What’s next for Africa’s Telcos

Africa’s telcos are at once the best and worst investments in Africa tech. On one hand, costs are high, upgrade cycles are shrinking, and there’s competition in every layer. But, they have the largest number of users and sell a product that’s more important than food. Despite anaemic growth, telco bulls believe the trajectory is about to change. That’s unlikely. The reality is somewhere in the middle.

Mobile internet access has transformed Africa. The African consumer is “mobile-only” and more people are online than ever before. Lives have changed, and fortunes have been made. The largest telcos have grown to hundreds of millions of subscribers and more. They have become the largest companies where they operate. For example, MTN is the largest taxpayer in Nigeria (both intentionally and unintentionally). They create good jobs, and have an overwhelming distribution advantage.

All these haven’t helped them recently. Their customers are rejecting high margin voice and SMS, using free alternatives instead. Well-funded fintechs are threatening to turn telcos to dumb pipes. Even worse, the upgrade cycles are accelerating as customer needs are exploding. Telcos are making less money per user as users expectations grow.
Yet, there’s still money in bringing people online. Internet penetration is still less than the global average. 80% of Africa’s mobile connections are of the slower, less capable 2G/3G variety. But, unless there are material changes in cost structure (e.g., Jio or OpenRAN), it’s clear that the next customer will be less profitable for the telcos. Africa’s inequality is well-documented, and the wealthiest people are already online. In a world of declining ARPUs, subscriber growth will not be enough. The future is in value-added services. Besides customer growth, telcos have to figure out how to get more from the customers they have now. Safaricom’s M-Pesa validates the opportunity in high-value financial services. Every telco is asking “Beyond voice, data and phone, how do I get a share of my customer’s wallet?”

That’s the space to watch. Every telco is rebranding from “Telco to TechCo”. MTN went as far as creating a new brand. And then there’s mobile money in Africa’s biggest, poorest and most unbanked market, Nigeria. Smartmoney believes this is an opportunity for the ages. On the back of this, MTN and Airtel have raised money at eye-popping valuations.

Can Africa’s telcos transform from government-protected oligopolies to nimble, responsive technology companies? Can MTN provide a better experience for Nigeria’s SME’s than any of the one million startups doing this? Time will tell, but the telcos will have to win this battle to create any kind of value in the long term.

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