Disruption in the Telecommunication Industry: African telecom firms must innovate

By Erukilede Julius - 26 October 2015 at 12:47 pm
The Lukasrand Tower with the Telkom branding is photographed in Pretoria, South Africa, Tuesday Aug. 7, 2012. A government tribunal fined South Africa's Telkom SA Ltd. $54.8 million over a decade long case alleging the company used its monopoly to put unfair prices on its competitors. (AP Photo/Denis Farrell)

AP Photo/Denis Farrell

In 1994 when mobile telephony started in Africa, telecommunication revolved around the rich. Between 1994 and 2014, mobile phone subscribers across Africa rose to 329 million and revenue from voice, message and data crossed $75billion mark in 2013 contributing 5.4% of sub-Sahara Africa GDP. And today, Africa is the largest growing mobile phone continent in the world. However, the past few months have witnessed a period of decline in profit as a result of competitions among the mobile operators and growth in Over-the-top services (OTTs).

Various reports suggest that the worst is yet to come for the industry. According to Detecon Consulting; “OTT services market is expected to overtake the mobile services market by 2021.” Ovum, the London based research firm predicts that the telecommunications industry will lose $479 billion between 2012 and 2020 from customers using over-the-top (OTT) voice applications. Across the continent, services such as Whatsapp, Skype, Facebook, BBM are becoming popular with devastating effect of Telecommunication Companies (telecoms) revenue.

Although mobile operators across Africa initially dismissed the adverse effect of OTTs on their operations, profits in the last few months are declining. In the words of Cell C CEO Jose dos Santos; “I am not concerned about the impact of free WhatsApp voice calls on the company’s voice revenues.” But the reality on ground suggests he over-simplify the threat. The rise in popularity of OTT services is driving down the average revenue per user (ARPU) of subscribers. And “free ride” from OTTs is forcing operators to rethinking their business model making observers to predict that the demise of telecoms in the continent is inevitable if regulators do not step in to save the industry.

Call to ban OTTs

In 2014, Telkom and MTN separately called for regulatory measures that would put an end to the unfair practices of the OTTs providers. According to Richard Majoor, Telkom’s Head of Regulatory Affairs and Public Policy, he suggested; “OTTs providing VoIP telephony services should pay an ‘interconnection surcharge’ like other operators do.” Chris Maroleng, the group executive of corporate affairs for the MTN Group expressed the position of the operators in a simple but direct mode; “they (OTTs) benefit from the infrastructure that has been built by mobile operators. MNOs in Africa have had the burden of investing in Africa and we pay taxes, something that a lot of the OTTs do not do.”

Other proponents of regulatory intervention also point at developments in other parts of the world. In India, the government panel on net neutrality proposed that government should regulate domestic calls made using Internet-based calling applications such as Skype and WhatsApp at par with phone call services offered by telecom operators. The Oman, UAE, Saudi Arabia, Kuwait, Qatar, Mexico, Pakistan have also blocked these service for their government interests. Why can’t Africa introduce measures to protect the industry?

Banning OTTs looks a good idea but analysts’ caution using this strategy. “The use of VoIP will grow increasingly over the next five years to become the underlying technology for delivering voice over telecoms infrastructure,” says Emeka Obiodu, an analyst at Ovum. “Blocking these services, entering into alliances, or trying to out-compete OTT players is not going to stem the tide.”

The Atkearney reports, also debunks the argument that OTTs will wipe-off existing investment of telecoms. The report states that three elements must be in place before mobile VoIP can become a compelling consumer proposition; “a strong, widespread indoor mobile broadband coverage; ubiquitous and interoperable apps in a large share of smartphones and longer-lasting batteries that can handle the power drain caused by active apps.” Fortunately, none of these points are reality in any part of Africa at the moment.

Life is all about evolution.

Few years ago, post offices were the primary means of sending messages. Our post offices were full of activities but now, it has become ghost offices. Technology has changed the way we communicate, rather than posting letters, we rely on voice call, SMS and email as our primary means of communication. Fixed phones and paid call cards have been replaced by mobile phones. In Nigeria, Nigerian Telecommunications Limited (NITEL) became moribund immediately mobile telecoms started operation. Mobile innovation has changed the way we live and caused major disruption in the industry. Great businesses contend with new ideas and that is what makes them strong. It is the duty of Africa telecoms to figure out how they can get around the challenges rather than waste time on ineffective solutions like regulatory protection or outright ban of OTTs on their networks.

With open innovations, our world has become more competitive. The start-up ecosystem across the world is a game changer. To stay ahead of the game, Africa telecoms should start collaboration both vertically and horizontally rather than fight innovations. Experience shows that technology always wins dirty brawls. It always overcomes challenges. For instance, when EcoCash was introduced in Zimbabwe by Econet, the banks put up a spirited fight to sway ‘the intruder’ from their territory. But in the long run, EcoCash won not only the battle but the war. Uber despite the strong opposition it faces in Europe keeps innovating to overcome obstacles. In Germany, it launched UberX as a response to the government’s clampdown.

Assuming that the regulators steps in to help the telecoms, the intervention may be temporal. There are suggestions that we may well be on the road to simless mobile smartphones. Yes, I mean it, simless smartphones! Rather than using the traditional plastic sim, our phones will instead be capable of downloading virtual SIM cards over-the-air via a secure WiFi or dedicated cellular connection. A smartphones with inbuilt chips will likely enable the development of technology that enhances satellite receptor which will allow cheap voice calls and data at a price never imagined in the past. Can Africa prevents the emergence of this technology to protect the telecoms?

Looking Forward

The dynamics of the market has changed, it is time to innovate. It is time for Africa telecoms to change their business strategy and possibly, business models. They must formulate a robust strategy towards OTT growing players in the continent. According to Arthur Little, “great efforts must be taken towards assessment of appropriate value chain positioning, evaluation of complementary service offering compared to OTTs and evaluation of potential OTT partnerships, allowing telecoms to arrive at an optimal strategy in these turbulent times.”

Telecoms must explore the possibility of introducing innovative and customer friendly packages. As it is the case in most parts of the world, it may be a better strategy for telecoms to make SMS free across all networks. This is possible in a collaborative atmosphere. Although, there are economic reasons why this may not be possible but it is pregnant with short term advantages. It may halt whatsapp popularity in the continent since more Africans use it as a message platform.

Telecoms should explore the possibility of offering voice bundles for Skype,Whatsapp and Facebook applications than outright ban of the voice service on their network. Since broadband penetration is relatively low in most parts of Africa, it will be a better strategy to earn some chunks of revenue from users who rely on these applications. For instance, lessons can be drawn from Switzerland’s Swisscom, which launched a simple but novel new mobile tariff based on five download speeds, from 200 kilobytes per second to 100 megabytes per second.

Swisscom creativity tackles most of the problems leading to loss of revenue among Africa’s telecoms. It focuses on speed based pricing by charging its customers according to internet speed effectively removing data free riders who consume an over proportional percentage of data traffic. With this strategy, the company positions its services by focusing on underlying infrastructure, rather than mode of communication. This is a vital lesson African telecoms can adopt especially for telecoms that provides 3G and 4G services.


It is clear that the continent lags behind technologically. We lag behind partly due to the fact that we waste valuable time debating innovations that have already found a market instead of coming up with counter-solutions to protect our territories. Mobile operators should look inwards and invest in incubators and start-up ecosystem springing up across the continent. The OTTs will continue to develop innovative features, increase convenience and enhance customer value beyond price savings. Africa telecoms must respond with their own innovative features and develop frugal ways of managing their operations. Cost overrun will be the tricky and delicate challenge they must solve if they want to remain competitive.

Although the voip battle seems lost, the data battle rages on with the race to make internet free by various organisations. But it is not yet over. Mobile operators across the continent can still reinvent the industry. They must think innovation, sing innovation, play innovation and dance innovation. In the event that they fail to embrace innovation, many of today’s big businesses may end up the way great brands like Nokia end.

Africa government must strike a balance between OTTs that drive lower prices and telecoms infrastructure that facilitates OTTs services without breaching net neutrality. All tax leakages must be blocked. Governments and regulatory agencies need to take action to protect their tax base without harming innovation. With appropriate taxation regime, government can address telecoms concern for unfair competition.

Finally, telecoms must develop a strategy for win-win situation with OTTs through partnership. There is nothing stopping Telckom, Glo, Africell etc from partnering with Iroko, DSTV, Startimes, Altech’s NODE, VIDI, etc to air their contents to homes across Africa. For instance, Vodafone Qatar partnered with ‘Go by OSN’ to give their customers access to a huge selection of movies, music and series. Understanding the OTTs environment through impact assessment of their services and by scouting emerging players, technologies and trends will be integral part of Africa telecos survival. There may not be a better solution to this.

Erukilede Julius

Erukilede Julius

Erukilede Julius is a legal practitioner, entrepreneur and energy professional.

He has over 6 years work experience in law practice, oil and gas industry and environment both in Nigeria and France. Julius is also a consultant on Africa’s economy with special bias for sustainable business models and frugal innovation.

Twitter: @juliusdudu

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