Monday, May 4, 2009

Africa’s rapid mobile Internet growth will drive network expansion and media spend

The number of people in Africa using their mobile to access the Internet has rocketed over the last year. In many instances the number of mobile Internet subscribers far outstrips their fixed line equivalent. Sinking voice ARPUs may finally come off their downward curve on the rise of data revenues. Cheaper bandwidth and new developments look set to encourage this growth. The mobile is also a media as increasing numbers of people use it to access stuff and as it establishes itself as a media, advertisers will not be far behind. Russell Southwood looks at what’s happening just below the radar.

By the end of 2008, South Africa had 1.35 million Internet subscribers, of which, according to World Wide Worx, 794,000 were wireless Internet subscribers and 588,000 were ADSL subscribers. Even discounting fixed wireless subscribers, there are more mobile Internet subscribers than fixed.

I hear you saying that this is South Africa and the rest of Africa is different. So I present you with two more pieces of evidence. UCC’s year end figures for Uganda show 214,293 active mobile Internet accounts up from 166,621 at the end of Q3, 2008. Compared to? 22,000 fixed line subscribers. In late 2008 in Tanzania there were 600,000 EDGE/GPRS subscribers and 15,000 HSDPA subscribers compared to just over 70,000 fixed line Internet subscribers.

Several things are striking about these figures. Although there is undoubtedly duplication between fixed and mobile Internet subscribers, the number of mobile Internet subscribers is in the hundreds of thousands whilst its fixed equivalent is in the tens of thousands. It also implies that there is a far larger group of people willing to buy Internet services if only it worked and was priced right.

These kinds of user numbers allow for a “critical mass” that will encourage further use. So far there is much less data on revenues but if data (including SMS) is around 12% of overall mobile revenues in South Africa, it’s hard to see why these kinds of figures won’t turn in significantly higher revenues elsewhere.

There is also a take-off point waiting to happen at the user end. What’s the difference between e-mail and SMS? A different interface and one has a far more limited length of message. Several million Africans in any country you care to name use SMS (Ugandans sent US$39.4 million worth of them last year) so why can’t they use their mobile to send e-mails instead? The answer must in large part lie in the simplicity of the SMS interface.

Enter a number of companies who have produced e-mail workarounds that give you different levels of Internet functionality on some or all phones. Synchronica boasts that its apps will deliver “a Blackberry for the rest of us” in Africa. It has had a range of deals with operators including Zain and MTN It is aimed at consumers and business users who may not have high-end phones.

The software allows the user to receive e-mails and for them to be sent back as e-mails. In addition any any SyncML-enabled device will allow the user to synchronise Google contacts and calendars. It believes its software is one weapon in the armoury of operators to reduce churn.

ForgetMeNot’s Message Optimiser product means that users can initiate e-mails and add e-mail addresses to their phone: for the latter, users are sent a number to use. This product claims to be able to work across nearly all handsets, including many of the cheapest. It will launch its first service with an operator in South Africa at the end of the month.

It concatenates messages so it can “add” three SMS messages together, for example, to give 480 characters. It will also allow a local provider to let its users send an e-mail/SMS locally and then deliver that e-mail internationally: in other words, Kofi in Accra can send a message to his son in London for the price of an SMS.

South Africa’s MXit (now owned by Naspers) allows users to send Instant Messages to MSN Messenger, ICQ and Google Talk (among others) a great deal more cheaply than sending SMSes because the messages go via the Internet. It claims to have 11 million users in Africa (of which 5.4 million are in South Africa) and that its use will grow by 414% in Africa and the Middle East. Discount that number by however much you like and you still end up with a big number.

If these developments are from the bottom up, then intuitive, smart, touch screen phones are coming from the top down. In August last year one carrier in Nigeria reported that after only a few months, it had sold 20,000 Blackberry phones: not touch-screen phones but an indicator nonetheless. There are no stats yet but the number of iPhones seems to be growing and they are not just in the hands of uber-technology adopters.

The icon-based apps on the iPhone provide a perfect template for certain kinds of services, done in such a way that you don’t even have to be familiar with the Internet to use them. You just keep tapping away and it explains itself.

All of this Mobile Internet usage makes mobile phones a media like radio or television. Africans wanting to know the match score or the headlines increasingly turn to their mobile. When the official media isn’t telling the full story, SMS goes into overdrive providing some hard fact and a lot of rumour. Favourite TV shows ask you to vote for participants and performers. Below-the-line spending on competitions allows you to win prizes that boost brand awareness. Millions of people in Africa are doing these things every day.

Where advertising spend is tracked by media in Africa, Internet spend is 1% in both Kenya and South Africa. As usage increases, this is likely to go up to 3-5% in larger markets. The use of SMS and mobile Internet as an advertising medium is usually below the line “spend” on promotions and therefore goes unrecorded. But there is enough anecdotal evidence to suggest that this might also constitute around 1% of advertising spend.

As advertising spend grows, content will become more sophisticated and varied in order to attract people’s attention. Who stands more chance of delivering this kind of content? Africa’s existing mobile operators whose knowledge and understanding of content is limited in a carefully walled garden? Independent local providers who share the revenues more equitably than at present in an open community, leaving the mobile operators to take the revenues for making it work? I leave you to be the judge of that one.

Africa’s mobile operators cannot believe their luck with the mobile Internet. There are those who would like to portray it as a deeply strategic move but in reality most involved have simply been playing leapfrog with their competitors: it was always really “suck it and see” encouraged by good vendor deals. (We were early sceptics so no-one gets everything right). But now 3G is leaking out of the capital into a range of other towns and cities (see Vodacom in Tanzania) and before long it will follow some of the pattern of GSM voice diffusion. 3G implementation also provides a range of network efficiencies that will provide incentives for this type of roll-out.

All of this means that most mobile operators will have to do one of two things: either upgrade their backhaul networks to allow for data usage more widely across the network or separate data out using WiMAX as many operators are already doing. For although it’s good news having all these customers, they will expect the service to work and will not be impressed if the network goes down because there are already a couple of users on the base station.

That said, the mobile Internet is on its way to becoming a reality across the continent.

Source: Balancing Act