THE consolidation of mobile operators in Africa is becoming increasingly inevitable. A clutch of small and medium operators lacking scale to compete in what will become a consolidated sector are likely to be swallowed by a half-dozen or so companies, which have a presence in multiple countries.
Late entrants to the market battle. Competition is so fierce that even Cell C is desperate for a partnership or a takeover that could boost its chances of competing with MTN and Vodacom. There has been persistent speculation of a tie up between 8ta and Cell C.
“If you take out major multi-country operators, many of the other operators in African countries will be consolidated over time. In five to 10 years’ time I don’t see a lot of the small operators being able to compete ,” says Khumo Shuenyane, MTN Group’s chief mergers and acquisitions officer.
“It is difficult to compete in this industry if you don’t have scale, not least because it is harder to negotiate price with equipment suppliers,” says Mr Shuenyane.
Small operators are struggling to sustain themselves.
The South African market is dominated by Vodacom, with MTN coming second.
MTN is mulling ways to fine tune its investment strategies as it sets its sights on opportunities to entrench its position as the biggest cellular network operator in Africa. “While we are seeing more opportunities, some of them are not of the kind that are easy for us to execute — because we are mainly focused on trying to acquire number one or two operators in markets of scale.
“We are, however, seeing price expectations moderate with sellers becoming more circumspect in terms of their expectations,” says Mr Shuenyane.
“The universe of buyers is also shrinking. A number of operators have their own challenges trying to make a success of their existing operations,” he says.
In addition to its acquisition strategy, MTN is also keen on pursuing greenfields opportunities in markets where there is potential to become a number one or two operator in the market.
These countries include Myanmar — where it was recently short-listed to acquire one of the two licences to be issued this year, and Ethiopia — where it already has a value-added service licence to provide, among other things, multi-media services.
MTN operates in 21 countries in Africa and the Middle East. It plans to spend between $4bn and $8bn on acquisitions in Africa, Middle East and South East Asia.
The company ventured into far-flung territories such as Iran and Nigeria and over the years some of these markets have provided steady revenue and subscriber growth.
In the absence of high growth acquisitions and new licences some companies look for alternative ways to enter a country.
For example Orange Telecoms, which has opened doors in South Africa by offering telecommunications-related services such as an online store, and intends to pursue a mobile virtual network operator (MNVO) partnership. A virtual network operator piggybacks on another mobile network. In some high-growth areas where there were no immediate plans to issue new licences, MTN could consider virtual operator partnerships to gain entry to the country.
But Dobek Pater, an analyst at Africa Analysis, says African markets are not yet ready for virtual operators. In South Africa a virtual operator, Virgin Mobile — which is piggybacking on Cell C’s network, has battled to wrest market share from MTN and Vodacom, although it is trying to reinvent itself.
“MVNOs thrive in markets that have developed a finer level of customer segmentation in terms of lifestyle and communications usage behaviour.
“Most African markets are not yet at that level of ‘sophistication’”, Mr Pater says.
Virtual operators would usually target market niche areas.
Mr Pater says many markets are still in growth phase and operators struggle to keep up with demand in terms of network capacity and to provide quality services.
“Many (if not most) cell companies are probably not in a position to host another service provider on their networks. But there may be exceptions,” he says.
Mr Pater says the virtual operator model was unlikely to suit MTN as it would prefer to control its own infrastructure, rather than ride on top of another operator’s infrastructure.
“Being a virtual operator also makes you less able to compete on price… you need to be able to compete on other factors — suite of services and their bundling, quality of service, etc. In price-sensitive markets, as many African markets are, this is not easy,” he says.
Mr Pater did not expect many new mobile licences to be issued in Africa. Many markets have already reached sustainability in terms of the number of operators, and some even larger operators struggle. Ethiopia is one exception where we may see that happen, he said.
MTN has been successful in operating in volatile countries, some of which have endured widespread social and political unrest. With all its expansion plans, MTN ultimately wants to become one of the world’s biggest mobile network operators, Mr Shuenyane says.
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