscribers have prepaid mobile connections. “The market is almost entirely prepaid, with around 97% of all customers preferring this option over post-paid contracts. At more than 90% penetration, subscriber growth has slowed considerably and ARPU has fallen as the operators compete for market share with low prices and free calls.”

“The only 3G service is currently AT’s fixed-wireless service, but 3G mobile licences are scheduled to be awarded in 2012. The other operators have installed 3G trial systems and have begun to upgrade their core networks in preparation for 3G,” Lange adds.

Lange also suggested that Algeria could see “a continued negative impact on the country’s economy by the wave of social and political unrest currently sweeping the Middle East and North Africa, with subsequent effects on consumer spending power and financing options of network operators for infrastructure expansion.”

Services that are growing in popularity across the region are mainly social media and video. Peters of NSN says: “As in the rest of the world we see an ever growing usage of social networks like Facebook and Twitter, increasingly accessed via mobile phones. Especially during the Arab Spring these services gained additional popularity. Another growth driver is video. Already by 2015 video will account for more than half of the internet traffic.”

Moya’s research corroborated with Peters. He points out that in Egypt during the days of the revolution, about one million new accounts were created on Facebook, reaching today 8.6 million. He says that this resulted in the second biggest community in MEA, representing a penetration of 33% among Internet users. “Since December 2012, Facebook penetration has been multiplied by two on average in North Africa. The use of YouTube in Egypt has also increased ten-fold over the past year, according to Vodafone,” he says.

As solid as this growth sounds, experts say that one of the main challenges facing operators in North Africa is the need to spend for further investments in network infrastructure due to the data explosion the region is witnessing.

NSN’s Peters predicts that the typical mobile broadband user in 2020 will use 1GB of personalised data per day at a price of $1 a day. He says: “This represents a thousand fold increase compared to today’s usage. Already by 2015 we expect an increase by a factor of thirty. At the same time the costs per byte will need to drop dramatically, by 70% until 2015 and by 93% by 2020, in order to make these services attractive for the end user and viable for the operators.

“Because of the current low mobile broad band penetration the operators in North Africa have the unique opportunity to avoid the mistakes from other markets, like mobile data flat rates. Instead they can price for value and by this make sure that the mobile data business is a real and required upside to the declining voice ARPU.”

Moya advises that it was crucial to understand the right technology mix to deal with the arrival of new mobile broadband technology. He believes that operators should adopt the right business models to deploy capex in the most efficient manner and ensure returns. He also warns about deploying the right propositions to the customer.

“[Operators will] Probably move away from the traffic based propositions and flat rates, and start providing service based offerings that really matter to the customer, which can contribute to the monetisation of the data opportunity, which turns to be, in the end, the real challenge for MNOs,” Moya says. While price competition will be a continuous issue, it might force operators to find alternative and innovative ways to compete, while continuing to optimise their cost structure to ensure healthy profitability levels.

The outlook for the future is certainly promising, according to Peters The mobile data opportunity is huge and real. “The industry can even further increase their vital role for the economies and societies in North Africa. However it will require a common effort of all key stakeholders to make sure that the required frequency spectrum will be available, that operators adopt the right commercial models - i.e. avoiding pitfalls like ‘all you can eat’ data flat rates and that operators modernise their networks ahead of the curve to make sure they can handle the expected growth of mobile data traffic at significant lower costs per byte,” Peters says.

 

 

 

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