Africa’s Mobile Broadband Market to Grow Exponentially by 2011

Posted by Staff Writer on Monday, August 10, 2009 at 7:01pm.

The Africa region has the fastest growing mobile phone penetration rates in the world.  A recent report by Delta Partners, a leading management advisory and investment firm, says that mobile broadband is an industry about to explode and will grow exponentially over the next 2 years.

The lack of fixed infrastructure coupled with high costs of service has severely hampered the development of broadband, particularly in Africa in the past.  Also, due to coverage restrictions and lack of bandwidth, large parts of the region still witness connectivity delivered via satellites.  However, there are 10 undersea cables either under construction or in the planning stages, which could push down international bandwidth rates.

Furthermore, mobile operators aggressively developing their 3G networks to go beyond their core voice offerings will result in enhanced availability of high speed networks.  Broadband is increasingly seen as the growth driver for mobile operators and the mechanism towards creating the stickiness factor particularly for retaining high value customers.

“We believe that nearly 70% of the broadband subscribers in the Middle East and Africa Regions (MEA) will in fact be delivered over wireless networks by 2011 up from about 38% today,” says Joao Sousa, Partner at Delta Partners.

“This will translate into a significant growth potential for mobile broadband in MEA, with subscribers expected to grow from 2.5m today to about 40m in 2011. With an average revenue per user (ARPU) rate of $10-15, this will represent a market worth around $6 billion in 2011 vs. $1 billion today,” he adds.

However, key risks exist especially due to the large investment requirements.  This is particularly true for late entrants who struggle to capture minimum scale in order to recover their investments.  To be able to drive success, the late entrant broadband player would need to adopt a clear set of initiatives.

“There are a few success factors operators should consider, such as gaining access to international connectivity at competitive prices, an efficient network operation and developing an effective go-to-market approach,” says Sosa.

“Operators can invest in undersea cable projects to ensure competitiveness, make informed urban/rural rollout decisions and even consider 3G network sharing in some regions. Setting up a dedicated customer care channel and targeted value proposition can also go a long way in ensuring customer development and retention. This is especially important as high value customers in MEA tend to constitute only 10-20% of the subscribers but 50-60% of the revenues,” he further adds.

The report also warns that a competing technology could emerge.  Voice over Internet protocol (VoIP) from companies such as Skype, which offers free in network calls to its members, could easily capture a large share of this market if mobile operators arent ready to provide more value for their subscribers.