Africa's telecoms sector in 2013 - key trends

Research and consultancy firm IDC predicts key trends in Africa's telco sector
IDC predicts key telecoms trends in Africa.
IDC predicts key telecoms trends in Africa.


The African telecommunications market continues to mature steadily, and several milestones relating to networks and devices were achieved in 2012.

With coverage and affordable devices becoming less of an issue, IDC predicts that the African telecom market will be driven in 2013 by the monetisation of data and related investments, new channels to market, a shift in technological focus, and the increased appeal of previously unattractive market and product segments. IDC's top 10 predictions for the African telecommunications market in 2013 are:

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1 As African operators intensify their efforts to monetise 3G and other data networks, 2013 will the their “year of the app and smartphone.”

Increasing smartphone penetration in 2012 was one of the key drivers of mobile data uptake and usage. IDC expects that 2013 will mark a tipping point, when smartphone penetration will start to overtake that of feature phones in Africa. This, IDC predicts, will be driven by the growth in mobile apps and content.

In-house app stores from key service providers, including MTN, Vodacom, Safaricom, and Orange, are at various stages of development. IDC expects these app stores to be operational in 2013. IDC believes that operator-run and -owned apps stores will be more effective in driving the adoption of mobile apps, as services providers have a broader reach than third-party app stores thanks to their existing customer bases.

Furthermore, several application developer forums have been formed in Africa during 2011 and 2012; these will play an important role in providing much-needed local content for Africa during 2013.
Additionally, IDC expects growth in smartphone adoption to be driven, in part, by reference design programs from vendors such as Qualcomm. These have created devices that boast the same level of functionality as more expensive branded smartphones, driving the development of affordable white-label and operator-branded devices in Africa.

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2 LTE will gain momentum as a mainstream commercial offering in 2013

IDC believes that 2013 will be the year when commercial LTE offerings will become mainstream in Africa. This will be on the back of the first "real" LTE offerings by Vodacom in South Africa and the growing number of test networks in place across the continent at the end of 2012.

While IDC's initial predictions for mainstream LTE rollouts in Africa were for 2014/2015, it is clear that telcos across the continent will defy expectations to bring the technology to the masses earlier than expected. Despite the issues around 4G spectrums across Africa, services providers are expected to refarm existing spectrum, as seen in other markets.

While South Africa is usually an anomaly when it comes to technological advancement in Africa, IDC believes that the availability of working LTE models in South Africa will provide operators in other countries with a blueprint for launching their own LTE offerings. IDC expects operators in Kenya and Nigeria to follow suit in 2013, based on the advanced test LTE networks in those countries, and because IDC expects pan-African operator MTN to replicate its South African LTE model in Nigeria and other key markets.

However, despite LTE offerings becoming more mainstream, actual adoption of LTE services will be limited, owing to the high cost of devices. LTE offerings are likely to be priced at similar levels to 3G, as seen in the strategy adopted by Vodacom South Africa.

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3 Consolidation-driven M&A activity will dominate

The number of merger and acquisition transactions in Africa has declined significantly since 2007. However, IDC expects this to change in 2013, with activity expected to center around market consolidation as telecommunications service providers look to strengthen their IT capabilities to take advantage of the growing convergence between IT and telecom services.

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4 Africa’s first “everything everywhere” is on the horizon

IDC predicts that, in 2013, Africa's first major consolidation transaction will occur and will likely be in South Africa.

This is expected to be similar to the consolidation of Orange and T-Mobile in the United Kingdom to form a new entity called Everything Everywhere, which is currently the largest mobile operator in that country.

Since 2011, the South African mobile market has reached penetration rates of over 100%, and subscriber acquisition has become expensive and all the more difficult.

Furthermore, the South African mobile market is dominated by two operators, MTN and Vodacom. These two companies control over 70% of the subscriber market share.

The other two mobile operators in the South African market are in a particularly difficult position. 8.ta, a subsidiary of the incumbent operator Telkom, and the most recent entrant into the mobile market, has struggled to gain subscribers and, following issues with its parent company, has struggled to raise the much-needed capital to expand its network and compete effectively. Cell C, the third-largest mobile operator, During 2012, three of Africa's largest telecommunications groups communicated their intentions to shop for acquisitions in 2013, both inside and outside of the telecommunications services space.

Furthermore, there are several uncompetitive operators across Africa, some of which hold valuable spectrum. Acquisitions of and/or mergers with such companies will allow leading providers to strengthen their market position and access to scarce spectrum and other resources.

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5 Satellite connectivity will remain a force to be reckoned with

As the appetite for data continues to grow in Africa, IDC predicts that service providers will struggle with bandwidth provision and achieving acceptable levels of service quality and will consequently intensify their use of satellite technology.

The cost of last-mile satellite connectivity has traditionally been prohibitively high. Furthermore, the high latency of satellite connectivity has impacted the technology's performance and perceived quality of service. As a result, uptake of satellite services for last-mile Internet access has been limited.

While undersea fiber optic cables may be bringing unprecedented bandwidth to the African coast, satellite connectivity is helping to take this connectivity inland and to the most remote regions, where fiber infrastructure may not be economically viable to roll out. The dozens of fiber optic cable networks now reaching the continent's shores will – at least initially – have limited penetration inland. Satellite continues to fill this gap in the meantime.

Advances in satellite technology and charging policies have allowed satellite providers to offer services at prices that are in fact cheaper than some incumbents, and can effectively reach underserved and rural areas. For example, the latest advances in Ka-band (high-throughput satellite technology with more than 100 times the capacity of conventional Ku-band satellites) make even more capacity available.

Satellite Internet service providers (ISPs) are therefore able to offer more capacity at faster speeds to smaller dishes. This opens the door to higher performance at lower prices across the continent, and IDC believes that this addresses the challenge posed by the high cost of satellite technology.

Many enterprises in Africa choose a two-network strategy to ensure uptime, and are more inclined to do so following the outages of the SEACOM and TEAMS undersea cables. Satellite has, as a result, become the most viable alternative to fiber and other wireline connectivity, especially in the case of international connectivity.

The level of development of telecommunications connectivity in Sub Saharan Africa varies significantly across countries. As a result, multinational corporations in Africa rely on satellite connectivity to provide uniform service across different countries. In its recent research, IDC has found that while multinational enterprises are considering other alternatives for connectivity across the region, satellite connectivity remains a viable option for international, intercontinental, and remote area connectivity.

Satellite network operators such as Hughes are integrating their solutions with fiber optic undersea cables and other communications media to create mixed networks.

Satellite traffic is therefore routed across different media to reduce latency. Despite the growth of cellular and wireless infrastructure in the region, businesses in Africa have not been able to depend on such networks for affordable and reliable connectivity. Most cellular and wireless data networks are not sufficiently developed to provide the answer to this challenge.

The infrastructural cost of laying cables has often been such that it was economically unfeasible to cover large tracts of rural Africa. Despite the present optimisation of fibre-optic technology in Africa, satellite still has a very important role to play, particularly in terms of providing rural Africa with access to the Internet. This is a key area of focus for most governments in Africa and will continue to be a key driver of satellite connectivity in Africa.

As a result, IDC expects satellite traffic and uptake for last-mile connectivity to grow in 2013, despite market expectations that the technology in Africa was under threat from submarine cables, cellular and wireless networks, and fiber optic networks.

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6 Rural connectivity will become an emerging reality

The lack of a sound business case for widespread rural connectivity has been a deterrent in the development of rural communication in Africa. However, with the emergence of customised solutions for rural connectivity from the likes of Cisco and Connect Africa, and with governments in countries such as Zambia funding and running trial rural networks, IDC expects rural communications to become an nascent reality in 2013.

IDC believes that service providers have taken a wait-and-see approach to rural communications, to see whether governments will lead the initiative, and whether different business models or approaches to rural telcos will emerge. Both have happened in most markets, so it is likely that services providers will start to make greater strides toward rural connectivity.

Furthermore, the majority of urban mobile markets are beyond saturation and, as a result, operators will be forced to improve their efforts in Africa's rural markets.

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7 WiFi will emerge as a viable complementary offering to 3G and LTE

The majority of the leading mobile and fixed line service providers have WiFi as a complementary offering to their other connectivity solutions.

In 2013, IDC expects that, with exponential demand for 3G services and consequent struggles by service providers to meet this demand, services providers will offload most of their 3G subscribers onto WiFi networks (and backhaul this traffic using WiMAX networks), especially for nomadic data access.

With commercial offerings being introduced during 2013, we expect operators to use WiFi as the temporary alternative in their markets of operation, pending widespread LTE rollout and coverage.

Although less reliable than 3G and LTE technologies, WiFi is ideal for most African markets because of the availability of spectrum and relatively low rollout costs, especially in rural areas.

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8 The enterprise sector (consisting of all enterprises) will become more delineated, with the providers increasingly focused on the small and medium sized enterprise segment.

With the saturation of the consumer segment and a crowded services provider market for large enterprises, the SME segment has become a key focus market for telecommunications service providers. IDC expects smart market segmentation and product targeting for the SME segment in Africa in 2013.

SMEs make up the bulk (over 70%) of enterprises in Africa. Of these, a significant proportion (more than 80%) is made up of informal and small office/home office (SOHO) entities. While telecommunications service providers have targeted large enterprises and formal SMEs, offering structured products to the informal SME and SOHO customer segment has been a challenge.

As the enterprise sector becomes more enticing as a key source of revenue, IDC expects service providers in 2013 to focus on innovation and services targeted at the informal SME and SOHO customer segments.

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9 A new breed of MVNO will emerge from the retail and finance verticals in South Africa

IDC expects that, in 2013, at least one mobile network operator in South Africa will approach non-telecommunications companies such as banks and retailers to establish an MVNO.

We believe that price elasticity in South Africa is low and there is very little differentiation between service providers. As a result, the competitive benefits of promotions and special offerings are diminishing.

Consequently, mobile service providers in South Africa, especially the smallest two, are looking for new avenues of customer acquisition. Furthermore, pure-play MVNOs, such as Red Bull and Virgin Mobile, have failed.

Companies such as First National Bank (a leading bank in South Africa) and Edgars Stores (a leading retailer in Africa) have had unprecedented success operating as branded resellers of Internet services. These companies have gradually expanded their telecommunications service offerings to include mobile telephony and mobile devices as value-added services, and at competitively low prices.

However, in terms of mobile telephony and device services, retailers and banks have been mere distribution channels.

One factor limiting further growth of such service providers is that their offerings for voice, broadband, and device services are not converged. IDC expects that service providers that can effectively partner with non-telecommunications companies to offer converged voice, data, and device services as a branded reseller will open up a key distribution channel. This alternative go-to-market strategy, via a branded reseller MVNO, will provide much needed competitive differentiation and alternative customer acquisition channels in 2013.

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10 Enterprise mobility services providers’ and vendors’ solutions will improve in 2013, boosting uptake

IDC expects intense activity in the drive for enterprise mobility in Africa in 2013. According to the IDC Enterprise Mobility Survey in 2012, 39% of enterprises in Africa had an organisation-wide enterprise mobility strategy, 18% of enterprises plan to create a strategy by 2013, and 43% do not have plans to create one.

This is indicative of the fact that, despite enterprise mobility entering the African market in 2010, the level of uptake has been low. This is a situation that IDC thinks is likely to change.

With 2013 being "the year of the app", IDC expects the number of mobile applications available for the enterprise sector to increase, and the adoption of such services to rise accordingly. This, however, hinges on the availability of smart mobile devices to support the uptake of such services.

Device manufacturers like Samsung have placed Africa as a priority destination for enterprise mobility solutions via their application and device offerings. IDC expects the proliferation of "emerging market smart devices" as seen with mobile handsets, as part of the effort by such organizations to penetrate the enterprise mobility market in Africa.

Mobile operators need sound penetration of the enterprise sector with their core offerings, given the slowing growth of the consumer segment. As a result, IDC expects the prioritisation of enterprise mobility by services providers across the region.

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Essential guidance

In line with these predictions, IDC recommends that service providers and equipment
vendors consider the following to ensure success in 2013:

Service providers

The African telecommunications market in 2013 hinges on applications and the enterprise segment. Increased focus on these areas is critical for success in 2013.

Services providers should re-evaluate their enterprise mobility and application offerings to focus on security, manageability, and customer support. The application development landscape should be centered on consumer applications in the short term, and on enterprise applications in the medium term.

Dividing the consumer segment to take into account informal SMEs and SOHOs, both of which typically take up consumer offerings, and offering targeted solutions for this segment will not only boost the uptake of mobile data services, but could potentially also drive enterprise mobility.

Service providers looking to aggressively drive their last-mile data penetration without high capital outlay should consider adding satellite access as part of their offerings.

The technology has the potential to reach more customers, and at faster speeds, than other wireless technologies in the market. The satellite market will have matured enough to drive widespread uptake of services.

Operators should consider MVNO models as a means to bring their services to market and maintain a competitive edge. Branded resellers will be the key means to achieve this.

Vendors and OEMs

The success of enterprise mobility and growth of LTE will be impacted by the availability of affordable devices. Smartphone penetration is currently growing, but in order to further drive uptake it is necessary to increase the penetration of other smart devices such as tablets. An initiative similar to that seen with feature phones was created, whereby device vendors were able to develop devices specific to emerging markets' needs (including Africa's). This enabled the penetration of mobile phones to grow exponentially across the continent. The same will be required for the proliferation of enterprise mobility and smart devices.

Vendors can intensify their LTE efforts, given that they are now able to provide local case studies for the successful deployment of LTE.






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