Africa's telecoms revolution

Some have described it as being as significant to Africa as the discovery of fire or the invention of the wheel. In this special survey, African Business editor Anver Versi provides an analysis of the way that Africa's IT revolution is transforming communications across the continent.

Africa is the most exciting communications market in the world" declares Julian Mcintyre, president and chief treasurer of Gateway Communications. He should know. His company provides satellite connectivity to Africa's growing number of telecommunications operators, companies such as Celtel, Vodacom, Millicom and a host of others. Demand by mobile operators in Africa for satellite-based cellular services has increased by almost 1 34% over the five years from 2000 to 2005.

This in turn reflects the phenomenal growth of the telecoms market over the period 2000 to 2005 - the fastest growth rate in the world. According to Informa Telecoms and Media, the number of mobile subscribers in Africa increased at a compound annual growth rate (CAGR) of 53.4% to arrive at the astonishing figure of 1 34.3m in 2005.

"I honestly believe this is just the end of the beginning, enthuses Mcintyre. Despite growth rates ol around 50% per annum, the penetration level in Africa - with a population of around 1X)Om - compared to other emerging regions, is very low. "There is plenty of growth left in Alricj," says Mcintyre.

Investors and mobile operators agree with this assessment. There has been a frenzy of acquisitions and consolidations as networks battle it out to carve out larger market shares lor themselves.

Both international and domestic investment interest in the telecommunications sector is reaching new heights. The Kuwait-based MTC group paid $3.36bn to purchase Celtel International BV in April 2005 and $1.334bn for full control of Sudan's Mobitel; and in an encouraging reversal of the normal investment patterns, South Africa's MTN bought Investcom LLC of Dubai for $5.53bn. Gateway Communications raised $100 m through European high yield bonds in November - the first ever by an African issuer. In June 2006, Celtel Tanzania secured the largest ever locally arranged loan of $70m through a syndicate of Tanzanian and South African banks and FMO, the Dutch development financial institution.

The flow of investment from die Gulf is due partly to the fact that the telecoms market in that region is nearing saturation but mainly because with an estimated penetration rate of only 14%, Africa presents the biggest growth potential in the world. Chinese investors are beginning to sniff around the sector and given their recent high-profile presence in the continent in other areas, it is more than likely that large investments will follow over the next couple of years.

Sector experts are convinced that investment levels will continue to increase as operators seek to deepen their coverage and extend the range of products and services diey can provide. As subscriber numbers grow and areas of coverage increase, the cost of making and receiving calls will decrease dramatically. At present, and despite the fact that rates are declining at 6-7% per annum, call charges in Africa are some of the highest in the world.

There are several reasons for this and the fact that the telecoms revolution came so late to Africa.

One is geography. Africa is a vast continent with often huge distances between settlements. Another is the proliferation of national borders and different regulatory regimes. Until recently, most African states jealously guarded the telecoms sector seeing it as a valuable income resource. Rates were, and in some cases, are still being arbitrarily set and calls often had to be routed via Europe or the US.

Even where the sector was liberalised, challenges and obstacles abounded. Sub-Saharan Africa, with the exception of South Africa, has very poor infrastructure in the form of roads, railways, waterways and cable networks. "We had to start from scratch," says Michael Joseph, the chief executive of Kenya's leading network, Safaricom. "Unlike in developed markets, we had to build up the physical infrastructure often dirough hostile terrain. Then there is the cost of setting up and operating base stations often in remote areas. Power supply is unreliable so you have to build in generators to ensure continual service. We also pay higher taxes - in Kenya VAT is 16% and excise duty is 10%." All these costs are passed on to the customer.

Mohamed 'Mo' Ibrahim, the founder of Celtel explains why Africa's telecoms development lagged behind other emerging regions. "When we started in Africa," he told African Business magazine, "we had two major issues against us. One was Africa. No one wanted to hear about financing investments in Africa so funding was a major issue. The second was the meltdown of the telecoms sector when the so-called dot. com bubble burst in 2001. The sector lost $2 trillion."

Despite dire warnings about the future of the telecoms sector and the perceived lack of a dynamic market in Africa, the continent's telecoms pioneers, convinced of Africa's great need to communicate easily, were sufficiently optimistic to risk pouring money, time and energy into the sector.