Mobile Telephones in Africa: The Impact of the Crisis

Africa is the fastest growing cellular market in the world. It represents around 10 per cent of the total cellular connections worldwide with 450 million connections expected by end of 2009. However, despite the tremendous growth that most mobile operators are reporting in the region, the African telecom sector is not immune to the global economic downturn.

The majority of the fastest growing markets are located in Northern and Western Africa which represent altogether 63 per cent of the total connections in the region. Most of the highly competitive markets are in Nigeria, Zambia, Tanzania, Congo (Kinshasa), Kenya, Algeria, Tunisia, Ghana and South Africa. Those markets have been generating most of the growth and value in the region and are likely to be impacted by the global economic crisis.

The future of mobile operators in most markets depends on their ability to maintain capital (Capex) and operating expenditure (Opex) levels to meet their long term goals. Operators have to expand second generation GSM and third generation WCDMA network coverage, meet their marketing expenses and increase the number of points of sale and retailers. In most fast growing and highly competitive markets, capital expenditure can represent up to 50 per cent of total revenues generated by mobile operators and any sudden decrease in Capex will impact operators’ competitive positioning in the long term. The same applies to operating expenditures in markets where operators need to launch innovative product offerings and tariffs including high-speed services.

Africa has attracted a high level of interest from overseas investors who are looking at the high growth potential in Africa to offset their slowing earnings growth in their saturated home markets. Last year, France Telecom-owned Orange launched an effort to become a mobile superpower in Africa. The majority of the African markets are now being contested between Vodafone, Orange, Zain and MTN - groups that benefit from larger economies of scale and substantial liquidity, enabling them to face short term challenges. Local operators are likely to face stronger cash flow pressures leading to more challenges from declining domestic consumption, currency fluctuations and inflation.

Between 2009 and 2010, some heavyweight players might consider expanding their overseas operations and acquire distressed assets in emerging markets. However, it seems that at present, major operator groups are aiming at maximizing profits from their existing operations, putting overseas expansion projects on hold.  In Northern and Western African markets, mobile operators are estimated to have generated operating profit (EBITDA) margins in the range of 35-40 per cent in 2008. Although these look like healthy margins, the high level of capital expenditure is shrinking net incomes to around 10-15 per cent of total revenues. In most of those markets, GDP per capita is set on average around USD 1500 and mobile penetration rarely above 50 per cent. Despite the uncertainty behind the impact of the economic downturn, Africa is still likely to remain the fastest growing cellular region in the world.

Source: Joss Gillet, Senior Analyst, Wireless Intelligence (www.wirelessintelligence.com or e-mail:  
info@wirelessintelligence.com).