1520-9202/05/$20.00 © 2005 IEEEP u b l i s h e d b y t h e I E E E C o m p u t e r S o c i e t y34 IT Pro May ❘ June 2005

Wireless in Africa:Insights into MobileMarkets

Cyrille Momo

A ccording to the International Tele-communications Union’s (ITU’s) fig-ures, mobile subscriber numbers inAfrica grew at explosive rate of 1,000

percent between 1998 and 2003 to reach 51.8 mil-lion (“Africa:The World’s Fastest Growing MobileMarket,” Int’l Telecommunications Union, 26Apr. 2004; http://www.itu.int/newsarchive/press_releases/2004/04.html).Figure 1 depicts the annualaverage growth in mobile cellular subscribersfrom 1998 to 2003 for different areas (http://www.itu. int/ITU-D/ict/publications/africa/2004/material/AFTI04.pdf).

Mobile users have largely surpassed those offixed line, which stood at 25.1 million at the endof 2003. So telecommunications competition inAfrica has been primarily in the cellular segmentof the industry, and rapid service expansions haveoccurred in many countries, including SouthAfrica and Nigeria. For example, in Nigeria, themobile market is doubling each year; in SouthAfrica, 85 percent of black-owned businesses relyentirely on mobile phones for telecommunica-tions. More importantly, 62 percent of businessesin South Africa and 59 percent in Egypt linkmobile phones to an increase in profits despitehigher call costs.

Based on different growth scenarios for themobile market,analysts expect the penetration ofmobile phones in African to reach between 10 to20 percent in 2010,growing from 6 percent in 2003.

It is the particular circumstances of the marketin Africa that make these impressive statistics pos-

sible. In particular, the problems inherent in fixed-line access and the advent of prepaid mobilephone services have been key drivers.

LIMITED FIXED-LINE ACCESSOne of the underlying causes for rapid growth

of African mobile markets is the limited penetra-tion the continent’s fixed-lines telephone net-work,which at 3 percent is the lowest in the world.Reasons for this include a lack of investment,investment inefficiencies, inadequate private-sector involvement, foreign exchange scarcity(lack of trade), and poor management incentives[Getting Connected: Competition and Diffusionin African Mobile Telecommunications Markets,Volume 1, F. Gebreab, Policy Research workingpaper series (WPS) no. 2863, The World BankGroup, 2002].

Some countries,such as Gabon and Uganda,haveseen their cellular system grow to more than threetimes the size of their fixed-line network. Almostall countries with more cellular than fixed, exceptSwaziland, have competitive cellular markets,underscoring the strength of competitive markets.

PREPAID SERVICESThe introduction of a prepaid system for rev-

enue collection was an innovation that completelyrevolutionized the African telecommunicationsindustry.Originally intended for spreading mobileservice to developing countries, prepaid systemshave, through their phenomenal success and broadcustomer acceptance, shown that mobile service

The explosive growth of mobiletelephony in Africa offersinsights into the differences indeploying new technologies inunderdeveloped countries.

May ❘ June 2005 IT Pro 35

is viable in areas that operators wouldnever have considered before.

In a prepaid system, you pay the oper-ator for a card with a certain, fixedamount—$5, $10, or $15, for example.The card and its accompanying PIN num-ber will let you recharge your phone.When your credit is up, you must buyanother recharge (another card with anew PIN number) from the operator.

Prepaid systems have made it possibleto broadly provide mobile coverage andservice.This scheme allows the telecom-munications industry to address the spe-cific market requirement of developingcountries. In Africa, prepaid has severaladvantages.

Low operating costsMost prepaid systems offer volume dis-

counts to major accounts and services similar to thoseoffered by traditional billing systems. This approachreduces investment costs by avoiding investments inexpensive billing systems. It also keeps the administrativecosts at a minimum. Issuing bills, receiving payments, andcollecting money are very labor intensive, inefficient, andexpensive activities for a telecom operator in Africa.Prepaid eliminates most of these activities, resulting inlower operating costs.To become a prepaid customer, youneed neither a phone nor application. Operators give peo-ple prepaid phones in exchange for a small down payment,usually the cost of the subscriber identity module (SIM)card.

No creditNo credit proofing mechanisms are available in Africa,

and extending credit to new customers is a very uncertainbusiness. The prepaid solution avoids all credit losses forthe operator,and the customer retains full financial controlover his telephone outlays. Because customers pay for allservices in advance, the prepaid system speeds up the timefor the operator to reach a positive cash flow.

Less fraud than fixed linesThe experience of fixed-line operators with fraud in

Africa is a never-ending financial nightmare. There havebeen many cases of criminal intrusions into telecom sys-tems, creating large bills that either vanish through thecracks of inadequate administration or end up as chargesbilled to innocent victims. Cheating in a prepaid environ-ment is probably also possible, but much more difficult,because it requires both a card and a valid PIN.

Convenience of roamingRoaming based on the Global System for Mobile

Communications (GSM) standard offers the convenienceof a single number, bill, and phone with worldwide accessto over 205 countries.The convenience of GSM roaming isa key driver behind the global success of the GSM technol-ogy.The possibility of using a mobile phone outside the cov-erage area of an individual service provider is an essentialadvantage of the GSM platform. By selecting GSM tech-nology,telecom operators offer the benefit of getting out-of-area coverage without having to invest in infrastructure.

MARKET TECHNOLOGIES AND INFRASTRUCTURE

Africa’s characteristics and late entry into the worldwidemarket have also permitted it to take advantage of well-developed technologies as well as the experience of equip-ment vendors and operators.

TechnologiesOperators have tried many analog and digital systems

in Africa. Mobile development now tends to adopt west-ern standards—such as GSM, General Packet RadioService (GPRS), and Universal Mobile Telecommuni-cations System (UMTS)—typically waiting three to fiveyears after these technologies first come to market.Amongthose technologies,GSM is the leading technology becauseof its lower-cost components in addition to a well-proventechnology with worldwide deployment. A main goal ofAfrican telecom providers is to ensure financial viability,and GSM is outstanding from a cost standpoint.

Almost all entrants during the last five or six years havebeen deploying the GSM standard,and earlier entrants thatstarted with other technologies have also been migrating tothis digital system. The penetration of US digital systems,such as those based on Damps (digital advanced mobilephone service) and CDMA (code division multiple access)

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36 IT Pro May ❘ June 2005

I N T E R N A T I O N A L F O C U S

is still very low,despite the better spectral efficiency of suchsystems.So GSM is emerging as the default digital standardin Africa. GSM is still about four times more efficient in its spectrum usage than the most efficient analog systems,and hence has that much higher connection capacity [TheEvolution of Markets Under Entry and Standards Regula-tion: The Case of Global Mobile Telecommunications, H.Gruber and F.Verboven, Discussion Paper (DP) series no.2440, Center for Economic Policy Research, 2000].

Although GSM is widely used,African providers are alsoinnovating, to take advantage of the advancing technol-ogy. For example, MTN recently announced the launch ofits Enhanced Data over GSM Evolution to upgrade its cur-rent GPRS services.The company predicts it will move toUTMS by the end of this year.

In January 2005, Nigeria operator Nitel inaugurated asystem based on dense wave-division multiplexing to boost

its transmission capacity and offer bet-ter service. This project, worth about$2.7 million, is possible because of adonation of modern digital equipmentby Huawei. This equipment shouldenhance fiber optic wideband trans-mission on the Nitel network. Itshould also improve voice and datatraffic along several regions that rep-resent a major lucrative market forNitel.

Equipment vendorsSome strategic equipment vendors

are Nokia, Motorola, Nortel Net-works, Ericsson, and Huawei (aChinese telecommunications firm). InJune 2005, Nokia introduced theNokia 1110 and Nokia 1600, two newmobile phones aimed at first timeusers and consumers in growth mar-kets like Africa. At the same time,Nokia unveiled the Nokia PrepaidTracker, a network-based applicationthat enables prepaid users to monitortheir account balance on the handsetdisplay after each call. The companysees such capabilities as key to successin emerging, cost-conscious marketslike those in Africa.

OperatorsMost of the cellular markets in

Africa are competitive, although thelevel of competition varies dependingof the country. About 44 percent ofthe African cellular markets have twooperators, 30 percent have three or

more operators, and only 26 percent of the markets aremonopolies.

MTN South Africa, a cellular telecommunications serv-ice provider, has a vibrant presence on the continent.Thiscompany provides services in Uganda,Rwanda,Swaziland,and Cameroon. The company also won one of the GSMnetwork licenses in Nigeria in the first telecommunicationauction process in Africa; the license cost MTN SouthAfrica $285 million.

Table 1 provides information on the six companies with the most African mobile phone subscribers, as ofDecember 2003.

Most GSM operators in Africa are turning out phenom-enal financial results.Operating in a telecom vacuum wherecustomers have no access to alternative services, these oper-ators have exponential increases in new subscribers. In spiteof large initial investments, revenues almost always cover

Table 1. Top mobile phone service providers in Africa.*

AnnualNo. of revenue Countriessubscribers (millions of of

Company (thousands) dollars) operation

Vodacom** 10,184 2,482 South Africa, DR Congo, Lesotho, Mozambique, and Tanzania

MTN** 8,928 2,434 South Africa, Cameroon, Nigeria, Rwanda, Swaziland, and Uganda

Orange 5,560 Not available Botswana, Cameroon, Cote d’Ivoire, Egypt, Madagascar, Mali, Mauritius, and Senegal

Orascom 5,645 1,119 Egypt, Algeria, Chad, Congo, DR Congo, Tunisia, and Zimbabwe

Celtel 2,500 445 Burkina Faso, Chad, DR Congo, Gabon, Malawi, Niger, Sierra Leone, Tanzania, Uganda, and Zambia

Millicom 661 85 Ghana, Mauritius, Senegal, Sierra Leone, and Tanzania

* Source: African Telecommunication Indicators 2004, Int’l Telecommunications Union, Geneva, 2004.

** Financial data for year ending 31 Mar. 2003.

May ❘ June 2005 IT Pro 37

operating costs in the first few years of operation.Even when the rapid expansion of the networkrequires additional investments, such as in theequipment necessary to boost transmissioncapacity, operations have remained very lucra-tive.

MTN reports from Nigeria that it has to cre-ate a new national power supply system to sup-ply the existing network with reliable power. ByMarch 2004, MTN’s total investment in Nigeriawas close to $1 billion.

CHALLENGESAlthough it’s clear that mobile telecommuni-

cations is growing enormously in Africa and cre-ating many opportunities, challenges remain.

A study backed by UK mobile phone giantVodafone found that although mobile phone usein Africa is growing faster than anywhere else inthe world, the proportion of people using them(6 percent) remains low. And the disparitybetween regions in Africa remains a concern. In2000, for example, South Africa had 19.79 cellu-lar phones per 100 people; North Africa, 2.79;and sub-Saharan Africa, 0.56. Smaller countries,such as the Reunion Island and SeychellesIsland, have already achieved as much as 50 per-cent penetration.

The ITU’s Digital Access Index ranked severalAfrican countries in the medium to low accessrange (“ITU Digital Access Index:World’s FirstGlobal ICT Ranking,” 19 Nov. 2003; http://www.itu.int/newsarchive/press_releases/2003/30.html).In compiling its index, the ITU combines eightvariables, covering five areas, to provide an over-all country score.The areas are

• availability of infrastructure,• affordability of access,• educational level,• quality of information and communication

(ICT) services, and• Internet usage.

The index’s results point to potential stumblingblocks in ICT adoption and can help countries identifytheir relative strengths and weaknesses.Table 2 shows theindices of African countries.

With the adoption of third-generation technology,African telecoms must elaborate a conservative strategybecause it’s important to have compatibility with earlier-generation devices. African telecom providers are notinnovation-oriented unless an international partner dom-inates management. Because most new entrants are inter-national firms, innovation might be difficult in addition to

the general challenges of international management.The mobile telecommunications industry also faces the

challenge of how to sustain its growth in the face of con-straints on affordability.Short-term growth will hinge on theaffordability of services that operators offer.If they can reachnew subscribers quickly,operators will see a faster return oninvestment. Basically, the crucial demand for the serviceexists.The challenge is to successfully meet this demand.

Transparency—the ability of potential users to under-stand mobile phone use—is a key issue for mobile teleph-

Table 2. ITU Digital Access Index.*

Country Index Country Index

Seychelles 0.54 Malawi 0.15

Mauritius 0.50 Nigeria 0.15

South Africa 0.45 Rwanda 0.15

Botswana 0.43 Tanzania 0.15

Libya 0.42 Mauritania 0.14

Tunisia 0.41 Senegal 0.14

Egypt 0.40 Comoros 0.13

Cape Verde 0.39 Côte d’Ivoire 0.13

Namibia 0.39 Eritrea 0.13

Algeria 0.37 Gambia 0.13

Swaziland 0.37 Sudan 0.13

Gabon 0.34 Benin 0.12

Morocco 0.33 D.R. Congo 0.12

Zimbabwe 0.29 Mozambique 0.12

Equatorial Guinea 0.20 Angola 0.11

Kenya 0.19 Burundi 0.10

Lesotho 0.19 Central African Republic 0.10

Togo 0.18 Chad 0.10

Congo 0.17 Ethiopia 0.10

Uganda 0.17 Guinea 0.10

Zambia 0.17 Guinea-Bissau 0.10

Cameroon 0.16 Sierra Leone 0.10

Ghana 0.16 Mali 0.09

Djibouti 0.15 Burkina Faso 0.08

Madagascar 0.15 Niger 0.04

* On a scale of 0 to 1 where 1 = highest access. The table shows DAI values to hundreds of a decimal point; it ranks countries with the same DAI value by thousands of a decimal point.

38 IT Pro May ❘ June 2005

ony in Africa. Users need to understand a little bit aboutthe technology.Lack of awareness and low literacy hampertelecommunications growth in Africa. So industry playersmust band together to bridge this gap.

The regulatory environment must also become open.Some African governments are trying to draw telecom-munications, broadcasting, and signal distribution into oneservice that encompasses all three technologies. At thesame time, they still want to promote the growth and diver-sity of communication services and connectivity,and ensurean open environment that encourages competition. MostAfrica countries, however, rely on less-relevant factors,such as equipment, to regulate mobile licenses. Only SouthAfrica counters this trend; it emphasizes the service pro-vided to regulate the environment.

T oday, about 1.7 billion people in the world have amobile telephone. Gartner Dataquest predicts that in2008, Africans will buy about 31 million new mobile

phones. Researchers believe that, in the next few years,Nigeria will overtake South Africa as the largest marketarea for mobile business.

To sustain the market and continue to grow at these rates,Africa will need a more competition-friendly environmentand a transparent operating climate. Regulators mustproactively look forward to make competition work and

encourage operators to move into new markets.Operatorsmust continue finding innovative solutions to increaseaccess to telecommunications services and improve theirquality and affordability for users, especially with the levelof profitability that African telecom providers generate.This will enlarge the customer base by creating new low-income entrants.

Indeed, mobile phones might enable Africa to leapfrogold technologies, someday making terms such as Bluetoothan everyday buzzword. In so doing,African could take thelead in answering one of the more poignant questions ofthe information age.According to one ITU report (WorldTelecommunications Indicators 2004,Michael Minges, Int’lTelecommunications Union, 2004) “Mobile is the infor-mation Society in Africa, it has permeated more widelythan any other into new areas, and we must examine howwe can utilize this technology going forward, to help to nar-row the digital divide.” ■

Cyrille Momo is a graduate student at Johns Hopkins Uni-versity. Contact him at cyrmomo@lycos.com.

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