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Competitiveness and ICTs
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COMPETITIVENESS AND ICTS IN AFRICA

Dr Hamadoun I. Touré -  Secretary-General
International Telecommunication Union
Extract from "The Africa Competitiveness Report 2007"

Introduction – Competitiveness and ICTs

As African governments seek to liberalise their economies and integrate them more closely into the global economy, their industrial performance increasingly depends on the competitiveness of the firms serving their markets (both local and foreign-owned). Firm-level competitiveness will define the ability of African economies to grow, create new jobs and increase exports. Competitiveness is vital across all sectors of the economy: African firms face intensifying competition both in their domestic markets, as well as abroad.

Becoming competitive does not mean cutting wages or environmental standards, avoiding taxation or seeking subsidies. All these strategies have been adopted by different countries in the past, but the advantages they confer are at best transient. Rather, becoming competitive means adopting long-term strategies to raise efficiency, boost skill and technology levels and move into higher-value products. Information and Communication Technologies (ICTs) are critical for Africa’s growth. They enable the fast and efficient communications across different countries and different continents that are vital for success in today’s global economy. Not only that, but ICT products are themselves part of the higher value, high-tech products that are growing fastest in international trade and that can sustain faster growth of incomes. ICTs are essential for creating new skills and generating growth and technological change across the whole economy – from agriculture to finance, construction and modern services. It is this dual role of ICTs – as enablers of competitiveness and as key sector in their own right – that makes them vital for the overall competitiveness of nations.

This chapter of the African Competitiveness Report 2007 examines the policy and regulatory landscape that is the foundation for the rapidly improving ICT infrastructure in Africa. Although African governments have already done much to liberalise telecommunication markets (as discussed in Section 5.2.1), encourage investment and promote the technological readiness vital to firms’ survival, more remains to be done. Incentives are needed to build local capabilities and help make local firms become more competitive (as argued in Section 5.2.2). As discussed in Section 5.3, African firms and telecom operators are not waiting for government, however – they understand the importance of technology and, in many cases, they are forging ahead and introducing new communication technologies. Section 5.4 describes the deployment of next-generation technologies in the continent, including 3G telephony, broadband Internet and Voice over Internet Protocol (VoIP).

Indeed, far from being isolated in the global economy, some African firms are already participating in the forefront of technological developments and investment opportunities. One of the striking features of the recent boom in mobile communications is that it is largely African firms – such as MTN, Orascom, or Celtel – that are capitalising on the new investment opportunities. The boom is as much homegrown as it is based on foreign investment, and it is likely to prove more sustainable than previous rounds of investment in the continent.

The challenge for Africa is not whether or not to integrate into the global economy – that is now a given – but how to become competitive within an integration process that is already taking place. Competitiveness can best be achieved through public/private – partnership between firms and government to promote the take-up of new technologies and development of new skills. This chapter provides some insights into how this could be achieved.

1. ICTs and productivity: The Missing Link?

Intuitively, everyone can appreciate the speed, capabilities and power of computers or instant messaging (even if this power is not always realized!). Historically, however, economists have struggled to prove causation between ICTs and improved productivity and economic growth. As Robert Solow famously remarked, "you can see computers everywhere but in the productivity statistics”. Most studies originating in the US on the relationship between ICTs and productivity (see, for example, the series of research by McGuckin & Stiroh, 1998, 2000, 2001) have typically used static growth accounting models to analyse pre- and post-1995 productivity data relative to the number of computers or mainlines (1995 being an arbitrary cut-off point roughly corresponding to more rapid growth of the Internet in OECD countries). Depending on whether cross-country regressions or case studies are used, the variables and time period studied, the definition of the ICT sector and how endogeneity is treated, results can differ widely.

There are at least two reasons why the wealth of research in this field has failed to yield a consistent answer. Regressions have mainly focused on growth in the number of computers or mainlines and have generally failed to take into account the network effects from connecting ICT devices together (which are likely to be sizeable). Furthermore, due to the massive growth in power and speed of ICTs over the last decade, there is likely to be not just one, but several, structural discontinuities in the time series data i.e., data for growth and productivity data for the last decade are being related to ‘computers’ that are fundamentally different from the computers of the early or even mid-1990s. Despite these problems, Fuss & Waverman (2005) note that there is broad consensus that technical advances in the Information Computer and telecommunications sector have led to large direct and indirect benefits to economic growth and productivity. They allow for spillover effects and find some support for modern, high-capacity telecom networks and increased deployment of computers having a positive impact on productivity.

In Africa, mobile phones are the most widely-used form of communications technology (see section "What role for the private sector?"), so the debate surrounding the macroeconomic impact of computers in the U.S. and Europe may be less relevant. Waverman, Meschi & Fuss (2005) examined the specific growth impact of mobiles for both developed and developing countries and found a significant growth impact of mobiles, twice as important for developing countries as in developed. Moreover, they found an important “critical mass effect”, whereby ICTs have a greater impact on productivity and growth, the closer the economy is to near-universal service. Waverman et al (2005) suggest that their amplified impact on productivity may be due to synergy and network effects. Despite some conflicting results (mainly due to the rapidity of technological change), ICTs have been found to improve productivity in several studies, and, more specifically, mobile phones have been found to have a positive growth impact in some African countries.

What role for governments?

Market liberalisation

Traditionally, the role for government in ICTs in Africa has been a very direct one, as owner and operator of the incumbent public telecommunication operator. But this is now shifting as African governments seek, instead, to promote competitiveness by establishing a sound policy framework and stable institutions, some of the defining factors of competitiveness set out in Chapter one . In the increasingly integrated global economy, many African governments have committed to open up their domestic telecommunication market and introduce competition. Half of all Africa’s fixed line markets are now subject to competition (Figure 1, left) and nearly half have private-sector participation in their ownership structure (Figure 1, right). The first privatizations of African incumbents took place in 1995-1997, with a second round in 2000-2001. Today, twenty-five African incumbents have been wholly or partially privatized. Nevertheless, by comparison with other regions, Africa remains the continent with the highest number of monopoly service providers and the lowest proportion of privatized incumbents worldwide.

African mobile markets are more competitive than fixed markets (Figure 2, left) with four-fifths subject to competition in 2006 (Figure 2, right). Over the last ten years, mobile operations that started out as extensions of state-owned incumbents have been transformed through:

  • Licensing of additional operators - as happened, for instance, in Nigeria, with the licensing of three mobile operators in 2001;
  • Sale – for example, the disposal of Telecom Egypt’s mobile subsidiary; and
  • Foreign acquisition – such as Vivendi’s acquisition of 35% of Maroc Telecom in December 1999.

Recent technological advances are transforming telecommunication markets, however, and changing the nature of competition. On the one hand, the migration from circuit-switched networks to Internet Protocol (IP)-based networks is opening opportunities for new entrants to offer new services and challenge established operators. Niche Voice over Internet Protocol (VoIP) service providers squeezing a profit out of the margin between retail and wholesale prices have sprung up in many countries, including Algeria, Kenya, Mauritius, South Africa, Tanzania and Uganda. VoIP traffic in the “grey market” is an alternative form of competition and is driving significant price reductions in international calls across Africa.

However, control of the international gateways is a critical factor in opening up markets. The majority of African incumbents still have only one gateway operated by the incumbent – as, for example, in the Republic of Benin – with little or no competition at this level. A few countries have led the way in establishing more gateways with licenses for mobile operators – Kenya now has over ten international gateways in an open market, with cheaper international call tariffs as a result. Some governments are now pioneering the structural reforms necessary for a sound and vibrant telecom market. Far from resisting VoIP as a threat, countries such as Kenya and Nigeria have opened up their markets to multiple operators and service providers. However, other African countries have also a shown a tendency to backtrack and four of them – Benin, Central African Republic, Sierra Leone and Zimbabwe – have taken steps to repudiate competitive international gateways in recent months.

Incentives to attract investment and build local capabilities

By themselves, however, market liberalization and regulatory reform are not sufficient. They must be matched by incentives to ensure the absorption of technology and development of local capabilities at the firm level. Local capabilities are even more important in an open setting. While some countries have succeeded in attracting investment in labour-intensive activities, this advantage is at best transient – low-skilled labour cannot easily cope with rapid technological change. As wages rise, local capabilities must be upgraded and the skills of the workforce must be developed, if firms are to remain competitive. Technological readiness is one of the nine pillars of the GCI, as discussed in Chapter one.

Governments have adopted a range of measures to promote activities with potential for growth, employment and technology transfer. Asian governments were among the first to pioneer the use of a wide range of fiscal and export incentives to attract investors, but tax incentives are now popular and widely used, including in Africa. Table 1 lists the tax incentives offered by various developing countries to encourage investment and technological upgrading in specific sectors and/or regions – often to attract investment in manufacturing, export and high-tech activities including ICTs.

Tax incentives are often designed to attract large investors and multinationals, for example, in the incentives offered to firms in Free Zones or Export Processing Zones (EPZs). Domestic tax incentives usually apply mainly to large listed companies. Small firms are often more responsive to tax incentives, however, because taxes play a larger role in their cost base and they do not have access to sophisticated tax planning. This is especially important in Africa, where Small and Medium-Sized Enterprises (SMEs) account for most domestic production. Fawzy (2002) notes that tax exemptions in Egypt apply mostly to Free Zone enterprises or publicly listed companies on the Stock Exchange and are enjoyed mainly by large enterprises, hindering the development of capabilities by local firms that is vital for competitiveness.

Many African governments have offered generous incentives targeting high-tech activities. Historically, African countries have tended to rely on tax holidays or exemptions from corporate income tax , in contrast to industrialized countries, which have used investment allowances more widely ( (Morisset & Pirnia, 2000 ). There is evidence that tax holidays are costly to developing economies and ineffective - Rwanda abolished its tax holiday scheme in line with best practice. Mauritius has a favourable capital allowance scheme, with a 25% investment allowance on new premises, plant and machinery and computer software in the first year. Nigeria has also introduced an investment allowance scheme. Egypt has established its Smart Village as a hub for ICT companies to encourage investment in ICT and high-tech sectors. Rwanda’s National Information and Communication Infrastructure (NICI) Plan seeks to promote absorption of ICTs by industry (Box 1). International experience suggests that incentives are best offered on the basis of a sectoral approach. Governments can promote competitiveness by designing a framework of incentives supporting higher-tech activities taking into account of the needs of local firms, as well as large investors.

Table 1: Investment Tax Incentives in Selected Developing Countries

Country
Investment Tax Credit
Accel. Deprec’n
Sectoral incentives
Export incentives
Regional incentives
Loss carry forward
Yrs Tax holidays
Corporation tax rate
Botswana
None
Mining+ cap allowances.
Yes
Duty exemptions
No
5
None
25%
Brazil
None
Yes
Yes
Yes
Yes
4
15
34%
Ecuador
In tourism
5-10%
Yes
Yes
Yes
Not avail.
20
25%
Egypt
None
5-20%
Yes
Yes
Yes
5
5-20
40%
Ethiopia
--
Yes
Yes
Yes
Yes
3-5
1-5
35%
Ghana
None
5-20% pa
Yes
Yes; less
CT in NTE
Yes (-25/-50%)
5
5-10
30-32.5%
Kenya
None
Yes
Limited
Yes
No
Unlimited
10
30-37.5%
Korea
6-10%
Yes
Yes
Yes
No
3
5
15-25%
Lesotho
None
5-25% pa
Yes
Yes
No
Not avail.
None
15-35%
Mauritius
10%
Yes
Yes
Extensive
No
Unlimited
0-10
15-25-35%
Mexico
19-25%
Yes
Yes
Yes
Yes
4
None
34%
Nepal
None
5-25% pa
Yes
Yes
Yes
Not avail.
5-10
20-30%
Nigeria
5-20%
No
Yes
Yes
No
4
3-5
30%
Peru
None
3-20% pa
Yes
Yes
Yes
4
None
27%
Philippine
75-100%
No
Yes
Yes
No
Not avail.
4-5
32%
Rwanda
None
5-50% pa
Yes
Yes
Yes
5
None
30%
Singapore
33.3-50%
Yes
Yes
Yes
No
Unlimited
5-10
20%
Sri Lanka
None
Yes
Yes
Yes
Yes
6
5
30%
Tanzania
None
25-100%
Yes
Yes
Yes
5
2-5@
30%
Uganda
None
5-20%
Yes
Yes
Yes
Unlimited
10
30%
Source: Biggs (2007), adapted from El-Samalouty (2000) and UNCTAD Investment Policy Reviews. Corporation tax rates are sourced from investment promotion agency websites and from KPMG .

Box 1: Rwanda - An inclusive ICT Policy

Rwanda’s Government has developed a National Information and Communication Infrastructure (NICI) Plan as its ICT strategy for the next fifteen years until the fulfillment of Vision 2020. The plan aims to transform Rwanda from an agricultural economy to a predominantly information-rich, knowledge-based economy.
The Plan has a dual focus:
  • To build an export-oriented ICT industry;
  • To use ICTs to boost development in areas such as agriculture, government public service, the private sector and social services, such as education and health.
The government has established a Rwanda Information Technology Authority (RITA) to oversee the implementation of the Plan. The agency aims to create pro-ICT development by pairing local ICT companies with international players and other initiatives, including:
  • Supporting the development of a low-cost computer for domestic use and export;
  • Translating software to Kinyarwanda, the local language;
  • Working with international IT companies, such as Cisco and Sun, to develop training facilities;
  • Examining feasibility of building a national fibre optic backbone to connect public agencies and support e-government applications; and
  • Developing public Internet access facilities.
In terms of supporting structural reforms, Rwanda privatized its incumbent telecom operator Rwandatel in 2005, when it sold 99 per cent of shares in Rwandatel to Terracom, a private investor. Terracom boosted Rwanda’s broadband subscribers from a mere 22 to some 700 in the first eight months of operations and has now embarked on a fibre expansion, laying a national backbone from the capital Kigali to the Ugandan and Burundi borders. 
 

What role for the private sector?

The growing ‘information intensity’ of modern manufacturing means that a range of modern technologies and skills are needed by firms (ILO, 2001 ). The ability to use new ICTs effectively is now common to all activities. In industrialised countries, it is the private sector (mainly manufacturing enterprises) that has been the main source of innovation and new technologies. In Africa, the private sector is also investing to offer African firms and consumers modern communications. However, private sector investment does not occur in a vacuum. As we have seen, governments can establish an enabling environment for investment in infrastructure and incentives to encourage local firms to upgrade their business processes and make them more competitive. New and disruptive technologies pose significant challenges for regulation and licensing that can only be resolved by government working in partnership with the private sector.

African firms and telecom operators are forging ahead with new services and advanced technologies. Arguably, Africa’s greatest success story to date in telecommunications is the remarkable spread of mobile telephony throughout the continent. Africa’s mobile market has been the fastest-growing of any region over the last five years and has grown twice as fast as the global market (Figure 3, left). Africa took over a hundred years to accumulate 28 million fixed lines; an average penetration rate of just 3 lines per 100 inhabitants, and still below 1 in many countries. However, the stunning growth of mobile led mainly by private operators meant that mobile phones overtook fixed lines in 2001 and now outnumber fixed by nearly five to one, with 137.2 million mobile subscribers in 2005. This ratio is even higher in Sub-Saharan Africa, where nine out of every ten subscribers with access to a phone are using a mobile. Mobile penetration doubled from 6.5 per 100 inhabitants in 2003 to 13.1 per 100 inhabitants in 2005. This remarkable growth has been driven by the private sector and is greatest where the mobile market is competitive. Prepaid has also been a major factor in mobile growth, with some 92 per cent of African subscribers using a prepaid package in 2005.

The top ten African markets account for over four-fifths of all mobile subscribers on the continent (Figure 3, right). One quarter of all cellular mobile subscribers live in South Africa, nearly an eighth in the large Nigerian market, while the four Maghreb countries (Algeria, Egypt, Morocco and Tunisia) account for a further third of all African mobile subscribers. It is therefore not surprising that operators from these leading countries also feature in the largest top ten African mobile operators (Table 2). All the remaining African nations together account for just over a quarter of subscribers.

 

Table 2: Top Ten Mobile Operators in Africa

Operator
Subscribers 2006
% change
2005-2006
Revenue
(m US$)
% change
2005-2006
Yearly
ARPU ($)
1. Vodacom (S. Africa)
19'200
+49%
$4'870
+24%
$261
2. Maroc Telecom
10'710
+30%
$1'640
+15%
$153
3. MTN Nigeria
10'376
+24%
$1'460 (05)
+9%
$76 (05)
4. MTN (S. Africa)*
10'235
+30%
$2'780 (05)
n/a
$320
5.MobilNil Egypt
9'267
+38%
$920 (05)
+18% (04/05)
$142
6. Vodafone Egypt
6'615
+60%
$1'019
+35%
$170
7. Méditel (Morocco)
5'155
+28%
$533
+7%
$103
8. Tunisie Telecom
3'265
n/a
$940 (F&M 04)
n/a
n/a
9. Cell C (S. Africa)
2'900
+34%
$862
+33%
$297
10. Safaricom Kenya
2'512 (05)
65% (04/05)
$355 (05)
+43% (04/05)
$141
Source: ITU, from company reports.
* Calculated by ITU – not operators’ official figures. F&M – Fixed & mobile.

During the boom in mobile communications in the last decade, there has been strong competition for investment. Large markets in other developing regions – such as Brazil, India or Thailand – have proved more attractive than African countries, and, as a consequence, African investment opportunities have often been left to African-based investors. This has resulted in the development of strong and resilient operators that are increasingly pan-regional in scope (Table 3). Large strategic investors such as Vodacom, MTN, Orascom and Millicom have been able to transfer the skills and experience gained in their home market to other operations across Africa. In 2005, the seven largest investors (Table 3) accounted for over half (53.3 per cent) of all African mobile subscribers. These operators have witnessed astounding growth in both subscribers and revenues. They remain mostly focused on Africa, but this has not stopped Orascom or MTC (Kuwait’s incumbent, which owns Celtel) from expanding by organic growth and acquisition throughout the Middle East. Now, they are starting to look beyond their traditional markets.

Unlike some operators, they are not saddled with debts from 3G license fees and are free to follow a high-volume, lower-margin strategy. They are now pioneering innovative new services (including mobile banking and instant messaging), payment methods and pricing models. Celtel, for example, has established “One Network” and has abolished roaming charges for customers travelling between Kenya, Tanzania and Uganda. Subscribers can buy airtime in different currencies and transfer it across borders. Celtel has, in effect, created a borderless market for mobile telephony. In 2006, MobiNil introduced an off-peak tariff, per second billing and online payment using credit cards.

 

Table 3: Africa's mobile strategic investors

Strategic investor
Subscribers (000s)
 2006
Subscribers (000s)
 2005
% change
05-06
Revenue (m US$)
% change
 
Yearly ARPU ($)*
African Countries where the Investor has Operations
MTN
23'400
(Mar 2006)
15'600
(Mar 2005)
+56%
$4'545
(Mar 2005)
+21%
$291
Benin, Cameroon, Cote d’Ivoire, Congo, Ghana, Guinea, Guinea-Bissau, Liberia Nigeria, Rwanda, S.Africa, Swaziland, Sudan Uganda.**
Vodacom
23'520
(Mar 2006)
15'483
(Mar 2005)
+52%
$5’328
(Mar 2006)
+25%
$227
Congo (DR), Lesotho, Mozambique, Mauritius, S.Africa Tanzania
Orascom
21'128 Africa
(total 46'522)  
17'500
(total 30’383)
+53% (total)
$3'216
-0.3%
$69
Algeria, Egypt, Tunisia, Zimbabwe***.
 Celtel  
15'270
(Sept 2006) 
5'375
(Sept 2005)
 +184%
$953
+60%
$62
Burkina Faso, Chad, Congo, Congo (DR), Gabon, Kenya, Niger, Nigeria, Madagascar, Malawi, Sierra Leone, Sudan, Tanzania, Uganda, Zambia
Orange
n/a
5'188
(Sept 2005)
n/a
n/a
n/a
n/a
Botswana, Cameroon, Cote d’Ivoire, Egypt, Eq. Guinea, Madagascar, Mali, Mauritius, Reunion, Senegal.
Millicom
12'800 (Sept 2006)
8'929
(Sept 2005)
+43%
$1'084
+6%
$85
Chad, Congo (DR), Ghana, Mauritius, Senegal, Sierra Leone, Tanzania.
Etisalat
n/a
4'534
n/a
$3'512
+23%
$775
Benin, Burkina Faso, Central African Rep., Cote d’Ivoire, Gabon, Niger, Sudan, Tanzania, Togo.****
Total
97'018
72'609
n/a
$18'638
+18%
$145
 
               
               
Source: ITU, abridged from company reports.
* Calculated by ITU – not operators’ official figures.
**Also Syria and Yemen.
*** Also Bangladesh, Iraq and Pakistan.
**** Also Pakistan, Qatar, Saudi Arabia and UAE.

The mobile market in Africa has been a significant contributor to expanding access opportunities to a vast majority of its population. Unlike some mature markets, the African mobile industry enjoys enviable rates of growth (as shown by Table 3). Worldwide, the total number of mobile subscribers was 2.17 billion at the end of 2005 and is projected to surpass 3 billion by late 2007 and to reach 4 billion by 2010 (Figure 4), with 80 per cent of new growth expected to come from lower-income emerging markets.

The future growth potential for mobile communications in Africa lies in making mobile telephony more affordable for the huge untapped market of lower-income consumers. Operators that can follow high volume/low-cost strategies combined with innovative pricing and payment methods stand to make big gains in Africa (as the indigenous strategic investors have proven). Making mobile communications affordable includes reducing both the total cost of ownership (for example, by introducing ultra low-cost handsets at around ten dollars each) as well as cash-flow (“cash-barrier”) aspects. If operators can match payment to incomes through micro-financing, shared phones and micro-prepaid schemes, with low denomination top-ups and balance transfers between subscribers, then rapid growth and large profits can made in the African market. Furthermore, because of the poorly developed state of the personal finance sector in Africa and low level of credit card ownership, there are tremendous opportunities also for mobile operators in exploring new financial services, such as m-commerce, banking and internet access over mobile phones.

For ICTs to have a significant impact on competitiveness, it is not sufficient to simply make information available to firms, factories, farmers and new users – the information must be put to good use. In this respect, African operators are experimenting with new information services to improve productivity and eliminate intermediaries. TradeNet, a software company Ghana, has unveiled a simplified form of eBay over mobile phones for agricultural products across more than ten countries in West Africa. Buyers and sellers post information as to what they are after and their contact details, which are then circulated to ‘matched’ subscribers using SMS text messages in several languages. Interested parties can then contact others directly to do a deal. Similar projects are underway for daily price information for fruit and vegetable exports in Burkina Faso, Mali and Senegal . Such initiatives can improve the flow of business information and help reduce costs and boost profits.

Next generation mobile and Internet access

3G Mobile Networks

While access to mobile communications and the Internet are vital to the competitiveness of Africa’s firms, in the future, the ability to upgrade to high-speed or broadband access will enable them to compete most effectively in the global market. Given Africa’s headstart in mobile telephony, broadband Internet access is most likely to be delivered over a mobile platform than a fixed line. Third-generation (3G) mobile services with higher transmission speeds and enhanced data services promise a range of new applications for users and new revenues for operators. ITU recognises the following 3G services as compliant with the IMT-2000 family of standards:

  • Wideband Code Division Multiple Access (W-CDMA), which can reach maximum data download speeds of 2 Mbit/s when fully implemented. It is sometimes known as UMTS or 3GSM in Europe;
  • High Speed Downlink Packet Access (HSDPA), an upgrade to W-CDMA allowing a theoretical peak downlink rate of 14.4 Mbit/s, although this is not currently widely available on commercial handsets.
  • CDMA 2000 1x, which delivers speeds of up to 144 kbit/s. This does not qualify as “broadband” as it is below the threshold speed of 256 kbit/s.
  • CDMA EV-DO (Evolution Data Only) enhances 1x speeds up to 2.4 Mbit/s
  • Time Division Synchronous CDMA (TD-SCDMA), which has not yet been commercially launched, but may be the preferred choice for 3G systems in China.

3G services have been commercially available since 2001 worldwide and in Africa since 2003, when the first Wireless Local Loop (WLL) CDMA 1x networks were rolled out in Nigeria. South Africa and Mauritius launched W-CDMA networks in 2004, with South Africa already implementing a HSDPA network in 2006. A total of seventeen African countries now boast IMT-2000 mobile networks (Figure 5). Eleven countries have CDMA 1x networks, while operators in Angola, Cote d’Ivoire, Nigeria and Rwanda have launched EV-DO networks (Box 2 and Table 4). Further 3G launches are expected in 2007, including Etisalat and Vodafone in Egypt (in Q1 and Q3 respectively ) and Vodacom in Tanzania .

Box 2: Nigeria - Licensing to create a dynamic market

At the turn of the century, Nigeria had one of the most backward telecommunication networks in Africa. It had just half a million fixed lines and had still not surpassed the symbolic milestone of one fixed line per 100 inhabitants, while waiting times stretched to years and connections were unreliable. The analogue mobile system was very limited and not available outside the main urban areas. In response to the growing need for telecommunications and a modern infrastructure, Nigeria launched the National Telecommunications Policy (NTP) in September 2000.
The government issued a round of new licensing, including:
  • Three mobile cellular licenses in 2001, to MTN, Econet and the incumbent NITEL;
  • A Second National Operator (SNO) license to Globacom in 2002 for all telecom services;
  •  More than a dozen local network operator licenses since 2000.
The results have been dramatic. Teledensity has soared – by June 2006, there were almost 26 million fixed and mobile subscribers with a teledensity of over 22 subscribers per 100 inhabitants. Population coverage of mobile networks has increased from a mere 5 per cent in 2000 to over 75 per cent in June 2006. Nigeria now has some of the most competitive fixed and mobile markets in Africa, with over twenty private operators accounting for nearly three-quarters of the 1.5 million fixed lines in operation at June 2006. Ten operators have launched IMT-2000 compliant CDMA 1x networks (some using Wireless Local Loop, WLL), while the mobile operator Starcomms launched the second EV-DO network in Africa in February 2006.
This startling growth has not been without problems – mobile interconnection disputes have arisen and the privatization of the incumbent NITEL has been subject to repeated setbacks. ISPs have complained about access to backbone infrastructure and the high prices charged by NITEL. However, the Nigerian Communications Commission (NCC) has been proactive in dealing with these issues – it established rates to be followed by the mobile industry. Nigeria also became one of the first countries in Africa to adopt a unified licensing approach in February 2006. In future, NCC will issue unified licenses allowing operators to provide multiple services under the terms of a single license. These will streamline and accelerate licensing procedures and enable operators to deploy new infrastructure and services more rapidly.
 

Table 4: African countries with 3G (IMT-2000) networks

Economy
Technology
Operator
Launch date
1. Algeria
CDMA 1x
Lacom
Algerie Telecom
22 Feb 2006
15 Jul 2004
2. Angola
CDMA 1x EV-DO Movicel Movicel 21 Jan 2004 July 2005
15'483
(Mar 2005)
+52%
3. Cameroon CDMA 1x Camtel 15 Sep 2005
21'128 Africa
(total 46'522)  
17'500
(total 30’383)
+53% (total)
 4. Cote d’Ivoire EV-DO CDMA 1x Arobase Arobase 15 March 2006 27 Oct 2005
10'235
+30%
$2'780 (05)
5. Egypt CDMA 1x Telecom Egypt 15 Jan 2005
9'267
+38%
$920 (05)
6. Ethiopia CDMA 1x ETZ 2 Dec 2004
6'615
+60%
$1'019
7. Ghana CDMA 1x Kasapa 19 Sep 2005
5'155
+28%
$533
8. Kenya CDMA 1x CDMA 1x Papote Wireless Telkom Kenya 29 March 2006 15 Dec 2004
3'265
n/a
$940 (F&M 04)
9. Madagascar 
CDMA 1x
Telecom Malagasy
15 Aug 2005
10. Mali
CDMA 1x 
Sotelma
1 Oct 2005
11. Mauritius
W-CDMA
Emtel
15 Nov 2004
12. Mozambique 
CDMA 1x
TDM
15 July 2005
13. Nigeria
EV-DO
CDMA 1x
CDMA 1x
CDMA 1x
CDMA 1x
CDMA 1x
CDMA 1x
CDMA 1x
CDMA 1x
CDMA 1x
Starcomms
Nitel
Bourdex
ITN
MTS First Wireless
Rainbownet
Intercellular
Starcomms
Reltel Nigeria
Cellcom Nigeria
27 Feb 2006
15 July 2005
14 Aug 2005
15 Aug 2004
15 Aug 2004
1 March 2004
15 Feb 2004
1 Nov 2003
15 Oct 2003
15 Sep 2003
14. Rwanda 
EV-DO
CDMA 1x
Terracom
Terracom
23 Jan 2006
15 Dec 2005
15. South Africa 
HSDPA
W-CDMA
W-CDMA
 MTN
MTN
Vodacom
29 March 2006
15 June 2005
19 Dec 2004
16. Uganda 
CDMA 1x
CDMA 1x
 MTN Uganda
Uganda Telecom
24 Nov 2004
15 May 2004
17. Zambia  
CDMA 
1x Zamtel
15 Sep 2006
Source: ITU, adapted from 3GToday and GSM Association.

Fixed broadband Internet access

Although the major adoption of broadband has been in residential markets, broadband also has a big impact in the business sector, where it competes favourably on price with leased line solutions. Broadband Internet access can give firms access to new markets, improved business information and e-commerce. In 2002, broadband Internet access was commercially available in three African nations. Today, ADSL is on offer in over thirty economies (Figure 6, left). ADSL was rolled out in Botswana in mid-2006 and Ghana in March 2006 and is currently being introduced over Libya Telecom and Technology’s ATM network . Existing operators are investing in extending coverage outside main urban areas to other provinces. In Rwanda, 700 subscribers now enjoy broadband ADSL service in Kiyovu and Terracom is laying fibre in other main towns throughout the country, with ADSL services rolled out in Kigali, Gitarama and Butare in 2006. Efforts are underway to extend broadband outside main urban areas in Uganda .

Broadband speeds and quality are also increasing. Advertised maximum speeds are rarely achieved due to a number of factors , but average speeds are increasing nevertheless (Figure 6, right). In 2003, the maximum speed commercially available was 512 kbit/s. By 2006, ISPs in eighteen African countries had launched commercial offers at 1 and 2 Mbit/s, while the ISP Menara in Morocco offered a 4 Mbit/s service (Box 3).

Although the high-speed broadband access, vital to modern businesses, is now available in many capital cities and major towns, it comes at a high price. The cost of broadband must be evaluated relative to speed, as higher-speed Internet access costs more. Broadband packages for most of Sub-Saharan Africa show that high-speed access is available, but only at very high prices. On average, broadband prices in Africa are three times higher than in Asia (see Figure 8, right chart). However, at least ten African countries now offer broadband at below USD15 per 100 kbit/s per month (Table 5). Broadband is available at semi-reasonable prices in most North African countries (Morocco, Egypt and Tunisia), as well as in Mauritius and South Africa. In Senegal, the low price of broadband has encouraged Internet subscribers to migrate to DSL, with 40 per cent of all Internet subscribers accessing the Internet over DSL in 2004 . In Morocco, the launch of high-speed offers has encouraged broadband subscribers to upgrade to higher speeds (Box 3). However, even these prices far exceed typical European and Asian prices and, in the rest of Africa, broadband access (frequently leased lines in disguise) can cost hundreds of dollars per month, beyond the reach of most small firms and individuals. The effect in terms of skills and training cannot be understated – teenagers in Europe spend many hours online exploring the virtual world and developing IT know-how. Most African teenagers cannot afford the luxury of experimentation time online, however, and cannot develop these skills.

 

Table 5: Ten African countries with lowest broadband prices

 
Economy
Company
Speed (hi –lo) in kbit/s
Price/month (US$)
US$ per 100 kbit/s per month
1.
Morocco
Menara  
256
4’096
89.21
2.18
2.
Egypt
Soficom 
1’024  
2’048
124.36
6.07
3.
Madagascar
Wanadoo
256 
21.40
8.36
 4.
Senegal 
Sentoo
512
1'024
43.59
8.51
5.
Botswana 
BTC
 256
768
75.22
9.80
6.
Mauritius
Telecom Plus
512
1024
51.96
10.15
7.
South Africa
Telkom 
384
1’024
125.24
12.24
8.
Sierra Leone 
Limeline
1’024
2’048
295
14.40
9.
Tunisia
Hexabyte
256
512
37.52
14.66
10.
Cote d’Ivoire
Aviso 
256
2048
301.85
14.74
 
Average – Africa 
various
806
n/a
205.63
 
Average – world
various 
1,958
n/a
76.57
Source: ITU. Prices sampled in July-August 2006.
Note: Réunion had a price of $3.94 per 100 kbps, but is not included here as it is not a sovereign state in its own right.

The limited fixed line network is proving a barrier to more extensive broadband access in some countries, especially in areas outside the major cities. To overcome the lack of underlying infrastructure (including copper telephone lines and coaxial television cable), wireless technologies hold real promise for spreading broadband access. Broadband Internet access is most likely to be achieved through 3G, as mentioned previously. Wi-Fi (or more correctly, Wireless Local Area Networks based on the IEEE 802.11 series) is proving popular for connecting computers to the Internet, but it has only limited range; typically below 100 metres. A related technology, WiMAX, is being promoted as a solution for high-speed Internet access, as it can cover large distances (theoretically, at speeds of up to 70 Mbit/s over 50 km). If WiMAX proves to be a commercial success, it could provide broadband solutions for many developing countries in and beyond Africa, resulting in competition among DSL and cable providers to provide more affordable prices. However, both the technical standards and the likely spectrum allocations for WiMAX remain uncertain for the moment, although there are a growing number of pilot projects.

 

Box 3: Morocco - An African Success Storyy

Morocco initiated market liberalisation relatively early. In mobile communications, it licensed a second mobile operator, Médi Telecom, as early as July 1999. In December 1999, it sold 35 per cent of its incumbent, Maroc Telecom, to Vivendi of France. Intense competition between the two operators led to mobile phones overtaking fixed lines in August 2000, just six months after the second operator had launched its network. By June 2001, Médi had 755’000 customers and a population coverage of 70 per cent. Not to be surpassed, Maroc Telecom responded by investing US$ 275 million in its network and innovating in its price strategy. It achieved a client base of one million customers in June 2000, two million in November 2000 and three million by May 2001. The growth in Morocco has significantly surpassed all its North African neighbours.

Box Figure 1: Evolution in the speed of Internet access in Morocco
Proportion of broadband connections by speed, 2005 and 2006

Source: Agence Nationale de Regulation des Télécommunications (ANRT).
Now, some of the same dynamism is reaching the Moroccan Internet market. Helped by Morocco’s proximity to fiber networks in the Mediterranean, Maroc Telecom and the ISP Menara have launched a range of high-speed packages at comparatively low prices, including the highest speed broadband package in Africa at 4 Mbit/s. Surveys of the residential market carried out by the regulator, the National Agency of Telecommunication Regulation (Agence Nationale de Régulation des Télécommunications or ANRT), show that broadband connections are moving to progressively higher speeds. With nearly 400,000 ADSL connections at the end of 2006, Morocco is the top country in Africa in terms of the total number of broadband subscribers, well ahead of South Africa (although Mauritius had the highest broadband penetration). Broadband now accounts for 98 per cent of all Moroccan Internet connections (including dial-up and leased lines). Broadband connections increased by 58 per cent between 2005-2006, compared to dial-up, which actually lost ground, with a 40 per cent drop. The future of the Internet in Morocco seems to assured.
 

Voice over Internet Protocol (VoIP)

Until recently, the carriage of voice services over Internet Protocol-based networks or VoIP was banned in many African countries, although VoIP technology has been in use in Africa for international calls since at least 1996. Initially, incumbents invested in IP-based networks as a way of reducing their costs, while maintaining prices. Incumbents sought to exploit profit margins between the falling cost of international minutes at wholesale prices, whilst continuing to sell services at higher PSTN prices. Today, over a quarter of African incumbent operators have international VoIP gateways , but the savings they realize on the cost of calls have not necessarily been passed on in full to customers.

Today, retail and wholesale prices have increasingly diverged, due to the introduction of competition that has helped push prices down; the use of IP-based networks that has further reduced rates and growing demand for international calls, mainly from multinational corporations and overseas workers (see Figure 7). The international calling market has been transformed from a low-volume, high-margin market to a higher-volume, lower-margin market.

New entrants are now undercutting incumbents, offering VoIP services over incumbents’ networks or bypassing incumbents’ networks altogether through alternative infrastructure. This has led to a large, “grey market” in VoIP-based calling, with VoIP service providers exploiting ‘arbitrage’ opportunities and squeezing a profit out of the margin between retail and wholesale prices. Bypass traffic in the grey market is estimated at between one-fifth to one-third of overall international call revenue in some African markets . African incumbents have even witnessed declines in their annual international traffic volumes and revenues, as traffic goes over to the grey market. They are faced with the challenge of watching their traffic disappear into the grey market or adopting fresh strategies to attract traffic back to their networks.

Mauritius was one of the first countries to adopt a licensing regime for VoIP services. Today, thirty-six African governments prohibit VoIP adoption except by monopoly incumbents. Seven African countries have now legalized VoIP services (Algeria, Kenya, Mauritius, Somalia, South Africa, Tanzania and Uganda, with VoIP in the process of being legalised in a few other countries, such as Ghana and Nigeria. Despite this, Africa and the Arab states are still the regions most resistant to the introduction of IP Telephony. VoIP is often only legal for operators holding an international gateway license and whilst there are moves to extend these to mobile operators, in many countries, currently only incumbents hold international gateway licenses. New Second National Operators (SNOs), such as Arobase in Côte d’Ivoire, KDN in Kenya and MTN in Uganda, have established IP-based fibre rings in anticipation of wider VoIP liberalisation, but these plans have yet to become fully realised.

International IP infrastructure

It has been argued that IP connectivity will prove as important in the 21st Century as roads were in the 20th Century or railways in the 19th Century. The network of high-speed links for Internet traffic is a critical infrastructure for development and wealth creation. IP networks can carry vast volumes of information in real time and can substitute demand for other types of transport, in teleconferencing or long-distance inspection. IP networks will form the basis not only of Internet access and browsing, but also voice communications (including long-distance mobile voice traffic) and future video communications and entertainment.

For Africa, a continent which missed out on some of the earlier rounds of infrastructure investment, it is critical not to miss out on the next round. In particular, Africa’s future prosperity will depend critically on its integration with the global economy, and this in turn depends partly on its connectivity. At the regional level too, as the post-war experience of Western Europe has shown, greater regional integration, promoted through trade, communication and migration, can promote economic and social development.

How well connected is Africa?  The data for 2005 show that Africa’s 900 million inhabitants (nearly 14 per cent of the world’s population) had access to 19,512 international circuits (i.e. 64 kbit/s circuit equivalents) at the end of 2005 - just 0.16 per cent of the global total of 12.2 million international circuits . Indeed, Africa has fewer international circuits than Ireland, despite the fact that Africa has more than 200 times as many inhabitants. Furthermore, Africa’s lack of connectivity is even more evident when compared with the rapid progress it has made in other ICTs: for instance, in expanding its Internet user base, where Africa accounts for 3.4 per cent of the global total, or mobile phone ownership, where Africa is home to 6.2 per cent (see Figure 8, left chart).

This lack of connectivity means that Africa’s users are starved of bandwidth. This relative scarcity feeds through into higher prices and slower speeds of connection than in other parts of the world, even among other developing regions. As shown below, Africa’s average monthly price for broadband service (US$762 per month) is more than three times higher than the average for Asia and almost six times higher if expressed as a percentage of percentage of GNI per capita (Figure 8, right chart).

Analysis of Africa’s international bandwidth shows that the situation is even worse than it appears. Over a third of Africa’s circuits are dedicated to voice telephone traffic, compared with under 5 per cent for Western Europe. This means that a far smaller share of active circuits is available for IP traffic in Africa. Furthermore, whereas in Europe more than 45 per cent of the available circuits were “idle” in 2005 (usually reducing prices due to overcapacity), in Africa, less than 2 per cent were idle, meaning that African carriers are poorly prepared to respond to sudden surges in demand. As recently as 2002, around 9 per cent of Africa’s international circuits were idle at any one time, but the lack of capacity is now becoming critical.

In summary, Africa’s communication infrastructure is grossly under-resourced and under-invested by international standards. A recent study by DFID, for example, identifies 28 countries that are unconnected to an international fibre connection, with a severe negative impact on the competitiveness of African firms and economies. Conversely, this lack of connectivity could represent an exciting investment opportunity that is potentially very profitable. A summary of the major fibre projects that are currently planned is provided in Table 6. Some of these are in the planning stage while others are seeking funding.

If all the projects shown below are developed and put into operation, Africa will most likely have the necessary infrastructure to absorb future bandwidth demand. Nevertheless, this is not sufficient to ensure that Africa’s carriers and the users of their services will get cheaper prices. Action is needed to stimulate competition and introduce the affordable and high-quality services that are often lacking in markets where transmission capacity is abundant, but controlled by monopoly state-owned telecommunication providers.

 

Table 6: Planned network initiatives in Africa

 PLANNED INITIATIVE
COMMENTS
PROJECTED COSTS
Afritel sub-regional projects (4) 
SRII will link the unconnected countries in the Southern and Central Africa region to a network that will allow them to connect to either or both SAT3 and EASSy.
US$ 172.60m
Intelcom was established to create links between all the capitals of the ECOWAS region member states. It was initiated in 1997, aiming to establish 32 inter-country links in the ECOWAS region.
N/A
COMTEL aims to connect all of the unconnected countries in East Africa, with the exception of Somalia, Mauritius and the Seychelles. 
US$ 250m-270m
Central African Ring. This is a piece of network infrastructure proposed by Celtel. It would be able to link a range of countries including: Kenya, Malawi, Uganda, Tanzania and Bukoba in Eastern DRC.
N/A
East African Digital Transmission Project
The EADTP system was conceived in 1997, and aimed to see the deployment of fibre optic cable and microwave radio to interconnect the three countries of the EAC: Kenya, Tanzania and Uganda.
N/A
COM-7
COM-7 is intended to connect seven countries: Angola, Botswana, DRC, Malawi, Namibia, South Africa, Tanzania, Zambia and Zimbabwe via power/railway lines
N/A
Boucle de Nord
This system is intended to traverse the North African coast from Cairo to Dakar and then cut inland through Mali and Burkina Faso to Kano in Nigeria. From there it would go via N’Djamena and Khartoum to Cairo
US$ 300m
Boucle de Sud
 This system is intended to go south from N’Djamena to Cameroon, Congo-Brazzaville and Equatorial Guinea. It would then take an inland route around the continent and back up to Khartoum via Addis Ababa
NIGEL
The Nigel pipeline project planned by the national oil companies to link Nigeria to Algeria via Niger will also establish fibre links between the three countries using 24 fibre pairs along the 4’200km.
$78m
Infinity West African cable
 This cable is intended to link the remaining West African countries to Europe via marine fibre which would also provide competing infrastructure to SAT-3. 
$750m
  GLO-1
  Owned by GLOBACOM (Nigeria) and being developed by Alcatel, it is planned to connect Lagos with the UK via a 8’600km submarine cable. 
$170m
West African Festoon System
This system is intended to link countries currently unserved by SAT-3, i.e Congo Brazzaville, Equatorial Guinea, Chad, Sao Tome & Principe.
$90m
Source: DFID, Mike Jensen, FiberforAfrica.net, ITU, NEPAD e-Africa Commission (2004) and Pyramid Research (2007).

Conclusions:

Towards a More Competitive Africa As we have seen, Africa’s future growth and success depends on the competitiveness of its firms. Becoming competitive needs a long-term strategy to raise efficiency, boost skill and technology levels and move into higher-value products and processes. ICTs are a vital part of this strategy. ICTs enable rapid communications and can create the new skills essential in modern business. They can generate new growth and technological change across the whole economy – from agriculture to finance, construction and modern services.

This chapter has reviewed the changing policy and regulatory landscape in African telecommunications. African governments have made considerable headway in opening up the telecommunication markets to greater competition and introducing measures to encourage investment and to build local capabilities. The results are promising. African markets have witnessed strong growth, especially in mobile, and the rise of resource-rich strategic investors. Telcos are innovating with a range of different strategies and pricing models to suit consumers. African firms and telcos understand the importance of technology and, in many cases, they are forging ahead and introducing new communication technologies. Far from being isolated in the global economy, some African countries are participating in the forefront of technological developments.

African governments and telcos no longer face the strategic choice of whether or not to resist new technologies – they must instead decide how best to adapt to them. The challenge for Africa is not whether to integrate into the global economy, but how to become competitive within an integration process that is already taking place. The next ten years will prove decisive, in whether Africa is ready to accept this challenge.


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Updated : 2009-01-19