‘Governments in Africa Must Look Beyond Short Term’
In the wake of the recent survey by the GSM Association (GSMA), which saw Africa emerging as second biggest mobile market in the world, coming behind Asia, PETER LYONS, Director of Market Development and Spectrum Policy Africa and Middle East, GSMA, spoke with journalists from Nigeria at the recently concluded AfricaCom in South Africa. YOMI OLUSILE was there. Excerpts:
Can you give an insight to this new survey by GSMA on Africa?
This is the first African Mobile Observatory. The key message now is that Africa has now surpassed Latin America as at October, Africa claimed the number two spot in mobile corrections. Only Asia is ahead of Africa in mobile connection growth rate in the world today. As at last quarter 2011, there are 649 million mobile connections was registered across Africa, which is equivalent to a 65 per cent penetration rate. It is very interesting when you look at six months ago, Africa just crossed the 50 per cent penetration mark. Within 12 months, they went from 50 per cent to 65 per cent. There is no where on Earth that a growth like this is recorded in recent years and it has direct social economic implication. The World Bank has done some research to indicate that for every 10 per cent increase in mobile protection, this correspond to 0.8 per cent increase in GDP.
So, with 10 per cent increase in mobile penetration, we have experience in the last 12 months, a 15 per cent post increase in mobile penetration. This means that between 2010 and 2011, the mobile industry’s growth in Africa has contributed more than 1.2 per cent in regional GDP. Averagely 65 per cent means there is still a long way to go, there is still room for improvement. We have calculated the growing from 65 per cent to 100 per cent penetration. We are actually seeing additional $35 billion in GDP contribution, which is equivalent to an increase of two per cent GDP growth. So, the economic impact of the mobile industry is clear.
I think, in the coming years, it will contribute even more to the economies regionally. There is currently about five and half million Africans employed directly and indirectly in the mobile industry. So one per cent of African adults are employed in the mobile sector directly or indirectly. This number, we expect to increase substantially, as we increase the penetration, not only is there a direct impact, for example on the formal jobs related to the industry but the secondary impact was also felt on other industry, which include more productivity, accessibility to broadband. One of the issues that am very focused on is the issue of mobile broadband accessibility and affordability in the continent.
At GSMA, the belief is that, to achieve this, government must first make available spectrum for mobile broadband and the spectrum that we refer to is the digital dividend. This digital dividend is referred to the spectrum that is currently in use by Television analogue broadcast. The various countries across Africa have different time lines for migration, the broadband television providers from Analogue technology to digital.
Moving from Analogue to digital frees substantial amount of spectrum in a very attractive spectrum band manner, which is what we call the digital dividend. This will allow for more mobile broadband deployment over other areas, because it is a lower frequency band, it actually has better propagation characteristics. The low frequency radio wave travels further with less power required to do so. You can actually cover a wider area with same base station as you would for example if you have 2Ghz spectrum, an higher frequency, that we call LTE, which is the next generation of mobile broadband. The current technology is called the HSPA. The HSPA is broadly available around the world. We expect that by the end of next year, they would be one billion HSPA connections around the world.
This is very significant, because as with any technology, if you want to see broad adoption, lower prices, these has to be some economies of scale in the manufacturing of handsets; network equipment, chips going to these devices among others. When you reach a billion connections, this implies a substantial scale.
When you reach a billion on HSPA, which is 3G technology, you can really offer devices and handsets for incredibly affordable prices. This is very relevant to other parts of the world, sub-Saharan Africa, Middle East, everyone benefits from this economies of scale. It brings the price down and as prices on devices comes down, that of usage through competition comes down as well. I think in Nigeria, there is clear idea of what competition means in the market.
I believe Nigeria has eight mobile license operators. This is remarkable and competition would bring affordability in the usage, economies of scale and that is how the industry can really make impact through connectivity and data connectivity. We expect that by 2015, there should be 350 million LTE connections world-wide and by that same period, there should be about 1.1 millon LTE connections in Nigeria. Two and half million LTE connections would be in South Africa and about half a million LTE connections would be in Kenya.
So LTE has the future. It will be very relevant for Africa. It will aid next generation of mobile connectivity. But to achieve this feat, there must be concerted efforts to make spectrum available for operators in the continent. Various African governments must decide to release spectrum. With the right spectrum and low frequency band, the road for future development will be opened.
Another interesting statistics is that in 2010, the mobile industry accounted for $56 billion of Africa’s GDP, which is equivalent to three and half per cent. Between 2000 and 2008, mobile operators across Africa invested $54 billion in voice network. We predict that over the next four years, mobile operators around the world would have invested over $100 billion in the next generation mobile broadband, HSPAs, LTE and others.
Now this $100 billion is a really large sum of money to invest particularly, when the financial markets are not opened to lending and borrowing. To raise this kind of money for investment, really requires very strong business case for the operators to make and convince the lending banks.
So, government around the world that wants operators to invest $100 billion really should make that process as inviting as possible for the foreign investment. In some countries, for example in South Africa, there are some political influences that may be not create the business environment for foreign investors from participating in deploying next generation approach.
Truly, there is need to open the door, open the economy to bring in these investments because it is very difficult anyway to find the money, the $100 billion, without a favourable environment. One other issue aside spectrum that is important is the issue of mobile specific taxations. This is a problem, though not much of an issue in Nigeria because I believe that Government of Nigerian is not under the same pressure for tax revenue because of the great deal of oil revenue that comes in regularly, but lots of other countries are under pressure to bring in tax revenues. So they look at the mobile sector as a very attractive source of earn revenue.
An example is Kenya. When the government took a total different approach and they said, you know, we understand that mobile is the tool for economic development and empowerment, in 2009, they actually removed Value Added Tax of 16 per cent from handsets. 2011 was very encouraging; mobile penetration was 50 per cent in 2009 and jumped to 70 per cent in 2011. There was a 200 per cent increase in the purchases of handsets, just because of the removal of taxes on handsets.
The 16 per cent tax removal created a huge demand and market for it. So 70 per cent decrease in the prices of handsets and 113 per cent increase in usage. By reducing the 60 per cent VAT, it unleashed incredible amount of growth, not just in the mobile industry, but also other sectors of the economy. Jobs were created. The end of it all was that the whole tax base was increased.
Now by increasing the tax base, in 2011, the total tax intake by the Kenyan government from the mobile industry, actually increase by 30 per cent. So what we are telling policy makers and those in the ministry of finance of the different countries, is that they should look beyond one month, one quarter, one year benefits, but projects on a long-term basis. They could get more benefits in terms of broader tax base; economic growth, employment generation, simply by looking beyond the immediate gains. This is a very important message that government around the world should listen to.
With Africa becoming the second largest mobile markets in the world, the question now is what is actually driving this growth? I would say the first and most important factor is the fact that the handsets, SIM cards and all of the components of mobile service usage have over the past 10 years reached very attracting pricing levels. So we could say that the growth is largely driven by the price. When the prices come down, many more people would be able to afford these services. When the prices are down, there will be more economic growth. More people would be able to afford these services.
So you have declining prices and increasing demand and I think this really met at the right point and just triggered a lot of growth and I would say beyond just reducing the prices from the economies of scale; from GSM, there is also the influx of Foreign Direct Investments over the last five, 10 years. The emerging markets were really hard with issues here and there. So investors were looking at countries like Brazil, Nigeria and South Africa for invesments. There were lots of inflows. The $54 billion invested between 2000 and 2008 was the result of large capital flowing, not just outside of Africa but also from within and to make further investment in the future, I think is not going to be as easy as it were before, especially in fibres and others. So, I think the growth should be protected and stimulated. Investors should be welcomed.
With this growth, do you see Africa being able to sustain it, considering the infrastructural challenges in the continent?
I think majorly, the lack of electricity directly impacts the availability of mobile networks. When you operate a base station, towers, mobile networks without electricity, there will be problem. I think this is an issue broadly across Africa. And in some cases, the infrastructure does exist, for example in Nigeria, it is an interesting situation because where there are all towers and telecoms infrastructure and when the government wants to build roads, digging it and before you know, they cut through a telecoms cable and this affects services.
There is a real rush to build infrastructure. I think telecom is a very important component and you need to have electricity, roads, clean water to drink and to build such infrastructure, it will require investments. I think over the reset 10 years, a lot of projects would need to be faded. Lots of demands for additional infrastructure and all of that. I do think in the big picture, the African story is very positive. To say a simple fact, you have an entire continent with over close to a billion inhabitants.
You have very incredible natural resources, growing investments in telecoms and infrastructure. And you have a lot of growing population that is moving from their rural areas to cities. So there is a lot of change that is happening and I think, if you compare the changes here to other parts, you will see that it is going to be sustainable. I think for example. The political system actually allows for this kind of growth to be sustained. Ultimately, I think that is the real strength.
It is the political system and stability that would guide the growth. Using the Arab uprising as an example, the country that would have more difficulties are those that do not allow for participation in the political system. I think if a country like Nigeria, can maintain the beautiful path it is towing politically now, especially with the new minister, Omobola Johnson, who is forward thinking, I am very optimistic about Nigeria, South Africa and some others. We can get beyond this growth.
In terms of orientation, is GSMA doing anything to sensitise African governments on what should be done to improve the telecommunications landscape?
This is exactly the situation. I think the media are the most important participants in making this message known and understood by the government, because you represent the voice to the outside world. The government must look beyond the short term. There is a sovereignty of governing a state. Nobody can force anybody to do anything. All we could do is make our case, do research and present it.
But, we need to do this again and again until the messages got to the right people. And the commitment of GSMA to this region is to make the message clear as long as it takes, looking beyond the present, focusing on the future, using technology in a more innovative way. It is not just about mobile broadband it is about what mobile broadband allows. We are developing processes at GSMA, the ability to use mobile broadband to boost health, education, financial services. You know in Nigeria, it has become issue recently that why is a country like Kenya would have such a robust implementation of Mobile Money transfer and Nigeria doesn’t. There are so many positive factors that run on top of this, on mobile infrastructure, spectrum, application and others.
There is need to strengthen the foundation, which is already here, ensuring that everybody is connected, that they have a voice, while government will look beyond the immediate term benefits.
As you said sir, countries like Nigeria, must unlock its spectrum resources. How do we do this?
The first step in unlocking spectrum is to find out, what is the spectrum being used currently, who is using it and what is the process to clear that spectrum and make it available for mobile service benefits. So, for example in Nigeria, in the digital dividend of the 800 Mhz band, the reason, the spectrum isn’t just available for tomorrow is because from the 8 mobile operator, you have, majority of them are CDMA operators. Then, the CDMA, you ask, what spectrum are they operating from, it is 850 mhz. The CDMA are right in the middle of the digital dividend bands, so yet, you can move the Television broadcasters to digital and you can open the room, but then you still have the CDMA operators who are sitting there, so how do you move the CDMA operators, actually, Starcomms, which is a CDMA operator, wants to move, they want a transition from a technology like CDMA, which really has no future.
They want transition to LTE, so how do they migrate from the current spectrum that they are using to the digital dividend band. Other CDMA operators are also looking for an exit strategy from the CDMA technology. So am confident that the digital dividend band would be opened. The CDMA operators want to participate in LTE in the future.
But, the question is how soon will that happen and I think this depend a lot on the business of the CDMA operators. My impression is that the CDMA operators are finding difficulties in loosing subscribers, the growth is shifting from CDMA to GSM. But the CDMA operators are very smart and recognised that they are in business to stay in business by having subscribers and ultimately, those subscribers are going to be GSM, HSPA, LTE.
Are you saying that in some future time CDMA may go into extinction?
Exactly, sooner rather than later.
What becomes the future for the GSM technology, when you are canvassing for LTE?
The GSM technology, I mean here, we are talking about $54 billion invested between 2000 and 2008. That $54 billion investment means that the GSM technology would be around for some time in the future. There will always be some components, but what will eventually happen is that the operators who acquired spectrum licenses from government, typically, those licenses specified that if you use this 900 mhz band, you should only deploy GSM technology on it. The trend now, which is a very positive trend, is that the licenses being issued are spectrum licenses, which you can deploy whichever technology you wish on it. So they are no longer restricted to GSM. So you can fund the GSM operators as they have these licenses, they are going to deploy alternate HSPA, LTE technology and virtually over the current technology they are using for GSM.
There is an issue going on in Nigeria over convergence that the NCC and NBC should be merged to be able to have an efficient management of spectrum in the country. How do you think we can achieve this?
Yes. I support this 100 per cent degree. Bringing the regulation of NBC and NCC under one management makes complete sense. This is because you cannot have separate regulation for broadcast and mobile telecom. Spectrum is spectrum and it does not respect geographical boundaries and administrative purported issues.
It doesn’t care, I mean spectrum itself does not care, whether it is respected by either NBC or NCC. And I think it is a very positive step that the minister, Mrs. Omobola Johnson is doing to bring these regulators together to make them one and I think eventually, this will result in the merger and would enable for more spectrum deployment and management in the country. And it is something we commend the minister for, for convergence.
Looking at Nigeria, what is the future of telecommunications?
I believe in Nigeria, what we expect first of all is that, there would be one million LTE connection by 2015. There is still room for growth on even voice services but that the growth that would come must be by the rural means. The question before operators would be how to get coverage to those areas not fully covered now, how much investment would be needed and others. We are sure that Minister Johnson would be able to put in place the right policies to move sector forward. We see more rural coverage possible. We see CDMA operators, those that remain in operation five years from now, would no longer be operating CDMA, no more ecosystem for CDMA, no varieties for them. Eventually, the CDMA operators would migrate to the latest technology and very possible to see consolidation in the Nigerian mobile space. Eight operators are rather on the excessive side. Granted, Nigeria is by far, the most populous country in Africa, but you can look for example the fact that the country like South Africa has 20,000 BTS, serving a population of a quarter of Nigeria. Whereas, Nigeria with the huge population has 15,000 BTS, so how do you reach more people, provide better coverage for the people, with the limitation on base stations, but actually by making more spectrums available, it will enable you cover more areas with fewer base station. Those 15,000 BTS, with the right spectrum can do the job via the allocation spectrum and this come down to the minister and the leadership of NCC. I am confident that they will take the country on the right direction.
Your last word on African telecommunication industry?
I think here, we are at a very critical point, where we run a very steep growth curve. We are going to see, in addition to voice, data accelerating. We are going to see a lot of requirement put on network capacity, availability. And we also see that governments are under pressure to raise tax revenue or even raise revenue through auctioning of spectrum on a very high prices. So you are seeing a sort of different perspective clash, but the government need immediate revenue, but the industry is taking the entire region on a very steep growth curve. I would say that if the governments recognise this growth and would place much significance on it, what they would see is to allow the growth to continue by supporting it, through encouragement for investment. This would solve the problem down the road. The revenue maximization, taxes and fees will not be an issue if they can empower the social economic development through the deployment of mobile broadband and voice networks. I think the lower frequency band are going to be very important. I think you can see lots of jobs to be created. Can you even envision it, if somebody had told you some 10 years ago such a thing as mobile money? This is a new role that is unimaginable. What I think is that there is going to be a new entire job ecosystem, innovation, ideas and others and am very optimistic that lots of opportunities would come and only the ICT can deliver for the young people in the future to come.
There is issue with QoS in Nigeria. What do you think operators in the country can do in this regard?
The issue of QoS comes with the fact that, for example in Lagos, you will see tower here and there. The towers are not necessarily optimised for coverage and the reason for this again is that, if these have a lower frequency with these three towers, they can actually provide coverage. Say you are doing from the airport to another area and previously you are driving on the road and there is no network coverage, may be the call drops three times on the roads, but with the addition of spectrum, you can make more coverage and do the soft hands off between cell sites. This is important for keeping and improving the quality of service.