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Investing in Africa tip one: Be innovative on pricing

EE is introducing the UK's first 4G PAYG plans

The first in our series of tips for potential investors in the African telecoms market. Here Informa Telecoms & Media reveals that operators that employ a lean, efficient business model will be best-placed to run a profitable operation on low tariffs.

Mobile tariffs in much of Africa are high compared to those in some other emerging markets. For example, Zain Kenya’s lowest tariff is about $0.04 per minute, for on-net calls. Compared to India, where Reliance Communications offers tariffs that are as low as $0.01 per minute, for both on-net and off-net calls.

The fact that tariffs in Africa are relatively high is reflected in ARPU levels. In 4Q09 blended monthly ARPU across Africa as a whole was $10.49 – but in India blended monthly ARPU in 4Q09 was much lower, at just $2.73, and falling.
According to Informa’s principle analysts, Nick Jotischky and Matt Reed, operators that employ a lean, efficient business model, like that pioneered by operators such as India’s Airtel, which is known for its extensive use of outsourcing to keep operating costs down, will be best-placed to run a profitable operation on low tariffs.

However, it has to be said that mobile tariffs have already come down in many African markets in the past couple of years as competition has intensified, often because of the debut of new operators. And usage in Africa has increased over the past couple of years too, from 131 minutes per month per subscription in 4Q07. But Africa’s MoU is half that of India’s, which does suggest that there is potential for substantial further growth.


Source: Intelligence Centre

African operators are probably best advised to avoid getting into the kind of price wars that are taking place in the Indian market. ARPU in India has halved over the year to end-2009 and operators’ profits are being squeezed. Rather, African operators should aim to demonstrate more of the innovation in pricing that is already evident on the continent through plans such as Zain’s One Network, which allows subscribers to pay local rates when roaming, and MTN’s MTN Zone, a dynamic tariff plan that charges lower rates when the network is not busy. Kenyan operator Safaricom also operates a dynamic tariff scheme called Supa Ongea and says that the discounts available through the plan can bring the cost of on-net calls down to as low as about $0.01.


2 comments

  1. Adebayo O 29/03/2010 @ 3:20 pm

    Innovative pricing, I have to agree but I think probably more important is SIMPLICITY in pricing. Finding ways to make subscribers pay a uniform tariff for various types of services makes them more willing to use the service than having to figure out what they pay for a particular service, hence limiting its usage. Same local tariff for roaming is just an example of the simplicity.

  2. Zul Javaid 30/03/2010 @ 4:34 am

    It’s difficult to generalize about Africa as it is a collection of markets at varying levels of maturity and regulation, not to mention cost structures. However if we are to consider a 40-50% penetration rate with 3-5 operators and a multi-sim culture as a typical market today, the innovative pricing required at this juncture should be the type that brings a sea-change in the usage patterns of low and middle income consumers. To date, customers in these markets have found the tariffs and accessibility of airtime (i.e. denominations) prohibitive. If operators change their approach to provide ‘all you can eat’ deals for the next 1-2 years, we will see a new relationship develop between users and operators. Users will become used to buying 200-300 MoUs and operators will get used to the sustained cashflows and dependable revenue streams.

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