A TMT Agenda
H Sama Nwana makes a passionate case for promoting TMT and not just telecoms in Africa – a case that could benefit all developing nations.
Any country that does not take TMT seriously is creating significant opportunity costs for itself, but in the case of a developing or emerging country, it is committing national suicide for its citizens. It could not be overstated how much developing economies need to get this sector right. The idea of letting the sector creep up on us – just foreseeing it rather than shaping it – is fraught with so many risks, such as the holding back of ICT, the wrong assignment of scarce resources like spectrum, the emergence of monopolies that are not in the interest of the citizen, and generally severe lack of investment.
Unfortunately, for reasons both understandable and otherwise, many emerging economies just do not set their TMT sectors up for success, particularly in Africa, and so are doomed to fail. How else do you explain that power consumption in Sub-Saharan Africa (excluding South Africa) is barely 1% of that in high-income countries, according to the World Bank? Sorting out power supply shortages is vital for any TMT economy.
Telecoms, particularly mobile voice, has undoubtedly changed many developing economies for the better – this decade, there will be more mobile phones than people in Africa. But in general, this has been no thanks to many impediments, such as lack of power, and poor or non-existent legislation and regulation. A significant number of mobile base stations in Africa run on diesel generators, which need to be replaced often. So for many who run a mobile voice or data business in much of Africa it is also a logistics and securitybusiness. A chief executive worries most aboutpower cuts, transport and theft of diesel and generators, and vandalism of equipment. These all introduce costs into the industry that economies could do without, and inefficiency means higher prices for customers. Power problems and poor roads in most African countries add to prices of the telecoms services but many African leaders fail to realise this. The next phase is mobile data to enable the internet but this will be even more difficult because the economics of implementing mobile data is much more challenging.
"The media sector in most countries is bedevilled by analogue-era thinking."
The media sector in most developing countries, particularly in Africa, is moribund, bedevilled by analogue-era thinking. For example, many developing countries are still working to switch from obsolete analogue television (which never really worked properly in most of these countries anyway nor provided universal access and service) to digital. These are not just technical plans, but more importantly plans for shaping the media after the switch.
Taking the same attitude with analogue television into the digital world (dominated by wireless and the internet) carries large opportunity costs to both citizens and potential new entrepreneurs. Imagine missing out on the jobs, creativity, innovation, the emergence of a true advertising industry and the tax receipts that come from 40 or more digital channels. And where decent content on these many channels comes from is a critical issue.
The technology subsector too in most developing countries is equally still very much in its infancy if not stillborn. How many senior government officials do you see with business cards bearing Yahoo, Hotmail and Gmail domain names? Imagine, the cost of not having internet for the masses for another decade or more such that Africa misses out on an array of businesses based on internet technology. Why should we disadvantage African and other developing economies’ children in a globalised world? This is tantamount to sending them out to the world wearing blindfolds.
In my book on TMT for developing economies, I use many examples from Africa to illustrate key points. This is because the challenges in Africa are more profound in many cases than in most other emerging economies. But many of the TMT issues in Asian economies such as Myanmar, Cambodia, Bangladesh and Pakistan, or Papua New Guinea and Haiti, can be as challenging as those in Africa. As of 2013, Myanmar only had a 10% teledensity, much lower than most African countries, and it is around 80% rural, just like Uganda.
This is why I admire what is happening in the ICT sector in Rwanda, one of the smallest African countries. Rwanda is rolling out a 4G network to complement more than 3,000 kilometres of fibre optic cable, a national backbone laid down in 2010. The country aims for 90% of Rwandans to access 4G broadband by the end of 2015. Being small in geography is clearly beneficial and Rwanda has an even bigger outcome in mind – that of being a middle-income status country by 2017. It has tripled GDP in ten years, growing to a per capita of $644 in 2012, up from just $206 in 2002. The government passionately believes broadband and ICT will be a key enabler to make this happen. For a country leaving behind its genocide past of the 1990s, Rwanda is well on its way to realising the sort of ICT sector that all other African countries should aspire to. However, even Rwanda needs to realise that TMT is a much broader issue.
a TMT summary
There are encouraging indicators as well as challenges, which I summarise as:
- Mobile telecoms infrastructure in Africa is in relative good shape and improving.
- Telecoms in Africa has had a greater impact on growth on the continent over the past 15 years than any other sector of the African economy.
- While mobile voice telecoms is going strong, the real challenges ahead, that of mobile data (and the mobile internet), are huge. We will not be cabling fixed internet to any significant number of African homes anytime soon. So the last mile will almost certainly be via radio in most countries, barring some areas of the diversified economies of say Egypt, Morocco, South Africa and Tunisia. We have lost both the race and the will to build robust fixed-line infrastructure on the continent. Africa has the lowest fixed-line penetration rates in the world at mostly less than a woeful 2%.
- While the telecoms subsector is relatively mature, the media and technology subsectors of TMT are still very nascent.
- Broadcasting, particularly digital terrestrial, is unlikely to have a standalone business case. But collectively, industry surpluses in voice communications could pay for the losses in broadcasting.
- There is a golden opportunity to design (or redesign) the entire TMT sector in most African countries, as well as the other emerging countries in Asia, the Caribbean and Latin America. This is afforded by the migration to digital terrestrial TV, in addition to planning for the next round of 4G spectrum releases. In Africa, with the new submarine cable landings and new fibre backbones, there could be a drive towards convergence within the TMT sector.
“Telecommunications is the only sector in Africa where there is no infrastructure gap.” – Tim Harrabin (analyst) As you read this quote above, I can see the head scratching. But the point Harrabin is making is an important one. In relative terms, mobile telecoms in Africa has seen no infrastructure gap compared with other sectors, such as roads, railways, power, water, buildings and so on over the past 15 years.
"We have lost the race and the will to build robust fixedline infrastructure on the continent."
A longer quote from Harrabin is perhaps more helpful: “There is no infrastructure gap in telecoms across Africa – since 2000 [up until 2013], over US$150bn has been invested in licence fees, mobile infrastructure, subsea cables, national fibre optic and mobile money platforms across Africa.” Which other sectors in Africa have had such levels of investment? The results have been startling and even better, none of the funding is aid, indicating that entrepreneurship and the private sector are ultimately the only answers to poverty on the continent.
If we are honest, much of this investment came in despite many impediments such as corruption, nonexistent or unliberalised regulatory regimes, and a great lack of modern telecoms skills (which continues to be major challenge for the TMT sector).
Decision makers must acknowledge that much of the $150 billion are foreign monies seeking better returns, and portraying a climate where the continent’s or a country’s resources continue to be pillaged while our people wallow in poverty is not conducive to further investment.
impact on growth
Another fact is that telecoms in Africa has had a greater impact on growth over the past 15 years (to 2013/14) than any other sector, including in broader social value. We will not maintain the same growth rates, but the TMT sector in Africa should aim for percentage contributions in the high teens to GDP.
Access to telecoms grew exponentially from just 2% of Africa’s population in 2000 to 65% by 2011. Take Nigeria, the most populous nation. Ernest Ndukwe (former head of the NCC, the country’s regulator) notes that the percentage share of GDP from telecoms rose from only 0.06% in 1999 to 3.5% by 2011. This growth had resulted (by the end of 2011) in the creation of over 16,000 direct jobs in the telecoms subsector of TMT in Nigeria, and several million are informally employed. From only 400,000 lines in 1999, there were nearly 115 million lines by July 2013, creating a teledensity of 82%.
Not many people will realise that the biggest and most sold commodity today in Africa is airtime. And in Kenya, telecoms has yielded arguably the biggest mobile payments platform, and certainly in Africa, in M-Pesa. In 2012, $10.4 billion was transacted through M-Pesa and by mid-2013, 35% of the GDP of Kenya and 20% in Tanzania was transferred through M-Pesa, and growing. These are phenomenal
side-effects that can be replicated across Africa. Much informal value lies in being able to speak to your grandmother in the village without her being taken for miles to the nearest fixed line, which rarely worked. Or take a farmer who can trade his coffee with buyers in the city without leaving his village. Much informal value is generated from all the money transfers on networks.
This broader social value has not been measured accurately by anyone, although there are estimates, such as by McKinsey. Most Africans will regale you with numerous anecdotes of communications before the mobile era and what they experience now: about how it has made all their lives so much more efficient. In economics, what we are getting here is sometimes called the multiplier effect.
Take Nigeria again, Africa’s biggest telecoms economy, having overtaken South Africa as far back as 2008. As at the end of June 2013, total investment flow into Nigeria’s telecom’s sector since liberalisation in 2001 was $32 billion, including $7 billion of investment inflow from 2010 to 2013. According to the NCC, the telecoms sector in Nigeria took 8.5% of GDP by April 2013 and the country has been ranked the fastest growing telecoms market in the world by the ITU for the five years running to 2012.
"Most countries in Africa can aim for GDP contributions from TMT in the range of 16–20%."
Overall, the mobile industry in Africa contributes about $56 billion to the economy, equivalent to 3.5% of GDP. So Nigeria at 8.5% is well above average and reflects about $32 billion of investment over about ten years. In Sub-Saharan Africa various reports have shown a 4.4% contribution to GDP after adding the effects of mobile technology on workers’ productivity, and the creation of more than 3.5 million full-time equivalent jobs across the formal and informal sectors – this includes some of the highest paid formal employment on the continent, plus airtime resellers and shops selling, repairing and recharging handsets. Further, the industry has supported the development of more than 50 technology hubs and ‘incubators’.
It is true that buoyant commodity prices (oil and minerals) are key drivers to the continent’s sustained 5% to 6% growth rates. But telecoms has had greatest impact on growth (along with the highest growth rates) over the past decade and a half, and there is an argument for excluding the extractive sector in such comparisons. This is because such resources are by definition finite, and reliance on them makes little economic sense.
Mobile penetration in terms of SIM cards reached 781 million in Africa as of Q2 2013, according to Ericsson, and is growing by the day. And these are sustainable revenues which the telecoms sector will retain in perpetuity barring an unforeseen industry crash.
I believe most countries in Africa, bar South Africa and a few others, can aim for GDP contributions from TMT in the range of 16% to 20%. A TMT plan for each country can realistically aim for this. Who would have forecast a growth from below 0.1% of GDP in Nigeria in 1999 to 8.5% in 2013? And this is only for telecoms, excluding the media and technology sectors, which are now where we were with telecoms back in 1999. Looking at it from this perspective, 20% may not be that ambitious after all.
I have met many a decision maker who believes that just as international finance flooded into Africa and some poorer Asian or emerging market countries to enable the mobile voice revolution, it would happen too for mobile data/internet. This is a misguided view owing to the ‘naked mobile’ problem.
Voice was the killer application in telecoms and one of the core commercial reasons $150 billion has gone into this sector in Africa was because voice was clearly proven elsewhere in world. That said, analysts were still dubious about its take-up in Africa. I have it on good authority that Vodafone was warned it would never achieve any more than half a million mobile subscribers in Kenya, but as of Q3 2012, Kenya had over 30 million subscribers and a mobile penetration of 78%. I have also seen that MTN achieved the first five to six years of its business plan in Nigeria within two years of full operation in the country. But the breakdown of its revenue for the years 2009 to 2011 shows voice as still the major profit contributor at about 83%, with SMS at 10% and data at only 7%.
There is a linear relationship between voice traffic and revenues while voice is dominant. Simplistically, you can work out the revenues from voice communications by multiplying the minutes by average tariff-per-minute. If voice dominates, this straight line relationship between traffic and revenues holds true, and mobile network operators love this as it makes them immensely profitable. This is because the revenue-per-bit of voice traffic yields a very high number: the operators are handsomely paid for voice, yet voice consumes very little traffic.
The problem is that as networks start carrying more data this relationship breaks downs. As data starts dominating, as it is (or will be) in most African countries, the revenue-per-bit of traffic drops off a cliff, and revenues flatten off. It is as if the high-margin voice revenue is rendered ‘naked’. Some refer to this as the commoditisation of voice, or indeed the commoditisation of telecoms services.
Where the naked mobile problem truly bites is with coverage of mobile data. If a voice network profitably extends to, say, 80% of the population, the mobile data network may only extend to say 40%. Mobile markets are moving towards lower revenue growth levels, as services become increasingly commoditised. And there are other reasons which contribute markedly to decreasing profitability: expanding mobile coverage to underserved rural areas is expensive; customer expectations are soaring, but they want more and to pay less; and the mobile business is becoming more complex, which means higher costs.
Returns on investment for mobile data will not only be much lower than for voice, but it will almost certainly take a much longer time to achieve these returns. This is not very attractive to investors. Therefore, there is a strong case to strengthen African banks and their bond and equity markets to take on more of the mobile data risk.
Mobile data coverage is certainly a big problem. Voice networks tend to cover the main population centres, and many minor ones. There is competition for voice coverage and regulators in a significant number of African countries have set up universal service funds to strive for access to voice at least.
The geographical and population coverage for mobile data, without regulatory intervention, is highly unlikely to get beyond the major population centres. Rolling out networks beyond these urban cities will lose buckets of money for mobile network operators. The risk of the emergence of a society of ‘haves’ and ‘have-nots’ with the mobile internet is high as operators cannot be compelled to do what is patently uncommercial. And yet, we also want the schools in the rural areas to have access to the internet – but the omens are poor, with the African population being some 60% to 70% rural.
And becuase there will be little fixed internet on the continent any time soon, and the economics of mobile internet only work for the major conurbations, decision makers will need to think carefully about how to square this circle.
"Just about every school has no access to the internet. This is catastrophic."
media ANd technology
Sadly, there is much less to cover on media and technology – they still do not even register in any official GDP statistics in most African countries.
For the technology subsector, non-mobile ICT infrastructure does not exist much yet. There has been recent investment in national backbone networks, although nothing like the level of mobile telecoms. Internet access in Africa was only about 11.5% in 2011, with mobile broadband at 3.8%, while fixed broadband was just 0.2%. Just about every school on the continent has no access to the internet, bar those in Egypt, Morocco, South Africa and Tunisia. This is catastrophic if it persists, but ‘white spaces’ technology can make a significant difference. Trials have proven the technology, including in Africa in Cape Town and Nanyuki (Kenya), a market town in the Rift Valley.
But there is low growth of the technology subsector, which means jobs are not being created when we badly need them and this is disastrous for small and medium enterprises (SMEs) and e-commerce. I recently gave lectures to managers of a prominent African regulator, and not one of them had ever shopped online and it was not obvious to us how soon they would be able to do so.
Policymakers should start by looking at the woeful state of the regional and national backbone infrastructure across Africa. Coordination failure looms large here, and even the large operators cannot solve this.
Turning to the media subsector, there is much less to say outside South Africa and a few other nations such as Egypt, Kenya, Tunisia and Morocco. which do have media firms of note. This is a substantial opportunity for entrepreneurs on the continent. Though there are pockets of some brilliance, the following all contribute to a moribund media sector:
- No ICT infrastructure
- Few national terrestrial TV channels
- No mobile internet
- No true cross-platform media operators of scale.
The media industry should play a key role in enabling a knowledge economy through providing access to information through several means, including broadcast, books, newspapers, magazines and advertising, all generated and consumed through digital platforms. So if the digital platforms do not exist, there is no scope for content generation or consumption. Justin Bieber was a Canadian teenager who started playing songs on YouTube. Today he is a superstar. Without the internet in Africa, many such talents could just waste away.
broadcasting and TMT
True mass broadcasting is only likely to have a business case in most African countries as part of the TMT sector. Broadcasting is certainly not valued by citizens as much as voice communications – people are far more likely to do without their radio or TV sets than their mobile phones. Terrestrial broadcasters, in particular, struggle to have solid businesses. But I argue strongly that TV and radio are as important to Africa’s development and cohesion as mobile voice/data communications.
The key difference is that profits can be extracted from mobile communications relatively easily compared with broadcasting, and so the latter resorts to other ways to pay for its operations, typically sponsorship and advertising.
Take news provision, for example. Ofcom, the UK regulator, noted in 2007 that no form of television news in the UK pays its own way, and that it is worse for regional news, and so is likely to be even worse in Africa. Much of the value in broadcasting is in social value, and access and inclusion. It fosters culture and enables an informed democracy. It is important that it is paid for – and as part of TMT it could be funded with subsidies from cash-rich telecoms. Sponsorship and advertising revenues do not make it profitable.
a golden opportunity
There is a golden opportunity to redesign the entire TMT sector in most developing nations by:
- Switching to digital terrestrial TV
- Using the next round of spectrum releases to enable the mobile internet
- Implementing national backbones to distribute international connectivity from submarine cables.
Furthermore, universal access obligations (and declarations such as Indaba, on sustainable development) legally and morally compel policymakers to ensure that the internet is available to rural communities.
The first opportunity is to switch off analogue TV. The Regional Radiocommunication Conference (RRC-06) set 17 June 2015 as the switch-off deadline for eastern and southern African countries and 2020 for 30 other countries (which mostly use VHF). Beyond these dates, the ITU will no longer guarantee protection from interference of analogue. Frankly, this does not necessarily amount to much for most of Africa as there is not much analogue TV on air to protect anyway. The real driver is one of spectrum efficiency: more digital channels and spectrum freed up for other uses.
So, more channels and more choice, better quality and cheaper technology make this an easy decision, if the economics work out. Every country can better control their TV platforms, have more local and private sector involvement, less reliance on satellite, and the emergence of a true local advertising sector. Even for the leading countries, such as Tanzania, there is still an opportunity to think strategically about how to use released frequencies.
If the first prize of the switchover is gaining many digital TV and radio channels, frequencies have also been auctioned for mobile broadband, which is the other key prize. I cannot over emphasise how urgently more spectrum for broadband is needed in developing nations, and Africa in particular. But many countries will not meet the 2015 deadline, as they either have no good plans in place or are not concerned about interference.
The third opportunity is international fibre connectivity. This is a game changer. International capacity costs (per megabyte) have already dropped like a stone in many countries as satellite no longer maintains its stranglehold. It is critical that these terabytes of international connectivity are for the many, not the few.
But unlike say the UK, where Ofcom imposed a population coverage obligation of 98% on one of the five winning licensees of its 4G auction, this would be a disproportionate step for most African countries. This is due to the naked mobile problem and because Africa is so large, and why I have also put forward white spaces technology as a candidate for affordable internet services.
And the mindset that TV broadcasting is independent of the mobile internet, which in turn is independent of mobile voice, is sheer nonsense. Even with a one-to-many broadcast, having a return path for interactive communication between a home and the service provider should be a key part of the thinking for a new TMT sector in Africa. Or will many countries choose to pretend these projects are all separate?
The golden opportunity is to design or redesign our TMT sectors and fund them for the long term. It is a marathon task not a sprint and needs much careful planning, one of the many lessons from Europe and policies such as the UK’s Digital Britain strategy, which covered TMT in a holistic and converged manner.
the case for TMT business plans and a digital africa
The case for most African countries having national TMT business plans seems clear-cut in the second decade of the 21st century. It is best practice to have clearly developed and credible business plans to base any significant government spending on. Most African governments have not been able to secure funds for all parts of TMT out of their meagre budgets. Arguably, they need private sector partners who are prepared for the long run – the digital switchover in the UK has been partly financed by the private sector in exchange for contracts extending to 2034.
Regional business plans also make sense when it comes to rolling out fibre backbones. The risks of coordination failure are large, but this is where the benefits and experience of funding agencies such as the World Bank and the Africa Development Bank come into their own. They will certainly be demanding credible business plans. I can think of no better plan than to securitise revenues from natural resources (oil, gas, minerals and metals) in many countries in Africa against TMT business plans.