Recently, we were asked two questions about mobile revenue and how it applies to LTE. Our responses are below.

Why do you think mobile ARPUs vary so much across different countries in Africa?

A big factor affecting ARPU is the level of competition in a given market. With greater competition comes lower tariffs since one operator’s price cut forces others to follow suit. In addition, a person is likely to subscribe to multiple networks – upwards of 6 in places like Nigeria or Ghana. This practice dilutes revenue per that user on a given network, even if overall revenue from that user across all networks is higher. Operators with the best coverage often hold an advantage since a user will stick with them on travels across the city.

I’m under the impression that pricing doesn’t accurately reflect GDP per capita. There are just too many variables and each country has its own history of privatization and government investment. Places like Equatorial Guinea, Gabon, and Angola have high GDP per capita, but lack governments devoted to ICT spending. Nations with just ‘average’ GDP per capita tend to have better-priced mobile data plans. For example, as of July, the cheapest pre-paid plans were in East African markets like Kenya where GDP is average compared to other African nations. However, exceptions are common. For example, in Chad, a country with similar GDP per capita to Kenya, 30MB per day cost $1.51. Tanzania: has similar GDP per capita but 30MB per day costs only $0.32. Niger is one of the poorest countries in the world, but monthly 3G from Orange runs $47 for 4GB whereas Tanzania’s Tigo is $22 for 3GB.

Of course, the interesting part is that increased mobile connectivity translates into GDP growth and job creation in previously under-served areas.

Also, a large number of African mobile operators have limited influence on the mobile handsets sold in the country in which they operate. Distribution channels are largely outside of the mobile operators’ control.

Marketing to upsell services and keep current customers spending on data is challenging. Part of the game is convincing subscribers they need services other than simple voice and limited data. Still, short term promotions have been known to actually hurt ARPU as users don’t end up sticking with the promoted service once the promotion is over. Still, increased VAS and data services will hopefully stimulate increased customer spending even if profits are not yet maximized.

Many markets lack local content and mobile usage revolves around SMS and social networking. Local innovation drives app usage & content access which, in turn, drives data usage and time on a given network.

SIM registrations in countries like Kenya, Uganda, and Zambia also influence the number of subscribers, at least in the short term after these programs are imposed. They tend to remove a substantial number of subscribers who are generating no revenue.

According to analysts, Nigeria’s low mobile Average Revenue per User (ARPU) is discouraging investment in last mile networks required to take internet capacity to the end user. To combat the issue, the Nigerian Communications Commission (NCC) plans to give financial incentives to infrastructure providers. From another perspective, ARPU has dropped due to customers subscribing to even more lines.

Why is there so little 3G and even less 4G than one would expect?

With operations in 17 African countries, Airtel is experiencing a tricky situation in finding profit from 3G services. The company paid a tidy sum for licensing in many countries of operation but now has to cut 3G tariffs to compete with up to 6 other operators (ie. Ghana market). Upfront costs pose a major risk as it could take years to recoup the costs. Airtel currently operates at an overall loss in its African markets.

The promise of 4G fuels nationalism and hope for social change via technology. But in reality, the potential speed and affordability of 4G are not yet available to most Africans. 4G is never as grand as it seems on a billboard or a television advert. Everyday speeds are well below what is possible and coverage can be spotty. In all likelihood, a mobile user in Africa cannot tell the difference between 3G and 4G. Most devices in Africa are still only capable of 2G or 3G. Think Africa Press, referring to Angola’s 4G, aptly notes the nation “might be trying to run before it has learnt to crawl”. Cited are a lack of technicians, unreliable existing 3G coverage, and an erratic power supply.

Still, mobile operators are keen to implement 4G as it has potential to increase declining average revenue per user. It also comes in handy for advertising purposes. After all, telecoms competition is extremely fierce and simply saying “we have 4G” sounds better than “we have 3G” – even if the quality of both services is nearly identical at this time. Many operators in smaller markets are choosing to deploy 4G WiMAX rather than 4G LTE even though the technologies are very different. Others are running 3G via satellite instead of terrestrial fibre.

Many regulators and governments in Africa are limiting the launch of 3G or 4G services. They control the amount of spectrum available along with the licensing process. Even if consumers can afford 4G devices, the proper frequency must first be released by the regulator. Often, the licensing process takes years. My favorite example is Algeria where a 3G licensing auction was mentioned by the government in May 2008, but delayed for years. The government almost pursued 4G technology, but recanted given costs of deployment and the lack of consumer income to purchase required handsets. A launch date for 3G was to be in 2012, but was since delayed to March 2013 (but that date has now passed).

International capacity often dictates whether 3G can be deployed. Coastal nations usually have a landing point for international fibre, but interior countries have had a harder time deploying affordable 3G service as the cost for bandwidth is higher and national fibre backbones are less established. As a result, 3G in places like Niger and Burundi exists, but it is more expensive. Burundi even had multiple operators offering 3G as of November 2011 due to a World Bank investment and fibre connections to coastal East African bandwidth.

Low ARPU, as mentioned above, is surely scaring operators from attempting to launch 4G in most markets. After all, quality of service just isn’t at a level needed for 4G. And the benefits of 4G just aren’t noticeable compared with 3G. Nor are they needed since common mobile data activities include social networking and Internet surfing. Streaming video isn’t as popular in Africa as it is in Western markets. YouTube is growing in popularity, and multiple countries have local pages, but local content is still lacking.

Lack of consumer demand certainly precludes rural areas from getting mobile broadband services. Even 2G coverage is often poor in rural areas. And, many rural Africans have other worries than utilizing 3G capabilities. Farmers are often satisfied with the benefits of SMS. Healthcare is readily improved with SMS as well.

Above all, the availability of electricity is a huge determining factor. Cities like Conakry, Guinea, often have power for only hours a day. Costs of running generators to power mobile towers in Nigeria are lofty. Users often need to seek solar chargers or pay local businessmen to use their chargers.

An absence of telecom competition tends to limit mobile services. Djibouti, Ethiopia and Eritrea, all with telecoms monopolies, are known for poor service. Djibouti launched 3G in early 2013. Ethiopia has 3G but is going to upgrade networks to LTE in the near future. Eritrea is going to deploy 3G, but is in the process of privatization at this time.

In 2013, I’d expect the arrival of 3G in half of countries that currently lack it. Thirty-one African countries had 3G access as of late-2012 and many others had awarded 3G licenses. Expect a new mobile operator in many nations with 3G access. At the same time, expect approximately a dozen African nations to still lack 3G service heading into 2014. Continued testing of 4G in the largest cities will continue for the next couple of years. Improved infrastructure will allow for the service, but only the most affluent consumers will be able to afford it.

Additional ARPU statistics and reports:

African mobile data traffic is expected to grow by 79% annually from 2012-2017. Average Revenue Per User (ARPU) has declined by 10% annually from 2008-2012 (from US $12.20 in 2008 to US $7.90 in 2012) {http://gsmamobileeconomy.com}

MTN Ghana Q3 2012: Data continued to show good growth due to an increased focus on distribution and coverage. Local currency ARPU increased by 2.6% from GHC11.3 to GHC 11.6 over the Q3 due to attractive promotions stimulating improved usage on the network. {http://www.modernghana.com/news/426668/1/mtn-ghana-exceed-subscriber-base-target.html}

One year prior in Q2 2012 there was a decline in average revenue per user (ARPU) from US$7 to US$6.3 in 6 months ending June 2012 (attributed to the entrance of a 6th mobile operator). {http://business.myjoyonline.com/pages/news/201208/91863.php}

Maroc Telecom (Morocco) Q3 2012: Mobile ARPU was down 8.9 percent to MAD 80, while the customer base grew 6.2 percent to 18.022 million. Revenues were hurt by successive cuts in mobile termination rates, a focus on usage-based promos, and lower fixed-line revenues. {http://www.telecompaper.com/news/maroc-telecom-q3-revenues-down-7-on-weak-domestic-market–904887}

Mauritel (Mauritania) Q3 2012: Mobile ARPU improved 14.2 percent from a year ago to MAD 53.6 per month. The reason here is most likely a lack of extreme competition and early stage of mobile adoption (ie. The poorest still do not use mobile phones at all). {http://www.telecompaper.com/news/mauritel-revenues-up-134-to-mad-102-bln–904889}

MTN South Africa Q2 2012: ARPU trended downward. Postpaid average revenue per user (ARPU) continued to trend downward to R265 due to the increased uptake of lower value hybrid packages and telemetry SIM cards. Prepaid ARPU decreased to R92 largely due to the interconnect rate cut and lower marginal prepaid subscribers. Reported blended ARPU was R123. {http://mybroadband.co.za/news/broadband/56923-mtn-boosts-broadband-network.html}

Bharti Airtel Q2 2012: Average revenue per minute (ARPM) fell 4% to 5.4 cents and average revenue per user (ARPU) fell 5% to $6.5 over the preceding quarter in Africa. “There was significant divergence in the performance at the individual country-level. As per our proforma estimates, Bharti Africa witnessed approximately 35% revenue growth in Sierra Leone, Ghana, Uganda, and DRC (together contribute 18% of Africa revenue). However, proforma revenue growth is estimated to be single-digit/negative for Chad, Niger, Seychelles, Madagascar, Kenya, Malawi and Congo B (which together constitute 21% of Africa revenue),” said Shobhit Khare, telecom analyst at Motilal Oswal Securities Ltd, in an 8 August 2012 report. {http://www.livemint.com/Home-Page/7C3Q0y6bW6x8blNcJjvp7K/Bharti-Airtel-Q1-profit-falls-37-misses-estimates.html}