Marketing Telecom in Emerging Economies in Africa

Subject: Marketing
Pages: 8
Words: 2466
Reading time:
9 min
Study level: PhD

The mobile market in Africa is amongst the fastest growing in the world and most of the African countries have already achieved a three-digit compounded annual growth rate during the last five years. This implies that the prevailing growth rate is not temporary which is evident from the fact that in 2001, Africa turned out to be the first continent where the number of mobile phones exceeded fixed-line phones, which is also true with most of the individual countries in the continent. All countries in Africa have a minimum of one mobile operator. In 2005, the penetration of mobile phones crossed the ten percent barrier and had increased to 13% in the next year while many countries in the continent had penetration levels of over 50%. Indeed Africa is the land of opportunity in terms of the increasing potential for mobile subscriptions and it is expected that by 2012 the continent will lead the world in this regard. It is an emerging opportunity in the face of the recession and increasing oil prices. Although the opportunities for adoption of mobile technology in markets across Africa are innumerable, it is surprising to observe the speed with which operators have become accustomed to the mobile strategies recently. The latest pattern with telecommunication companies is to expand and grow by entering the emerging economies where there is an established and growing need for their services. Those who enter the African market early will grab a bigger share of the cake and will benefit the maximum as the continent prospers in almost all spheres of economic activity.

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As per the Wireless Intelligence Report (May 2208), the number of mobile subscribers in Africa will cross 300 million by 2009 which implies that the continent will surpass the whole of North America in terms of the number of subscribers. It is believed that the industry is worth over a billion dollars if its full potential is exploited. Since most of the clients prefer to go for pre-paid services, the business has excellent cash flows. Africa being an emerging market for the mobile sector offers realistic opportunities and acceleration in growth and has a long way to go in matching the saturation levels of the markets in Europe and North America. This is certainly good news for those wishing to enter the market in view of the opportunity emanating from the large population and the need for penetration. Although considerable potential has been tapped in countries that have high-income levels, such as Uganda, Namibia, Nigeria, and Kenya, the entire continent is a hot market because of the emerging opportunities. There is a huge youth market in view of their propensity to go open heartedly for services such as the internet via mobile, MMS, video on mobile, ring tones, and email (Reed, 2008).

In addition to the increasing competition, there are a number of challenges that new entrants have to face. Issues that need to be immediately addressed relate to the inadequate network coverage, high cost of products and services, technological obstacles, lack of sufficient urban infrastructure, indecisive legislative environment, high levels of illiteracy, and erratic electricity supplies, amongst others.

Just as consumers in Africa were starving at one time for convenience in voice communication before the introduction of mobile phones, so too were they starving in regard to convenient access to internet facilities. The insufficiency in fixed infrastructure and lack of healthy competition in this segment implied that either the service was not available or was too costly to be afforded by the common man. The introduction of 3G services in the region has meant that the market for the internet also is on the verge of the same takeover as was done after the launch of mobile phone services. Subscribers in Africa had been deprived of proper internet access so far and the scarce infrastructure and lack of competition implied that the service was either too costly or inadequately available. 3G services have now been launched in most of the areas and the market for the internet to is on the verge of taking off just as it did for mobile telephones. Such developments have significantly transformed the telecommunications sector in the continent. The increasing demand for internet access in the continent still remains unmet and it is estimated that by 2012 Africa will be a world leader in terms of mobile broadband subscriptions. Mobile companies are anxious to make use of this opportunity and have started to offer mobile broadband as a 3G service after rolling out with their 3G services. The high level of demand in the region for internet access has laid the foundation for the continent to lead the world by 2012 in terms of the increasing proportion of broadband connections that will be mobile. Mobile companies have been showing immense interest to take advantage of the given opportunities by offering as a matter of routine, mobile broadband as the only 3G service after the commencement of such services (Liebenberg, 2009).

In emerging economies such as those in Africa, revenue growth is driven by volumes since lower tariffs result due to price sensitivity. Operators desire operations that are cost-effective which creates pressure on wireless suppliers and vendors of network equipment to reduce the cost of their products, operating costs, and R&D expenses. But such locations do not only become profitable from the perspective of operational efficiencies, they also become attractive in view of the closeness to end markets which implies that as the demand for the services increase, but the adaptation of location-specific functions also becomes cheaper and faster. This also results in cultural benefits by way of local people being able to interact freely and conveniently with local clients (Rice, 2006).

Fundamentally, the demands of end markets have to be met by wireless equipment vendors. As mature markets experience a shrink in the client base and subscriber growth, firms seek to get a larger part of their revenue from emerging markets. Since these markets dictate low-cost operations, vendors of equipment also have to evolve strategies to provide solutions that are cost-effective. In doing so these companies have to associate and collaborate with partners that can exhibit high technical and knowledge abilities, from low-cost locations in Africa. As the business becomes less viable for equipment vendors in well-established markets they start shifting their manufacturing and R&D facilities to emerging markets such as Africa which has the potential to meet the demand. In essence, it is now recognized that the future growth of manufacturers of wireless network equipment rests not only with low costs but also with providing higher values to the customer. The combination of these innovative and qualified resources, along with low costs, will witness an increased reliance on the Africa market in extending the opportunity for vendors of network equipment and services.

The number of mobile subscribers in Africa is soon expected to cross the 300 million mark which represents a steady growth of 45% every year and a rate that has made Africa the fastest growing market in the world for mobile services. The rapid growth of the mobile market in Africa has been primarily driven by the wave of economic liberalization and the pattern of takeovers in the recent past. Examples in point are the takeover of Dubai-based Investcom by MTN of South Africa in 2006 for the US $5-5 billion which made it the biggest group in Africa and the Middle East by way of operations spread in 21 countries. Irancell, the second mobile network in Iran was introduced by MTN in 2006. In May 2007, Etisalat of UAE introduced the third mobile service in Egypt after paying the US $ 2.9 billion to get the license. Etisalat has managed to grow rapidly in Egypt and is now reported to have over a million subscribers.

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Celtel in the entire African region was completely taken over by Zain in 2007 and has now set ambitious targets of increasing its subscription base by more than double by the year 2011. Most of this increase will stem within Africa in keeping with the immense opportunities arising from its emerging economies. Celtel plans to spend enormous amounts in enhancing its networks in Nigeria thus making it the biggest operator in the country. Etisalat has also collaborated in Nigeria with Mubadala, a business house from Abu Dhabi, in introducing the country’s fifth mobile network. Additionally, Etisalat has increased its shareholding by 20% in Atlantic Telecom which is largely present in countries of Western and Central Africa. Etisalat’s shareholding has increased by 17% in Zantel which is the fourth telecom operator in Tanzania. This action will enable Etisalat to confidently enter the larger region of East Africa. New GSM services have been launched in the hitherto ignored and low penetration country of Uganda. In June 2007, Hits Telecom from Saudi Arabia and Warid of UAE launched new GSM services thus increasing mobile penetration in the country (Shankar, 2006).

Telecom opportunities in Africa are now comparatively more expensive and limited as compared to before, yet operators from the west view the opportunity as being very attractive as against scarce options for growth and profitability in their stagnant and matured home markets. After MTN, Vodafone continues to be the second-biggest operator in Africa and has the potential to become the largest if it is able to negotiate a deal for the takeover of Telkom of South Africa. Along with Vodafone, there are other western companies aiming to grab a larger stake in the African market. Activities have been stepped up in the region by Vivendi which is a conglomerate of French Media, Portugal Telecom, and France Telecom. In markets that are not well developed, there is inadequate provision of broadband facilities which implies the existence of a potential for the provision of wireless broadband services as an option. Vodacom and Safaricom have made efforts in this direction by launching 3G services in Tanzania and Kenya respectively.

Presently mobile phones comprise about 90% of all telephone subscriptions in the continent. The mobile market in Africa has been growing steadily by about 55% every year and there is still huge potential for growth in view of the existing penetration in the market standing at just about 30%. However, there are some markets in Africa, albeit very few, that have started witnessing a flattening in their growth curve due to past developmental patterns. There has been a consistent decrease in the tariffs and the launching of prepaid services has resulted in almost 30% of the continent’s almost one billion people being able to afford the use of mobile phones. As more and more low-income groups are targeted to sell mobile phones, the profit margins of operators are expected to decline. Despite such a pattern more and more international operators continue to pay high fees to get new licenses for operating mobile services. Several companies are keen to obtain shares of existing mobile companies in the continent (Cronin, 2006). It is thus clear that there is huge potential in the African telecom sector.

Presently there are over 250 million mobile subscriptions in the continent and revenue figures have crossed the $20 billion mark with profits of approximately $2 billion. Governments of African countries have raked in over $10 billion as license fees for operators starting from 2000. However, taxes on mobile phones are considered to be high in some of the countries resulting in slack growth and the creation of a black market for them. Uganda has the highest rate of taxation in the world on mobile services and phones (Lange, 2008).

Although the highest demand for mobile phones is in the major cities, cellular services are increasingly being used to provide access in rural and other underdeveloped regions. The GSMA Emerging Markets Initiative came out with the Ultra Low-Cost Handset program in order to hasten the growth of the market by reaching out to low-income customers by providing them with $30 handsets. In order to make these handsets available, the Association made an agreement with Motorola. Because the fixed-line infrastructure in Africa is very poor, mobile networks have started to play a significant role in the provision of internet services, especially after the introduction of 3G services in many of the markets, which have also proved to be a new stream of revenue in an atmosphere where the degree of ARPU is very less.

The low density of population in Africa has enabled wireless systems to become less expensive as compared to fixed-line networks. Over and above the mobile services, WLL services have been launched in some countries in providing fixed wireless services. Mobile data technologies have also been introduced in many areas to replace the existing fixed-line infrastructure. In most parts of Africa, it is the mobile network providers that cater to the telecommunication needs of the people since fixed-line communication systems are not well maintained or are not backed by requisite infrastructure.

There is ample scope for the commencement and development of mobile data services which is expected to increase considerably with the consistently growing subscriber base. Operators can thus enhance their revenues and as the market becomes more matured the options for providing other value-added services also increase. In keeping with the pattern of mobile data traffic prevailing in other countries, in Africa also SMS comprised of the major flow of traffic in this regard although since 2003 an up and coming interest is seen in other services such as ring tone downloads, MMS, and logos. After the commencement of mobile data services such as 3G, EDGE, and GPRS, many mobile service providers in Africa have begun to establish themselves as ISPs. Such businesses are very profitable for mobile companies in Africa in view of the huge customer base that they have, primarily those companies that function with company-owned international gateways which enables them to avoid paying to interconnect charges thus saving on their costs. It also offers opportunities to considerably enhance the ARPU and the competition becomes limited in view of the low quality of infrastructure available for fixed-line facilities (Banks, 2008).

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The telecom market in Africa is growing rapidly largely due to the increasing demand for wireless services. Although the subscriber base is increasing globally, the growth rate has become very slow in developed markets primarily because revenue growth in these sectors has become sluggish. The major source of revenue for wireless service providers will now come from emerging economies such as those of Africa in view of the vast customer base that remains to be tapped. The huge volumes drive revenue growth in Africa with low tariffs resulting from demand that is extremely prices sensitive which in turn makes the ARPU decline. In essence, there is an excellent future for mobile companies in Africa, if they are able to deliver lower costs and higher value to the masses.


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