Developing market connectivity: Africa is progressing

Addressing local problems, setting realistic expectations 

A report published by the International Telecommunication Union (ITU) shows that “in Sub-Saharan Africa, mobile penetration is less than the global average”. Each region is at a different stage of technology adoption. The same report indicates that during the next five years, Sub-Saharan Africa is the only region that maintains its share of approximately 40% of WCDMA/HSPA (3G).  

Each technology enables the provisioning of a set of use cases to meet the demand. Matured technologies may provide better and faster services. But it comes at a cost. Which is why it’s so important to understand the tipping point. A techno-economic study carried out by Real Wireless for a similar economy in the neighbouring region revealed that the economic uplift effect from take-up of mobile broadband is significantly greater than the economic benefit of increases in speed.  

Africa benefits from leveraging the accumulative impact of use cases that solve day-to-day problems. In Sub-Saharan Africa, many successful start-ups are now delivering better quality education, improved health outcomes and other positive societal contributions for millions of people. These services will increase mobile usage. However, considering the local challenges, it is also important to develop realistic demand projections generated from these local use cases. A recently published report suggests data demand will increase by a factor of six in Sub-Saharan Africa over the next five years. However, the question is, is it economically viable to supply that demand considering the regional ARPU levels? So, the first step to solving this hype is to make the expectation right. Investing to serve a higher demand in the built-up areas should not come at the expense of the national coverage performance. A balanced approach is essential for African countries to move forward. 

Addressing the digital divide 

The availability of services in rural areas is still a significant issue in the region. On average, many African countries lag behind their neighbouring regions on mobile service availability. For instance, Africa’s rural population still lacks mobile broadband coverage and only 15% of the rural population used the internet in 2020 (compared to 50% in Urban Africans), representing the highest digital divide.  

Solving the digital divide is not an easy task. A recent GSMA Global benchmark report shows that overall network cost increases by 35% to serve remote areas. Africa is not alone in grappling with this problem. In the UK, the government and MNOs agreed to fund the rural coverage expansion through the Shared Rural Network (SRN) initiative, an interesting public-private partnership created to solve the same problem. This resulted in the Regulator removing the initially proposed coverage obligation from the 700 MHz spectrum auction. We know the challenges of such programs since Real Wireless has been appointed Independent Assessor for this five-year programme. Africa needs similar nationally coordinated programmes and partnerships to achieve objectives.  

Spectrum as an enabler 

The availability of the spectrum is one of the critical determinants shaping the present and future of the communications sector. The GSMA report that governments in Africa had assigned only half of the mobile spectrum, compared to the global average. Therefore, regulators need to make sure the internationally harmonised spectrum is available for service providers to benefit from the economies of scale to provide affordable services to consumers.  

A long-term national spectrum strategy with flexible rules is essential so that countries can benefit from deploying technologies cost-efficiently. If the availability of harmonised spectrum bands is limited, an early compensation by densification of networks will result in higher costs for services. To overcome this, regulators have two jobs in hand:

  1. Internationally progress further on regional coordination activities to ensure spectrum is harmonised.  
  2. Nationally ensure that the regionally harmonised spectrum is migrated to the highest value user. This is where many African regulators need significant progress.  

Slow progress on spectrum assignments is also due to the litigations by the stakeholders. For instance, early this year, the South African regulator, ICASA has “engaged extensively and intensively with the active litigants to reach a settlement agreement so that the licensing process can proceed without further delays”.   

In addition, the spectrum assignment process needs to be such that it incentivises spectrum users. For instance, it still doesn’t help if the spectrum is unavailable at the right price. So, spectrum pricing also plays a key role here. During our engagement with the South African regulator, ICASA, on estimating the fair and economic value of five IMT bands, we suggested that the reserve prices are sensible and low enough to attract smaller players and give them a fair chance. These are the type of players who could be challengers in the market to provide affordable services to consumers. This is because, despite economic conditions, mobile tariffs are much higher in some countries. According to a recent UN report, the affordability of devices and services remains a major barrier. Although the “widely accepted target for affordable broadband connectivity in developing countries is set at 2 per cent of gross national income (GNI) per capita, in some of the world’s poorest nations, getting online can cost a staggering 20 per cent or more of per capita GNI”.  

Benefits to the economy 

Investments in telecoms will certainly contribute to the economy directly or indirectly. i.e. job creation, revenues and taxes. For instance, in 2018, mobile technologies and services generated 8.6% of GDP, almost 3.5 million jobs (directly and indirectly) and almost $15.6 billion raised through Sub-Saharan Africa. Slow progress in deploying mobile technologies could result in a substantial loss to the economy. Therefore, it is important for governments and regulators to understand what share mobile services add to the economy, including the socio-economic benefits.  

A thorough case-by-case economic and regulatory analysis is required to understand the long-term benefits of connectivity versus the contribution from the taxation and money generated from spectrum assignments. If an auction is the best award approach, then developing fit-for-purpose auction rules is paramount. These include incentivising participation and promoting competition while considering the value of smaller players, their role in the marketplace and realistic coverage/rollout obligations. We have seen many failed auctions in the past due to unnecessarily high reserve prices or poorly designed auction rules resulting in a significant delay in awarding spectrum. Africa must take all precautions to avoid such incidents as they will seriously hinder progress. 

What does the future hold? 

Net additions: Despite all the challenges we’ve outlined, we expect that over the next few years Africa will be a significant contributor to net additions of mobile subscribers. We are already seeing some evidence for this during Q3 2021, Ghana (+5million) is among the top 3 countries that had the most net additions, only behind China and Indonesia. Further, between 2019 and 2021, internet use in Africa jumped by 23 %. We also expect 4G deployments to gain momentum. 

Innovative use cases: As the service providers realise these challenges, lack of spectrum, low ARPU, and high-cost Africa will continue to develop innovative use cases and business models to match the local demand and supply. We anticipate Africa progressing further in this space. 

Momentum on spectrum assignments: We expect to see some momentum on the much-needed progress spectrum assignment process. We certainly don’t anticipate the spectrum assignments to progress significantly unless Africa does something about it. ICASA, the authority in South Africa, concluded a successful spectrum auction in March 2022. Hopefully, the industry and the regulators are learning to move on to avoid a lose-lose situation resulting from litigations.  


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