For Middle East mobile telecom firms such as etisalatetisalat, ZainZain, QtelQtel and STCSTC, Arpu has dramatically decreased due to increasing competition, price reductions and a second wave of customers are predominantly lower-income, Oliver Wymann said in its report.

"In fact the most recent growth has come from emerging markets with high population and relatively low rates of penetration, such as sub-Saharan Africa and South Asia for these telecom firms, according to the international management consultant firm.

The report also explained that these regions are where future growth in mobile market lies, as they are expected to contribute 44 per cent of mobile subscriber net additions through 2012.

The Arpu will drop from $12 (Dh44) today to $6 in Sub-Saharan Africa by 2013, and from $6 to $3 in India and elsewhere in South Asia. And that poses major challenges for operators.

"Obviously, adding more subscribers will generate further economies of scale. But scale alone will not be sufficient to sustain profitability and master the low-Arpu challenge," said Joerg Hildebrandt, a Dubai-based partner of Oliver Wyman who led the low-Arpu study.

Indian operators are relatively well suited to meet the $4 challenge because of high affordability of services (around $0.014 per minute at the end of 2008), favourable wealth distribution, large economies of scale, good GDP growth, and extensive outsourcing and managed services. But the challenges for sub-Saharan Africa are considerable. "In most sub-Saharan markets, per-minute prices are still high relative to the purchasing power of the population. A customer with a budget of $1-2 per month for telecom services will only be able to make 6-12 minutes of outbound calls per month," Hildebrandt said.

"Such low usage levels will not provide incentives for poor segments in Africa to invest in a handset and Sim card." African countries have seen a spree of new licencees over the past two years, which will intensify competition and drive down prices in most major markets.

Yet lowering prices will cannibalise current voice revenues in the short term. African operators are bound to lose a significant portion of voice revenues generated by the high-income segment. These customers represent 40 per cent of their revenue today, and are not budget-constrained; hence price elasticity is likely to be too low to prevent Arpu erosion for this segment.

High rates of illiteracy restrict SMS as an alternative to voice. While SMS is definitely worth investigating, it is likely attractive only for specific segments, such as students and young adults.

Fragmented African markets have low economies of scale. African markets are marked by small populations, political issues, language barriers, and lack of affordable cross-border connectivity. This has made it difficult so far to leverage shared platforms between local operations.

To grow revenues without forsaking profits, Hildebrandt urged African operators to focus on essential factors like making network sharing a reality, building scale for back-office operations, master customer segmentation and streamlining costs across the board.

Network sharing is still limited as fewer than 2 per cent of towers are shared. Two factors will push African operators towards implementing network sharing. First, the global financial crisis increases the cost of financing network expansion. Second, African regulators are increasingly favorable to network sharing.

Pan-African groups can move beyond the low-hanging fruit of centralised purchasing to implement intra-group shared services in the fields of IT, billing, customer care, network operating centers, or HR.

The lack of reliable and affordable international connectivity between African countries remains a major impediment.

By Staff Writer

© Emirates Business 24/7 2009

 

Community Comments (1) - Comment on this article

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Sub Saharan Mobile Telephony and ARPU by Aly-Khan Satchu, Proprietor, www.rich.co.ke - 14-May-09
I would venture that this prognosis totally misses the SSA opportunity. The decline in ARPUs is due to increased competition on Voice. Voice was the supernormal growth curve. It is no more and to extrapolate that the trajectory is a permanent and declining one is to miss the big picture.

We are at an inflexion point re Mobile Telephony. The Mobile Phone is the communication Tool for Africa. The Pipe is just beginning to be leveraged. The Mobile Wallet has arrived. Look at MPESA. The wholesale Mobile Internet is now a reality with the arrival of the Undersea Cables. This is a transformative moment.

If you wish to track Safaricom's share price. Their Data revenue grew 66% end of last year to the end of Feb! Thats a growth curve. You are welcome to register on my site www.rich.co.ke, it takes a moment and you can track the share price in real time 0930-1500 Kenya Time. Its free and its level 1 prices.

The point re the bottom of the pyramid is this. We are entering a period where Intellectual Capital is the most valuable capital of all. SSA is in the books for very little. I believe if we can connect Folk at a wholesale rate, they can add real value to themselves and to SSA GDP. Its a revolutioniary moment.

Aly-Khan Satchu
www.rich.co.ke
Nairobi
Twitter www.twitter.com/alykhansatchu [Report Abuse | Email to a Friend | Reply to this Comment]

 

 

 

 

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