MTN Group M&A exec discusses the case for broadband investment in Africa

MTN Group Mergers and Acquisitions Executive, Kholekile Ndamase, discusses market consolidation, 5G adoption and powering the "4th industrial revolution”, ahead of his speaker role at TMT Finance Africa in Cape Town 2019:

What’s the business case for broadband services in Africa and how will 5G disrupt the market in the next few years?

Over the next few years we should see an increase in mobile and broadband penetration but in particular I think there will be increasing migration from 2G to 3G technology as the consumer becomes more sophisticated and 3G devices become cheaper.

5G has lower latency and reportedly 10 times the speed of LTE but there aren’t commercially available devices that support 5G as yet and generally a new generation device would be costly at first.

However, there may be a use case for 5G to connect the last mile fibre to the home (or business). If a 5G tower could serve 200 units it would be more cost effective than connecting 200 fibre lines to the units. Having a 5G modem and Wifi in the house would negate the need for 5G devices as all devices have Wifi.

Currently we are seeing companies, mainly in the US and China trialling 5G technology with the commercial feasibility of the technology still under judgement. With the technology in its infancy and the standards still being agreed on as well as business cases for the technology still being developed, I believe that Africa in the short and medium term will benefit more from 3G and 4G adoption to allow the consumer and their needs to become more sophisticated. The value that 5G will add would not necessarily make any difference to the common ways we consume data today due to LTE being sufficient to stream video, but instead would propel technology such as autonomous vehicles, IoT and immersive reality – therefore, I think that 5G would take time for widespread adoption to happen on the continent, apart from a few niche cases where the market is sophisticated enough or there is real impetus from governments.

Taking into account the huge demand for data on the continent, do you think the current level of investment is sufficient?

Much can be done to increase the adoption of mobile broadband in Africa as it is a necessity in the modern age and will essentially power the “4th industrial revolution” and citizens who do not have access to broadband will essentially miss out on an opportunity to increase their well-being as resources, knowledge and power continues to be democratized.

The level of investment by telco’s in Africa will continue as  Africa’s mobile penetration is still lagging at 44%  vs 66% in the rest of the world and the challenge is connecting the remaining 56% while remaining commercially viable.

With the cost of smartphone and smart feature phone devices becoming increasingly cheaper it would be likely that demand for broadband will continue to increase and this will definitely be a good challenge for governments and business to take on.

As mobile and broadband adoption increases the profitability of connecting the next customer will generally start to decrease and telco’s, along with governments and regulators, will have to have a long-term view of the market as having broadband enabled citizens makes them more economically productive. Increasing consumer sophistication, affluency and spend would allow telco’s to have a longer-term view on markets with the aid of helpful and stable government policies.

What role do you think public authorities can play in this matter?

Authorities need to create an environment conducive to the telco business to be an enabler of getting people connected.

Stable government policies would assist with business confidence and allowing businesses to take a longer view with regards to investments in markets and therefore enabling an environment where businesses can invest and get their customers to adopt new technology and sacrifice margins in the short run for longer term payoff.

Better power infrastructure would facilitate more rollout as currently energy is a major opex expense across the continent.

Governments should have a careful plan when considering the licensing questions such as coverage obligations vs license fees vs a fund to finance rural connectivity. If government could forego the immediate remuneration of a license fee and opportunity costs of localisations but instead place reasonable coverage obligations on operators it may be more beneficial in the long run to have all their citizens connected to the digital and have them participating in the digitally enabled economy. Making more spectrum available in certain markets would also reduce network congestion and capex expenditure which will allow the much-needed capital to be spent in the more underserved areas.

Governments could limit taxes on new 3G, 4G and LTE devices to improve affordability and enable the ecosystem that would allow telcos to invest in newer generation technologies. Also, infrastructure sharing should be allowed to reduce the incremental costs of building towers to connect customers.

Getting Africa’s mobile adoption caught up to the rest of the world will need governments and telcos to work together to create policies that would allow governments to reach their objectives of connecting their citizens while remaining commercially viable for telcos.

Who are the leading investors within this market and how is this market changing and consolidating?

The technology of the future will be enabled by 5G. As commercial use of 5G technology is just being trialed and pervasive consumer devices not yet commercially marketed we will see a few innovators lead the push to adopt the technology while the rest of the world waits for the use cases to become clearer and adopts the technology when it becomes commercially viable.

Currently we are seeing a few companies in the US, China as well as MTN and Vodacom trialing 5G technology and Samsung, along with a few other companies, set to launch devices in 2019 with Apple speculated to follow in 2020.

Autonomous vehicle, AR, VR, IoT and enterprise business are industries that will benefit greatly from the increased speeds from 5G technology as it would allow almost real time decisions to be made.

What current opportunities are there for businesses/investors to get involved with fibre and 5G? What infrastructure projects are currently in the pipeline?

Fibre and 5G will open up a whole new experience for consumers with particular benefits that will not necessarily be seen with the way we currently experience the digital world. Industries such as autonomous vehicles, automation of business processes, VR & AR will all be affected, and a whole host of other industries that haven’t been developed yet. For example, 3G made downloading videos on your mobile possible, 4G and LTE made streaming on your video possible, for 5G the businesses models and devices would add similar value for investors and consumers alike.

Increasingly more hardware will become software and more and more applications will exist on the cloud. The lower latency and reported 10x increase in speed that 5G yields over LTE would make it possible for applications and data to exist on the cloud. As an example, this could make the hard drive redundant as consumers would be able to store their data on the cloud and use their data or an application when needed with the seamless experience that hard drives produce today.

What do you think the market will look like next year and in say, five years’ time?

We are currently seeing the trend in Europe for the market to consolidate into three operators as generally there are two operators doing well while the rest struggle. We are seeing much of the same in Africa. Therefore, there is an opportunity for many markets to consolidate.

There is also a trend for companies to sell their tower assets into a tower company. This allows service provider companies to share tower assets and reduce the capital expenditure.

Meet Kholekile and over 250 other TMT M&A leaders and investors at TMT Finance Africa in Cape Town 2019. 

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