Connecting the unconnected
According
to McKinsey shareholder returns on telecom assets are down 60% over the last 4
years in the Middle East Africa (MEA) region. (http://www.mckinsey.com/industries/telecommunications/our-insights : Telecommunications industry at
Cliffs edge). The main culprit is stagnating growth. MEA includes mature markets like those in the
Middle East where (mobile) penetration levels are close to 150% as well as high
growth markets like Ethiopia where penetration is below 50%. It is thus not useful to undertake analyses
on an aggregate basis. The mature
markets are where data revenues are starting to show signs of rapid growth –but
the markets are saturated. In many African markets – particularly in Sub-Saharan Africa[1]
– the decline in ARPU (average revenue per user) is no longer offset by
subscriber growth and there is soon to be a decline in revenues and
profitability.
In order to
profit from the explosion of data services mobile network operators (MNO's) need
to address the complex and costly challenges of (a) upgrading network
infrastructure to 3G and 4G; (b) getting
suitable and affordable devices (smartphones) into the hands of their customers
and (c) ensuring that the services are affordable/accessible by reducing data
tariffs. This is not a one size fits all
solution and there will be variations across the region based on local
circumstances. The solution for Zambia
will be different from that for South Africa and so on. Further, while voice has traditionally
subsidized data and is still makes up to 70% of revenues, globally tariffs are in sharp decline
putting further pressure on data as the primary revenue growth strategy.
The key
challenge to any operator is to ensure its long term viability and to ensure
that it continues to achieve the profitability metrics demanded by the market
such as high EBITDA margins (40%+ in MEA ) which can only be maintained by
ruthless cost cutting and innovative revenue generation. I contend that too many African operators are
obsessed with augmenting their declining voice revenues with data services. The challenges to this are alluded to
above. The segment of the population
that can afford these services is small and probably already at their limit of
affordability.
To date the
mobile (mainly voice) market is largely made up of pre-paid customers ( 97% +)
and the balance a very small elite of post-paid customers. The majority of pre-paid customers ( over 50%
of them ) have at least 2 SIM cards so that they can always benefit from
promotions and deals. Their ARPU has
declined roughly from $10 (per month) down to below $4 in most markets in
Africa. There is another market segment
that remains untried and untested that should be targeted if MNO’s are to
maintain or even grow profitability. These
are the potential customers at the bottom of the pyramid (BOP) who today don’t even
have a phone. They are the unconnected.
Why would
one want to target them? They aspire to be connected. The chances are they know someone with a
phone. It may be a family member or a
work colleague. Even though that person may
live somewhere else. Nevertheless there
is a mutual desire for communication.
Again we
hear from the analysts that Africa has a billion mobile phone subscribers. (https://www.ovum.com/press_releases/africa-reach-landmark-1-billion-mobile-subscriptions-end-2016/.)
For reasons articulated above the fact
is that the number of (unique subscribers) is closer to half of that because of
multiple SIM card ownership. Many Africans have never made a call.
There is an opportunity for MNO’s to connect many of these new customers
by allowing them to make ‘free’ calls.
These free calls will be a call to action for a connected customer to
call back. It is the natural evolution
of the missed call phenomenon. Today
missed calls account for up to 40% of voice calls on many networks and are
responsible for tying up significant network spectrum and capacity. Missed calls are made to convey a message, pre-negotiated
between A and B (caller and called), usually – ‘please call back’. Today
in order to make a missed call – the subscriber needs to have a phone, a
pre-paid subscription and a minimum balance in order to be able to initiate the
call. Most Africans don’t have
that. They can barely put food on the
table let alone put airtime onto a mobile phone.
By putting
special SIM cards into the hands of these BOP customers MNO’s will be able to
‘light up’ a new market segment. The
so-called O3B – the other 3 billion people on the planet who are not connected. These
SIM cards with zero balance but suitably configured will lead to the generation
of incremental calls (back to them) by the empowered (existing) base. There is a new generation all IP MVNO that is
delivering this solution to MNOs virtually, in the Cloud, without any
capex/opex and without any change in mass missed calling behaviour.
After many
years of IPR development and engineering the company has created a smart core
signalling technology for delivering the ‘missed call’ info to existing subscribers
without hogging network capacity. A
highly distilled switch that delivers over a billion connections per day on a
single node. There is thus no
incremental network investment required.
The existing network infrastructure suffices. The asset is sweated. The incremental revenues go straight to the bottom
line as there is minimal cost associated with the new traffic. Trials have been held in Africa and in
India. The take-up of the service has
been strong and the benefits to the MNO manifest.
Voila! The MNO’s challenge of maintaining
profitability is met.
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