Incomes have grown from the many spin-offs this service industry has opened up during the past five years. At last, the private sector has been able to take away governments’ power to ration how people can communicate. A revolution of no small proportions, considering the state of affairs before Vodacom and MTN emerged out of South Africa. Later, Celtel formerly owned by MSI based in the Netherlands, would join them in this heroic, but lucrative liberation.
Gradually, an increasing number of Africans have been freed from the clutches of aging, inefficient and expensive state-owned PT companies, whose main hold on life has been corruption and government subsidies.
“In the last quarter of 2004, Celtel connected 50,000 new customers a week,” the company’s chief executive, Marten Pieters said earlier this year.
Ugandan businessman, Michael Kyeyune recalls, “Before MTN came to Uganda in 1998, having an office phone, let alone one at home was a luxury for most of us. It depended on who you were, or whether you had the money to bribe all the characters involved. There were so many procedures and forms to fill and at each stage you had to pay! I bought my handset and got an MTN line in less than an hour!”
Right across Africa, millions of handsets are being bought, exchanged or stolen as telecom firms set up or expand their networks. Vodacom Tanzania Limited connected its one millionth customer four years after switching on in August 2000. Ownership of the company is shared between South Africa’s Vodacom and Tanzanian investors. But in neighbouring Kenya, almost during the same period, Safaricom signed on their two millionth subscriber. Safricom is jointly owned by Telkom Kenya and Vodafone. MTN Uganda believe they will get their one millionth customer before the end of the year.
For numerous customers, prestige comes with having the latest snappy models. But do not be surprised to meet a host of other people quite content to lug along their ‘bricks’. Meanwhile, the younger generations continue to marvel at the choice of ringtones while happily texting away messages to friends and foes alike. Apparently life has never been so good.
Africa’s sprawling informal sector has also managed to bridge the wide gulf that exists between themselves and bigger formal players. At least they can now also talk deals on phone. Likewise, owners of small businesses have been able to market their services better and relatively cheaper. The mobile phone has rapidly passed being a status symbol for the vast majority and become an essential item of everyday life. This has encouraged more investment and made the sector one of the most competitive.
Johannesburg-based MTN Group were decidedly miffed at being recently out-played by the Kuwati-owned MTC for ownership of Celtel International in a $3.4 billion deal. MTN rival, Vodacom and Britain's Virgin Group will probably be successful in their $750 million bid for Nigeria's Vmobile. This is expected to counter MTN’s rapid financial gains in this country of 140 million people. Nigerian callers now rank as MTN”s top revenue earners.
Last year the International Telecommunications Union reported that Africa is the first continent in the world to have more mobile phone users than fixed-line subscribers. Fixed-line tele-density in Africa stood at around 3% in early-2005 while mobile penetration has reached 8%. At present about 80 million of Africa’s 848 million inhabitants use a mobile telephone, up from 52 million in 2003. Compare this with the estimated 1.7 billion people in the world who presently have a mobile telephone. Put another way sub-Saharan Africa makes up only 5% of the total global mobile phone users.
The potential for growth is obviously still there. Luckily, but more likely commonsense and leaking Treasuries, have made African governments willing partners by providing the right incentives and regulations. However there have been unfortunate incidents when governments use the issuing of new operator licenses as both a carrot and a stick for old-timers and interested entrants alike. A decision on who will win Malawi’s third mobile operator licence has been mired in high-level political intrigue despite the country having one of the lowest tele-densities in Africa.
In other parts of the continent business is still good. Earlier this year, MTN Group announced that it recorded 13,380,000 subscribers on its networks across Africa by the end of 2004. A growth of 21.1% over three months and an eye-popping increase of 40.2% from an opening base of 9,543,000 subscribers recorded in April 2004. This was largely thanks to the Nigerians.
In June this year, Safaricom reported earnings of just over $100 million, the highest pre-tax profit in Kenya’s corporate history. The figure even put the normally all conquering regional brewer in the shade.
Apparently dazed by the healthy cash flow this marvelous technology has opened up, some governments have set their eyes on squeezing the industry. Besides VAT these governments are levying excise duty on airtime, (as much as 12% in Uganda). This is like telling mobile companies and the public at large: ‘Warning, using a mobile phone is dangerous to your health!’
“I do not see the logic behind this levy. It is like a punishment to people who use these phones and classes them with smokers! We all know the risks associated with smoking, but please tell me how these same risks can be associated with making calls. The government agrees that the national communication infrastructure is weak, and yet you insist on constraining improvements by imposing this tax!” one South African telecom executive complained when the airtime tax was first introduced in 2001.
The Uganda government was the first country to introduce this levy beginning with 5%. The telecom firms were even more furious at the time, because they were not consulted before the finance minister announced the new tax. However they accepted to absorb the financial implications instead of scaring away new customers and halting growth.
This is no more. MTN Uganda, Celtel and Mango recently announced a major revision of rates upwards. Similarly the network operators in Kenya and Tanzania also face the levy, but at a slightly lower rate than Uganda’s. Adds Richard Hurst, a telecoms analyst, “Clearly these companies are making a lot of money, but it's not like they are selling cigarettes.”
Governments and the regulators want further penetration. This is after all a basis for development. The telecom firms are willing to help subsidise this objective, because there are future returns in helping out and vying for rural customers. However they are appalled at how this noble task can be shared when one side is being crippled by an airtime levy on those who contribute towards the firms’ finances.
On the other hand there are critics who think otherwise. They say these mobile firms are making far too much money and their social responsibility programmes are nothing more than additional marketing campaigns. The question is how can a continent that mostly lives on less than one US dollar a day afford to have mobile phones?
The other question is whether the companies are trying hard enough to give their customers the best possible deal as a result of aggressive competition or is this mere market sharing? According to the Economis, studies show that an average mobile-phone call costs 30 US cents a minute, which is high in countries with average incomes per head of under $300 a year. Reducing the cost of calls in Sub-Saharan Africa, could therefore have potentially large benefits.
If you talk to network executives, they tend to ruefully look at you before carefully explaining that start-up costs in Africa are the highest in the world. There is usually nothing on the ground before these companies moved in, including such basics as reliable and adequate power sources. Return on investment may be above average, but their businesses are not charities.
MTN recently introduced GPRS for its willing South African customers. With this more expensive service, customers will enjoy a vastly increased bandwith which automatically means you can do much more with your formatted phone. How about watching your favourite team play a Barclays Premiership game? Vodacom launched their equivalent service at the beginning of the year. The two are now vying to see how quickly they can roll them out and sign up customers in the rest of Africa.
So why do Africans who on average earn less than one US dollar a day want a mobile phone? It is about the spirit of enterprise and the pride of ownership. Something all governments should learn to nurture if economies are to grow more quickly. Perhaps the MTNs, Vodafones, Orascoms Vodacoms, and MTCs have become our slave masters, but this a slavery most Africans certainly relish!
