Explosive Growth in Mobile Data Consumption Set to Shape Africa's Telecommunications Landscape in 2014, Says IDC
28 Jan 2014
Presenting its outlook for the African telecommunications market in 2014, International Data Corporation (IDC) today predicted a wave of growth in digital and media content over the coming 12 months as smartphone ownership explodes and African telecom users become more sophisticated in their use of mobile applications. The global research and market advisory firm also indentified the ongoing, rapid deployment of 3G networks across the continent and the fledgling expansion of LTE services as key drivers of this growth in content.
"African telecom service providers are intensifying their efforts to develop their own application stores and generate local content, with smartphone shipments up more than 40% year on year in 2013," says Spiwe Chireka, program manager for telecommunications and media at IDC Africa. "These developments, coupled with the growth in mobile data consumption through smart devices, are setting the scene for the spread and use of smartphones and mobile applications in 2014. Last year marked a turning point for LTE networks in Africa, with the number of commercial deployments in the region increasing to 20, up from 4 in 2012. As a result of this accelerated growth, services such as enterprise mobility are set to become more and more commonplace in the year ahead."
IDC's Africa Telecommunications Market Top 10 Predictions for 2014, as presented in a Webinar today by Spiwe Chireka, comprise the following:
- Enterprise Mobility Holds Promise, but Strong Growth Is Yet to Materialize. Despite the publicity surrounding enterprise mobility, IDC does not expect the uptake of such services to take off significantly during 2014, at least where mobile service providers in the African market are concerned. Current IDC research indicates that the key issues affecting enterprise mobility adoption in the region relate to the cost of deploying these services and the quality of local connectivity. Despite the growth in 3G deployments and commercial LTE services in the region, the coverage of these networks is relatively limited, and the quality of networks is not up to the standards required for enterprise-grade connectivity. Furthermore, mobile data costs in Africa remain relatively high, which has created legitimate concerns around the cost of implementing enterprise mobility solutions within end-user organizations.
- The Lines Between IT and Telecommunications Services Will Become Increasingly Blurred. IDC expects an increased number of African telecom providers to actively pursue IT service strategies in 2014. While several African telecom providers have taken advantage of the IT–telecom convergence trend, most have yet to introduce enterprise-related solutions beyond basic voice and data services. However, the slowing growth in consumer segment revenues, exacerbated by price wars and intense competition, has placed unprecedented pressure on the top-line revenues of telecom providers. IDC believes that the best alternative for countering this trend lies in telecom service providers enhancing their IT–telecom convergence offerings.
- Verticalization Will Be a Key Differentiator in 2014. Most telecom service providers have successfully delineated the enterprise segment by enterprise size, and solutions targeted at small, mid-size, and large enterprises are well established. However, current service offerings are standardized, with very little attention given to the specific needs and requirements of different vertical segments. In fact, it is often left to end-user organizations to customize and contextualize service offerings to the unique business needs of their particular vertical sector. Verticalization, therefore, is a key area of differentiation that remains untapped by telecom providers in the African market.
- Fiber Strategies Will Move From Backhaul/Backbone to fiber to the "x" (FTTx). IDC expects the motivation for terrestrial fiber rollouts in Africa to change in 2014. Specifically, FTTx deployments will become an emerging reality in the region. The coastal arrival of several undersea cables over the past five years has increased bandwidth, lowered the cost of Internet access, and driven deeper Internet penetration in Africa. While governments have made some efforts to increase terrestrial connectivity, this responsibility has largely been left to telecom operators. As a result, the expansion of terrestrial fiber connectivity has been slower than expected. In countries like South Africa, Kenya, and Nigeria, fiber backbone rollouts have intensified, but this has been achieved mostly for the internal use of telecom providers themselves (particularly to backhaul voice and data traffic). Even with independent fiber providers such as Dark Fiber Africa in South Africa and MainOne in Nigeria entering the market, most of the continent's terrestrial fiber has been provided to telecom providers for backhaul and backbone purposes. IDC expects to see a shift in the focus of terrestrial fiber rollouts in 2014, with telecom service providers expanding their current fiber infrastructures to offer last-mile, enterprise-grade connectivity to enterprises.
- A Shift in Business Models Will See Operators Transform into Multisector Operators. Telecom operators in Africa have generated the bulk of their revenues from voice and data connectivity solutions. In particular, most operators have provided data connectivity on a 'dumb pipe' basis (i.e., simply ensuring bandwidth provision and network speed). But they will be drawn out of their comfort zones in 2014 and compelled to offer cutting-edge services such as TV, financial services, content stores (that are not third-party owned), and other media services. The advent of OTT services has resulted in service providers losing out on a notable chunk of communication services revenues, while the commoditization of both data and voice services has also resulted in slower revenue growth for African telcos. In an effort to counter these losses, IDC expects providers to branch out of their traditional voice and data connectivity services and offer telecom-related services to the finance, retail, health, education, and agriculture sectors.
- Greater Rural Connectivity Will Become a Reality in 2014. The growing availability of locally developed and highly functional devices in Africa will be central to addressing the issue of device affordability in the rural market segment. In line with this, 12 African governments have revised and finalized their national ICT policies and are expected to begin implementation during 2014. Common themes across these revised ICT policies include the drive for rural communication, guidelines on the use of universal access funds, the establishment of public–private partnerships, and incentives for telecom operators looking to rollout rural networks.
- Governments Will Become Important "Customers" of Telcos in Africa. IDC expects to see more active partnerships between government agencies and telecom firms in 2014. Indeed, governments are expected to be key customers of telecommunications services in 2014. For example, the central Kenyan government has recently been devolved into 47 county governments across the country. This is expected to boost demand for connectivity solutions among government institutions, small office/home office (SOHO) entities, and individuals relocating to the newly defined regions in the country. At the same time, the Rwandan government is implementing a new national ICT policy, while in Senegal the government is pushing for the digitization of education, health, and public services. Implementation of South Africa's broadband policy is also expected to kick off during 2014, and the government will be at the forefront of propelling access to local content and services. Meanwhile, the governments of Morocco and Kenya are also directing various state-driven ICT initiatives. IDC believes that the increased investment in ICT services by regional governments will present a strong business opportunity for telecom providers in Africa during 2014. IDC also expects to see closer collaboration between government and telecom companies in ICT-driven socioeconomic development initiatives during 2014.
- The Role of Telecommunications Companies in the IT Convergence Space Will Change from Foe to Friend. African telecom providers have made notable but unimpressive inroads into IT services provision. The strategies of most telecom companies operating in the IT–telecom convergence space have been focused on building internal IT capabilities, and the available options for mergers and acquisitions have been few and limited. Additionally, a degree of skepticism exists in the enterprise segment about the IT capabilities of telecom service providers. Conversely, telecom companies in Africa enjoy stronger brand awareness than most tier 2 and tier 3 IT service providers. Telecom companies also have a large addressable enterprise customer base through their voice and data connectivity offerings, and offer IT service providers a viable, alternative channel to market. Due to these factors, IDC expects to see greater collaboration between IT service providers and telecommunications companies in 2014.
- Market Consolidation Will Increase in 2014. IDC believes that the African telecommunications market is ripe for consolidation, given the current imbalance in competitor dominance across most markets in the region. At present, only Airtel's ongoing acquisition of Warid Telecom in Uganda is an example of such consolidation. In 2013, Vodacom and Neotel in South Africa announced talks on a possible merger, while Telkom Mobile also announced it was exploring options to reverse its losses, including a possible merger with one of the country's local players. Other leading operators in the region (e.g. Airtel Africa, MTN, and Cell C) recognize the opportunity and have expressed openness to market consolidation. Indeed, as markets become increasingly crowded, growth rates decline and spectrum availability becomes even scarcer. Consequently, IDC expects to see a stronger push for market consolidation by telecom providers in 2014.
- The Nigerian and South African Markets Will Remain Ripe, But Not for Consumer Services. Historically, Nigeria and South Africa have been identified as two of the most lucrative markets by companies looking for a launch pad into Africa. Nigeria has been favored for its high growth potential, while South Africa has been considered to possess a sound and effective business environment. However, Nigeria is plagued by numerous challenges, including poor infrastructure (which often results in very high operating costs), and ineffective private and public business systems that generally create a challenging operating environment. The cost of doing business continues to escalate, and with ongoing political instability and an aggressive regulator demanding lower termination costs and improved customer service without releasing the required spectrum, market complexities continue to escalate in the country. Indeed, operators that have braved the market, such as MTN and Airtel, are starting to feel the negative effects of doing business in such a constrained environment. South Africa, on the other hand, is generally more of an unregulated oligopoly. Operators that entered the market post-2005 have struggled and, in IDC's opinion, will continue to struggle to gain a notable foothold in the market for the foreseeable future. There is also no indication that the status quo will noticeably change in the short term. However, when evaluating the enterprise segment in South Africa and Nigeria, the above challenges appear minimized. Global multinational corporations (MNCs) still maintain a presence in these countries, and in terms of the local enterprise segments, these countries hold significant revenue potential for established MNCs.
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