09 March 2021
The African telecommunication industry, like the region itself, has been changing at an accelerated rate. The continent grew at 8.7% CAGR in real GDP terms between 2000 and 2010 and, despite the ongoing COVID-19 pandemic, forecasts suggest sub-Saharan Africa will continue at 2.7% in 2021.
Changing demographics and improving business environments across the continent are contributing to rising household consumption, which is predicted to reach $2.5 trillion by 2030. With that, there has been an explosion of a continent-wide middle class, which has increased not only mobile adoption, but also the associated digital products and services. Africa is currently the fastest-growing mobile telecom market in the world. Since 2000, an annual increase of approximately 30% in mobile phone connections has led Africa to become the world’s second-largest mobile market behind Asia. In response, telcos like MTN Group, Airtel Africa and Orange have had to change their core product and service infrastructures.
One of the main issues they have had to respond to is the growing adoption of over-the-top (OTT) services. As increased broadband penetration and internet sweep key demographics across the region, the popularity of OTT services has exploded. While these largely involve VoD (video on demand) (Netflix, Prime Hotstar, etc), it also covers a broad range of audio and messaging platforms like WhatsApp and Skype.
However, a growing issue is that these services have taken over traditional messaging and calling, which were once the main revenue stream for telcos across Africa. As a result, operators find themselves in increasing danger in this altered business landscape; one that finds OTT players, who survive on telco infrastructure to deliver content and services to end customers, now sucking up those same operators’ revenue streams. This has manifested in a number of different ways.
Loss of revenue
Although telcos across Africa are actually generating revenues from data subscriptions, it has not offset the drastic fall in the purchase of traditional telecom services like voice and messaging (SMS). Nowadays, consumers from Kenya to Nigeria not only expect good connectivity, but better services in terms of faster on-demand content and apps, efficient messaging and communication. As a result, the trends show that African telecom operators’ voice and SMS revenues have drastically reduced at an accelerated rate and are predicted to continue to do so.
Increased infrastructure cost
In addition to revenue loss, African CSPs are being forced to invest in extra capacity as they continue to face network congestion from a surge in VoD. With an exponential increase in demand for videos, telecom operators across the continent are experiencing an unexpected strain on their networks; CSPs are actually spending more to maintain and upgrade their infrastructure without any increase in their revenue. This has now forced them to adopt new business models and revenue streams based on data.
Lack of regulatory framework
Another critical factor is the lack of regulatory framework for OTT players across the region. Although CSPs deliver the OTT content and services through their network, they have no authority over the content. This may compromise with the privacy of the consumer and also impact the core services of the operator, depending on what country they receive the information and the rules / political infrastructure that exists in that country.
So how can operators across Africa respond?
However, as with all challenging situations, there are solutions to this OTT conundrum. The African multichannel market is dynamic, reflecting the ongoing rollout of 4G and 5G mobile networks. Also, investments in terrestrial backbones, submarine cables and satellite capacity to fulfil future needs and reduce transmission and backhauling costs are ongoing. Some of the resulting opportunities are outlined below.
Improved customer experience
African CSPs should consider shifting their focus towards emulating the positive customer experience OTT players deliver - which has allowed them to flourish. Traditional telecom services have lacked the “wow” factor, and this has been a pain point for their consumers. Across Africa, CSPs must become more customer centric and leverage their existing infrastructure to provide digital experiences to their customers with cross domain services like OTT, fintech etc. They must drive their business models based on market maturity, customer preferences, economic trends and new technologies to stay relevant.
Collaborations and partnerships
As previously mentioned, it will be difficult for CSPs to survive solely on the revenue from traditional telco services. Therefore, partnership is the key; CSPs can link with OTT services providers on new revenue sharing models. For the OTT, they gain access to the CSPs’ huge subscriber base with zero acquisition cost, while the CSP gains healthy returns in terms of new revenue streams, massive boosts in data consumption, content rich services and improved customer experience.
However, the partnering of OTTs and telcos can be challenging in absence of a common service platform. The bundling of services (telco & OTT) with manual integrations may be a tedious task, but this is an opportunity for digital technologies and platforms. Utilising API platforms, cloud services and AI-ML techniques can save a lot of operational costs and can also overcome issues around legacy systems. This will create a win win situation for both parties where OTTs can use the CSPs infrastructure and CSPs will have an attractive and diverse portfolio to offer.
Develop their own OTT platform
As business across Africa changes, business models are also adapting; including the telecom industry where operational efficiency coupled with desirable products and services have become an absolute necessity for providers. As their customers have grown and increased their wealth, their preferences moved to internet, smartphones, high speed networks and digital services – creating the environment for OTT to thrive. So, as part of this new paradigm, CSPs across the region should look into building their own platforms to meet the demands of customers. MTN Group, Airtel Africa combined have 412.9 million mobile subscribers on the continent, more than 53% of total network subscribers on the continent. With such a high level of penetration, there are potentially high opportunities for any CSP than can create such an innovation.
The threat is real to CSPs from OTT players and it must be dealt with. Creating high quality content and services along with hight network capacity infrastructure can suffice to the ever-changing dynamics of market and customer behaviour. While innovation is key, the major drivers of business sustainability will be the digital customer experience. As the main connectivity providers, CSPs enjoy huge subscriber bases and if they can be leveraged by either partnering with OTT players or developing their own OTT platforms to deliver content and experience, then CSPs will be able to sail through this wave of digital change and ride the ongoing wave of African growth. n
By Shashank Pawar, solution consultant at Tecnotree