FEATURE - Our take on the African markets in 2017/18

Luke Taylor
Author: Luke Taylor CCO & Deputy CEO
Date: 12th June 2017
Categories: Technology, Data, Financial, Telecoms, Revenue Assurance, Fraud protection, Optimus, Neural Technologies, Big Data, Revenue Management, Digital Transformation, Digital Integration


We have seen the wireless communications market in Africa come a long way over the past couple of years, and it’s starting to show real signs of market maturity. Whilst the continent is large and its individual countries all have very different political, geographic and infrastructure challenges, some countries are heading towards mobile saturation. For example, Botswana, Mali and Mauritius have reached over 70% mobile penetration.  In South Africa, many reports cite over 100% penetration, as people are carrying more than one mobile phone.  In countries where the penetration rates are highest, operators are beginning to focus on customer retention rather than new customer acquisitions - because it costs far more to win a new customer than to retain an existing one.

Africa is an incredibly large and diverse continent. South, West, East, North, Central and Sub-Saharan Africa all host very unique demographics. Whilst countries in the North and South of Africa have reasonable network infrastructure, the ‘middle’ countries continue to face challenges typical of emerging markets.   Research has shown that only a small percentage of phone users on the continent own smart phones. For example at Safaricom, our customer and the leading telecommunications company in Kenya and East Africa, out of their 26 million subscribers a mere 6 million own smartphones while the vast majority have feature phones.

Across Africa’s 36 countries, just two in five people have access to a reliable supply of energy throughout the day… In some countries less than 10 percent of the populations have access to electricity at all, such as Burundi, Chad, Liberia, Malawi and South Sudan. Overall, 625 million people are without power in sub-Saharan Africa alone -- that's about 50% of the entire continent’s population. This incredibly poor power infrastructure is the key limiter in these emerging markets.  

It is not really surprising, considering this intra-continental dichotomy, that most of the simpler mobile money transactions in the country are still SMS-focused. Even in this area, however, we are seeing developments in usage from simple money movement to more widespread banking functions, such as loans, and this is a prime example of how the telco industry is always evolving – even in what we might consider under-developed markets.  

Africa has and is seeing rapid urbanisation, but today still 70% of the populations reside in rural areas. This means that M-PESA-esque money remittance services that enable digital transfers between family members are crucial for an unbanked population that stands at over 80%. These mobile money services have made serious strides in progressing the global strategy of decreasing the aforementioned unbanked African populations.  The change in Kenya alone, with over 75% of the population now using M-PESA and similar products, has helped the steady progress toward financial inclusion across the continent.

Nonetheless, the African market has never been more fickle. Customers are expecting more – more features, more apps, more services – and as the smartphone market grows operators must be able to deliver this as well as quality of service with as little downtime as possible, all for the minimum cost.  At the same time margins are being squeezed as prices have been lowered to attract customers – to the point where there is very little ARPU for voice and SMS usage.

These thin margins are encouraging operators to merge in order to amplify their offerings and share costs such as base stations. Furthermore, African operators must look at standardising their internal systems and finding one platform that can handle all the user-data and analyse it to find additional revenue potential and secure existing revenue flows… as opposed to the more traditional legacy systems that work in silos.

In order to be more than a ‘dumb pipe’ – telcos must look to change their business models, monitor services and discover what their customers want and how to give it to them. They must be able to interrogate their user-data like never before and understand it intuitively.

Many companies use data scientists, but these tend to be an import from places like the USA or UK and are expensive since in-country resources for such roles are low. It makes sense, then, for companies to use smarter technologies which can do the complicated data science for them, and display simple, usable insights to their staff. By training staff and empowering them, companies will be able to add value internally without importing contactors at a greater expense. This will also assist with the skills gap in many of the emerging countries and encourage aspirations, as the local workforce becomes more invested and highly skilled.

By simplifying processes and adding transparency through data, African telcos can also help the countries in which they operate to trade more freely with the West. In order to trade with the USA and EU, countries must be able to show that they are on top of any potential crime (money laundering) and terrorism threats within their borders. The data available to telcos makes them one of the best positioned to spot terrorism and crime and help law enforcement to stop these threats, enabling greater trust and better trading potential.

Whilst we have seen a great many changes in African telcos throughout 2016, I think these will come even thicker and faster over 2017/18, it will be interesting to see which African countries and operators step up to the plate and diversify, and which will fade into the background. One thing is for sure – the traditional ways are ‘out’, so it will be up to the most innovative and adaptable to drive the market forwards and we at Neural are looking forward to assisting operators in moving onwards and upwards.”

Predictions for 2017:

-          Diversify or die

o   It is no longer enough to provide a communication line. Telcos need to start thinking outside the box and offering more features, more benefits, more reliable provision and a wider range of services in order to attract and retain customers and avoid becoming a ‘dumb pipe’.

o   Further consolidation is needed, since diminishing margins and stretched profitability causes shareholders and investors to look at their possible returns as the market matures.

-          Unite to conquer

o   In order for African CSP’s to break out of stagnation and increase their competitiveness, we will see an increase in mergers and acquisitions as companies seek to obtain the key features of complimentary companies. Maintaining adequate in-country competition will always remain, so CSP’s in the more developed countries will likely need to look at cross-industry mergers as seen by AT&T, DirectTV and TimeWarner in North America last year and the impending Verizon and Charter $300bn merger. Such mergers and acquisitions will become more common as CSP’s continue to look at new lines of business to maintain profitability and show increasing share value.

-          In with the new

o   By upskilling existing staff and offering apprenticeships and work programmes to school leavers, African telcos could realistically keep quality of service and fraud management up, whilst keeping costs down.  I would hope to see an increasing trend towards training and aspiration rising over the next 12-24 months, as we have already seen this with our own customers in the region of undertaking academies and education/apprentice type initiatives.

 

As published in the African Wireless Communications Yearbook 2017

Neural Technologies specialises in revenue management software, supporting fraud, credit/application risk, collections and revenue assurance strategies for communication service providers. Based in the UK, the firm’s risk management solutions analyse billions of transactions daily and provide protection for one in seven of the world’s cellphone users. Neural Technologies are working in Africa with Safaricom Kenya, MTN, Telkom South Africa, Meditel Morocco and Zain Sudan.


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