Africa Telconomics

Broadband: Africa’s Most Significant Opportunity for Returns since the Mobile Voice Boom

Download africa_broadband_extract.pdf

African broadband business models have long been so dispiritingly brutal that it is hardly surprising that few private service providers have ever created any meaningful value out of them. The similarities with the African mobile voice market of the mid-nineties are uncanny. The expensive services and devices and the cream-skimming business models. The frustrating, persistent and maddeningly self-defeating regulatory roadblocks.

This, in our view, is about to change. We have reviewed Internet and broadband dynamics in 33 African markets and our conclusion is inescapable. We believe broadband services and applications are 12 to 24 months removed from a tipping point, a commercial inflexion point that would lead to a drastic increase in adoption and revenue generation. In essence, we argue that broadband, in its various forms–and other than perhaps, pay-TV- is the most significant opportunity for investment returns in the African TMT sector since the mobile voice boom.

In our new report -3G, WiMAX, ADSL and the Future of African Broadband: Projections, Economics and Best Practices- we argue, among other points:

•  That the future of African broadband will be primarily HSPA and EVDO-based
•  That the death of wireline broadband has been overstated;
• That mobile players will dominate the African Internet space with the same acumen they brought to voice;
• That for all their upside, mobile data models carry worse margins that voice models
• And that contrary to oft-quoted conventional wisdom, the business case for African 3G is as solid as it’s ever been.

 

Download our 16-page Excerpt (including Executive Summary, Table of Contents and more..) - Download africa_broadband_extract.pdf

Rwanda's Third License Opportunity: We Like it – at the Right Price

At the end of June, the Rwandan telecoms regulator, the Rwanda Utilities Regulatory Agency (RURA) invited bids for the country’s third unified telecommunications license. The third license follows the sale of an 80% stake in state-owned operator Rwandatel to Libya’s Lap Green Networks for $100m in November 2007. The market’s other player is MTN Rwanda, which controls around 95% of Rwanda’s mobile subscriber and revenue bases.

The Government of Rwanda (GoR) can hardly be blamed for putting another license in the market. In the Rwandatel transaction (and we suspect, much to the GoR’s happy surprise), the state-owned operation was valued $100m+ higher than in a previous transaction a mere five months earlier. This was largely because of the inclusion of a mobile license as part of the company’s assets. We like this opportunity - as long as the price is right:

• Despite an      already low marginal ARPU, the nearly $100m (2008F) Rwandan mobile market      will generate more incremental cumulative revenue over the next five years      than it has over the past five.
• The overall cost      environment is among the most attractive in Africa for a mobile operation.       
• The challenge      lies with competition. Market leader MTN is entrenched and profitable, Lap           Green/Rwandatel is somewhat unpredictable and      presumably cash rich.

Using a mix of comparable transaction and discounted cash flow analysis, we estimate fair value around $5m-$12m, with a maximum value of $15m-$20m including a “goodwill premium”. Anything above $20m, in our view, is silly money.