Intelligence Brief: Market forces won’t move Africa into the Digital Age

Intelligence Brief: Market forces won’t move Africa into the Digital Age
Source: Kenechi Okeleke, Lead Analyst, GSMA Intelligence
Date: 29-07-2018 Time: 09:07:48:am
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Last week I attended the GSMA Mobile 360 Series Africa event in Rwanda. Around 850 attendees from 54 countries and across the mobile ecosystem came together at the Kigali Convention Centre to discuss the region’s digital future. Although the theme of the conference – Who will lead the digital revolution: the people or the technology? – attracted considerable debate, it soon became clear that closing the region’s digital gap is crucial to scaling the digital revolution and that market forces alone cannot achieve this.

Mobile lays foundations but digital divide remains

Mobile technology plays a central role in Sub-Saharan Africa’s digital landscape. Mobile internet subscriptions have quadrupled since the start of this decade and mobile-enabled services such as mobile money, which now boasts more than 120 million live accounts, continue to grow rapidly. In 2017, the region’s tech startups, which predominantly create and distribute content over mobile platforms, raised more than half a billion dollars in funding.

However, the region risks becoming a two-tier market, defined by a growing divide between the digital ‘haves’ and ‘have-nots’. 800 million people, around four fifths of the population, remain offline and could miss out on the emerging digital economy. Meanwhile, the growth rate for mobile internet subscriptions fell by 10 percentage points between 2013 and 2017, compared to the previous four years, despite only 1 in 5 people in the region owning a subscription. In a keynote, Rob Shuter, group CEO of MTN, highlighted the scope and scale of bringing the region’s unconnected populations online, from providing cost effective rural connectivity and affordable services for entry-level consumers to building relevant services to run on mobile platforms and the need to educate large portions of the population on how to use digital services.

Market forces can’t do it alone

There is no one-size-fits-all approach to closing the digital gap in Africa given that the regulatory, market, and macroeconomic contexts of the 40 plus countries in the region vary considerably. However, one common thread across the region is that market forces alone cannot address these challenges. Chairperson of Alliance for Affordable Internet (A4AI), Dr Omobola Johnson, estimated that around $10 billion would have to be invested annually over the next 10 years to achieve universal coverage (see image below, click to enlarge). This would amount to $100 billion over the period, compared to the cumulative capex of $70 billion invested by mobile operators over the last decade.

The limits of market forces reinforce the need for governments to facilitate the inclusive growth of the digital economy by intervening in certain areas, as highlighted below:

Spectrum – a first step for governments is to make spectrum for mobile broadband available, and at terms that can encourage cost effective network rollout. A GSMA Intelligence study on spectrum prices in developing countries found that mobile operators in these regions pay effectively three times more for spectrum than in developed markets. The study drew a link between higher spectrum acquisition costs and poor coverage for end users, underlining the urgency of improving access to spectrum in the region. A change in perception of spectrum, from a resource to extract maximum short-term financial value to an asset that can facilitate connectivity and enable the digital economy, is essential to implement spectrum policies that support cost-effective connectivity.

Incentives for network rollout – While some governments have used financial and non-financial incentives in the past to support rural rollout, such as tax incentives on network equipment, universal service funds, permission to use public infrastructure for network deployment, and providing right of way for cellular towers and fibre deployment, they have been rare, sub-scale and resulted in limited impact. Adopting a deliberate approach to the utilisation of incentives, with well-defined objectives to reach unconnected areas, will help maximise the potential of network rollout incentives to enhance coverage.

Enabling regulations – Cost-effective infrastructure rollout in rural areas requires new and unconventional coverage solutions, some of which rely on enabling regulations to implement. Many governments in the region now allow passive infrastructure sharing, which has taken off in the region; independent tower companies now own around 40 per cent of the region’s 125,000 telecoms towers, and provide co-location services to mobile operators. However, there is still some way to go in allowing active sharing to improve spectral efficiency and harmonising regulations across sectors to encourage innovations and partnerships on more efficient coverage solutions. In Kenya, Telkom and Google’s Loon partnership to deliver 4G connectivity to rural areas using the internet balloons relies on the harmonisation of telecoms and aviation regulations.

Consumer barriers – A UN report, published in July 2018, found that in the least developed countries, many of which are in Sub-Saharan Africa, the rate of broadband adoption is slowing even in areas with infrastructure coverage. This is in line with GSMA Intelligence analysis of mobile internet coverage and adoption, which shows that around two-thirds of unconnected people globally live within a 3G or 4G network coverage. This underscores the impact of affordability, content relevance and digital skills on the demand for digital services, especially in developing regions. Most consumer-related barriers are structural and could take years to overcome (for example income inequality or low adult literacy rates). However, there are quick wins that have an immediate positive impact on mobile adoption. These include eliminating sector-specific taxes on mobile services and devices, which often have a disproportionate effect on consumers in lower income brackets, and digitising public services to create relevant online content for users.

Mobile operators’ direct investment in infrastructure and services, driven by market forces, has proven effective in laying the foundation for Africa’s digital revolution. However, the increasingly challenging economics of bringing unconnected people online, given the socioeconomic background of the region, makes government intervention inevitable for the region to realise the benefits of the digital age.


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