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Opportunities Emerge in Africa's Growing Mobile Data Sector

In this second report on the opportunities presented by Africa's digital-technology market, exhibitors and delegates at the AfricaCom conference focus on the end of the voice era and the dawn of the digital data era across the continent.

Photo: AfricaCom: Africa’s biggest digital communications conference.
AfricaCom: Africa's biggest digital communications conference.
Photo: AfricaCom: Africa’s biggest digital communications conference.
AfricaCom: Africa's biggest digital communications conference.

The number of new mobile subscriptions is growing faster in Africa than anywhere else in the world. This is mainly due to the number of new subscribers accessing the internet via mobile devices.

Commenting on the reasons behind this growth, Arthur Bastings, Executive Vice-president at Millicom, the Swedish telecommunications company, said: "We are moving from the era of voice to an era of data."

According to industry studies, the vast majority of Africans accessing the internet do so via their phones. The proportion has even been put at as high as 98%.

The increasing demand for high-speed mobile data services is a key feature of Africa's digital-telecommunications market. In South Africa, for instance, there are 11.8 million Facebook users, of whom 8.8 million access the site via their mobile devices. There is also strong growth in the number of Kenyan, Nigerian and Egyptian mobile users accessing YouTube, Twitter, and other similar sites. As a result, data revenue is growing far faster than voice revenue. Acknowledging this, Shameel Joosub, Chief Executive of Vodacom, South Africa's largest mobile operator, said: "Revenue from data continues to strongly offset declining voice revenue."

Overall, though, smartphone penetration in Africa is still relatively low. Operators now need to increase investment in their 3G networks in order to meet the growing demand for high-speed mobile data services.

According to Danson Njue, a Researcher with Ovum, a London-based technical consultancy, Africa had just 96.1 million mobile broadband subscribers at the end of 2013. South Africa leads the way in terms of penetration, with 19.2 million subscribers, says Informa Telecoms & Media, the company behind AfricaCom, the continent's largest digital communications event. It forecasts that the annual revenue from mobile data in Africa will rise dramatically – from US$8.53 billion in 2012 to US$23.16 billion in 2018 – as it meets this growing demand.

This growth represents a significant opportunity for operators – both existing and new – as well as for investors looking to capitalise on Africa's appetite for mobile internet access. In line with this, Njue forecasts that, by the end of 2019, the total number of mobile phone users in Africa will be 1.24 billion, a penetration of 95%.

Increased access to mobile communications also means the ways in which consumers conduct transactions are also changing. Over the past 12 months, Africa has seen an exponential increase in the number of mobile-money transaction and payment solutions. For the unbanked on the African continent – who remain the majority – mobile-money solutions have given them access to financial activities, which has, in turn, opened up major economic opportunities. Some suggest that the traditional banking sector may even be under threat from the popularity of "mobile money" in Africa.

Here, at least, the continent is proving a pioneer. Identifying this trend, Bill Lan, a Consultant with Huawei, said: "Africa leads the world in mobile financial services." With Africa as the world's fastest-growing mobile phone market, it is no wonder that traditional banks across the continent are quickly developing their own mobile-money solutions.

Providing access to basic financial services is one of the most groundbreaking applications of digital technology in Africa. The continent's mobile financial services sector has experienced rapid growth over the last five years. What started as a simple money-transfer service has developed into a range of sophisticated phone-enabled transactions, including mobile payments, mobile retail and mobile banking. Network operators are taking advantage of these developments as opportunities to boost revenue.

One of the most appealing aspects of smartphone ownership is access to mobile banking. This has seen an estimated 10,000 new users a day taking up the service in Africa, according to Alcatel One Touch, a vendor of mobile handsets and tablets.

As they are not subject to the same heavy infrastructure costs and overheads as banks, service providers have been able to keep transaction costs reasonable. Essentially, they are also able to adapt more quickly to market conditions.

Mobile apps that allow customers to pay for products and services with a smartphone are also becoming increasingly popular in Africa. One such application, SnapScan, has 14,000 registered businesses in South Africa.

Such apps are particularly attractive to small businesses who don't want the financial burden of paying for a credit-card facility. It seems likely, though, that major retailers will also join such schemes, allowing customers to pay for their daily shopping without the need for a card or cash. The transactions come with no cost to the user, apart from the fee to access the internet.

Smart and affordable

Given the comparative poverty of the market, affordability is a crucial issue in Africa. Increasingly, affordable smartphones will contribute to revenue growth in the mobile data sector, according to exhibitors at AfricaCom.

Commenting on the changing market trends for handsets in Africa, Ernst Wittmann, Alcatel One Touch's Southern Africa Manager, said: "In 2013 our company was predominantly selling feature phones. In fact, just one year ago, 85% of our business in southern Africa was generated by feature phones. Today it has swung to 90% smartphones." Most of those he described as "entry smartphones" – in other words, good quality, affordable models.

Photo: Exhibitors at this year’s expo.
Exhibitors at this year's expo.
Photo: Exhibitors at this year’s expo.
Exhibitors at this year's expo.
Photo: The AfricaCom Google stand.
The AfricaCom Google stand.
Photo: The AfricaCom Google stand.
The AfricaCom Google stand.

This dramatic swing to smartphones has coincided with the trend of falling data costs, making 3G phone ownership a more affordable overall package for the African consumer. Wittman said: "With the cost of data coming down, the smartphone phenomenon has mushroomed in Africa. You will soon be able to buy decent smartphones in Africa for less than US$50."

This is the market segment that handset manufacturers are focussing on in the region, according to delegates at AfricaCom. However, Wittmann emphasised that, while affordability is key, manufacturers must also focus on marketing reliable products. He believes it is short-sighted to regard Africa as a market for dumping inferior-quality, uncertified phones, saying: "Africans are brand-conscious and won't put up with substandard products – the user experience is very important."

Alcatel One Touch also attracted interest at AfricaCom with its Firefox mobile operating system devices, a range launching in the sub-Saharan markets in the first quarter of 2015. Wittman said: "We will be the first to introduce the Firefox OS devices, making the company a pioneer in the new operating-system space."

Also new at the AfricaCom expo was the latest product in Huawei's Ascend series, the Ascend Mate 7. Billed as a phone/tablet with features comparable to Apple's iPhone 6 Plus, it retails at about two-thirds of the price of its competitor. According to Huawei, it wanted to bring a quality product to the African market but "at a significantly lower price than the competition".

Internet of African things

One of the other key issues addressed at AfricaCom was: "Africa's growing internet coverage – an opportunity or a challenge?" This, at least, was the question posed by Ian Kennedy, Vice-president of Systems Engineering at Cisco, a US-based networking specialist.

While it's important not to underestimate the challenge, Kennedy views it as "an incredible opportunity". He said: "There is enormous potential for economic change by thinking differently about the types of devices that could be connected to the internet in the business world, and the type of information that this technology could provide. This includes new, more efficient business models and optimising supply chains." In terms of this, the so-called 'internet of things' – smart inanimate devices that could supply significant value in terms of data via the internet – has the potential to generate huge economic value.

Crunching the cyber numbers: Digital Africa
Proportion of population connected to the internet in Africa: 20%
Proportion of people who access the internet via a mobile device in Africa: 98%
Smartphone penetration in Africa: 15%
Number of Facebook subscribers in Africa: 100 million
Total number of cellphone subscribers in Africa: 813 million
Total cellphone penetration in Africa: 72%
Number of mobile broadband subscribers in Africa: 96.1 million

Sources: Facebook, Millicom, Liquid Telecom, Cisco, Ovum

To illustrate the economic and social potential of the internet of things, Kennedy cited the example of plastics. When plastics were first commercialised in the early 20th century, he said, it would have been impossible to have foreseen just how crucial these materials would eventually become in every aspect of life, let alone quantify the economic value plastics would provide in their applications. In a similar way, with the internet of things, Kennedy believes that "every sector and every industry will be transformed by greater connectivity, giving rise to the next era of ICT."

Photo: Held in Cape Town and now in its 17th year.
Held in Cape Town and now in its 17th year.
Photo: Held in Cape Town and now in its 17th year.
Held in Cape Town and now in its 17th year.

The question is, though, just what will be the economic impact of the "next era of ICT"? To this end, Cisco has conducted research into the quantifiable benefits of harnessing the full potential of the internet, examining how technology might transform, in terms of economic value, the standard practices adopted by business. Its research put this figure, in Africa alone, at US$500 billion of potential economic value. Today the figure, according to Cisco, is US$50 billion. This means there is a ten-fold economic shortfall that has the potential to be filled by the internet of things and its sundry applications.

The 17th Annual AfricaCom was held from 11-13 November 2014 at the Cape Town International Convention Centre. The event attracted 380 exhibitors from 120 countries, as well as some 9,000 preregistered visitors.

Part one of this report can be found at "Africa's GDP Could Grow 92% if it had Internet Parity with the West", 28 November 2014.

Mark Ronan, Special Correspondent, Cape Town

Content provided by Picture: HKTDC Research
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