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Vodafone uses voiceless Africa plans to get tech-savvy youth

To compete with MTN, telecommunications operators ‘really need scale’ – Fitch’s BMI.

Inside a packed Vodafone Group Plc store in the Zambian capital of Lusaka, a group of the city’s tech-savvy students wait in line for wireless modems they hope will transform their ability to surf the internet. 

They don’t even care that they won’t be able to get a voice plan to talk over the British mobile operator’s network since Vodafone doesn’t have a license for that.

“The coming of Vodafone is long overdue,” Anthony Kambeu, 25, a student at University of Zambia, said outside the store, which opened in June. “The other networks have been exploiting us — poor service, high prices, everything.” Kambeu said the Vodafone packages are good value even without voice, although he hopes the company will eventually be able to provide that as well.

Vodafone’s data price of 250 kwacha ($25) for 10 gigabytes is almost two-thirds less than that offered by other providers, which include the local units of South Africa’s MTN Group Ltd. and Bharti Airtel Ltd. of India, according to the companies’ websites. While Vodafone’s data bundle expires sooner than those of its competitors, undercutting its rivals could enable the U.K. company and Amsterdam-based network partner Afrimax to establish market share. Meanwhile its customers can make calls to each other using data services such as Whatsapp.

The current economic slowdown notwithstanding, Africa remains the last great growth frontier for European telecommunication companies whose largest markets are all filled up. More than half the continent’s population is seen owning a smartphone by 2020, compared with 23 percent at the end of last year, according to a report published July 26 by GSMA. That’s helped by the continent’s relatively young population, which is more likely to embrace new technology.

Formidable rival
The lack of a voice licence is just one obstacle facing Vodafone as it targets as many as 12 new African markets. Sub-Saharan African economies grew at the slowest pace in 15 years in 2015, weighed down by low commodity prices, according to the International Monetary Fund. Vodafone is also up against a formidable rival in Johannesburg-based MTN, which is the market leader in most of the 22 countries in which it operates, including Zambia. MTN shares have climbed 5.6 percent this year.

“Africa is one of the least-developed regions of the world in terms of information and communications technology, in particular once we move beyond basic voice and data,”  Dobek Pater, managing director of Pretoria-based Africa Analysis, said in e-mailed comments. “Some of the markets in Africa may be experiencing problems currently, but long term they are likely to demonstrate good positive growth due to the cyclical nature of commodities, diversification of the economy, and socioeconomic upside.”

Vodafone’s French competitor, Orange SA, has been rationalizing its Africa presence this year after agreeing to sell its majority stake in Telkom Kenya. The Paris-based company agreed to buy Airtel’s units in Burkina Faso and Sierra Leone alongside assets in Democratic Republic of Congo from Millicom International Cellular SA.

“Our ambition in these countries is to be number one or number two, as this is because you need to reach a critical size in order to be profitable,” Orange’s Deputy CEO, Ramon Fernandez, told reporters in London on July 28. Revenue growth will be driven by higher customer numbers, increased take-up of smartphones and services such as Orange Money, he said.

“In Europe, people are much more wealthy but the market is saturated,” Amy Cameron, head of information and communications technology research at Fitch’s BMI, said by phone from London. “In Africa there is still a ton of people that do not have access. There is no legacy infrastructure.”

To compete with MTN, telecommunications operators “really need scale,” she said. “MTN is already there in terms of having reached across the region and being present in many African markets. That gives MTN bargaining power when it’s buying equipment and it has greater experience in terms of working in difficult environments and developing local services.”

MTN’s enterprise business in Zambia has grown by double digits this year and the company has rolled out a number of data packages to cater for the country’s youth, the company’s Zambia CEO, Charles Molapisi, said in e-mailed comments. “We have the widest 3G and 4G network in the country and MTN Zambia will continue to expand our portfolio of enterprise solutions.”

Complimentary vehicles
Vodafone’s tie-up with closely held Afrimax – announced in late 2014 along with a voice and data offering in Uganda — is designed to complement Vodafone’s two existing Africa vehicles: Johannesburg-based Vodacom Group Ltd., South Africa’s biggest wireless operator by local customer numbers, and Safaricom Ltd., the market leader in Kenya. Vodafone is the biggest shareholder in both those companies, though owns no equity in the Afrimax ventures.

“The Afrimax model is a bit different to the others, it is almost like how one would start an operating company from scratch,” Vik Patel, Vodafone’s director of partner markets, said in a phone interview. “We are at a really good point of joining some of our markets right now,” as some African countries are jumping straight to high-speed 4G, he said.

© 2016 Bloomberg L.P 


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