Africa: A Market as Unique as its Landscape

by Chris Goswami, Global Solutions, Openwave

Despite its unforgiving environmental and commercial conditions, Africa holds a wealth of untapped opportunities for growth. But communications providers can't expect to be successful by applying the same business models that have worked in developed nations. In a continent where about 97% of subscribers are prepaid, we've got to examine Africa’s unique communications landscape before we can think about market leadership. Let's start by looking at increased churn and falling ARPU (average revenue per user).

The high levels of churn seen across Sub-Saharan Africa are mainly price driven. Subscribers often purchase multiple SIM cards and will shift to the operator that provides the best deal at the time. This means the most obvious solution is to compete on price. But in other markets such as India, operators weren't able to achieve a net gain just by offering the lowest price — it ended up simply as a race to the bottom, (it is common to have the price per minute equal less than one cent). African operators don't want to repeat that mistake, especially when we can see reduced churn in some parts of Africa such as Kenya, Nigeria, Botswana and Namibia where adequate 3G network coverage enables providers to offer value-added services (VAS).

ARPU also provides some interesting insight into the African market. BMI estimates that ARPU varies from US$2 - US$25 across Africa and has fallen recently at 10% per quarter. The numbers seem grim, but with handsets reaching downwards into social classes with less disposable income, newer subscribers will always have less spending power and will pull the average down.

A second less reported trend has been the increasing “polarization” of ARPUs. Two years ago we were told that ARPUs in this region ranged from US $6-12; last year the range was US $4-17; now it appears to be US $2-25. This increasing separation of lower and upper boundaries is actually a healthy trend, demonstrating that lower social classes are increasingly connected even while data value-added services are on the rise. The upside is that there are new subscribers at both socio-economic ends who can potentially add to overall profits.

So what can we learn from churn and ARPU in Africa? Well for one thing, that VAS is key to user loyalty and that profitability matters more than revenue per user.