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

Starcomms: Nigeria's Other Mobile Opportunity

During the second quarter of 2008, Nigerian CDMA operator Starcomms became the first Nigerian mobile operator to be listed on the Nigerian Stock Exchange (NSE). The company’s listing came after a private placement exercise that raised in excess of NGN64.5bn (~$550m) from high net worth and institutional investors. The shares have since lost around 40% of their value (as of August 22, 2008), declining from around NGN13 to NGN8 as the company reported a loss for the first half of 2008.

Investor jitters notwithstanding, we believe the Starcomms business carries substantial long term upside and at current price levels, represents a relatively cheap entry point into the growing Nigerian mobile market. 

It is difficult to refrain from using superlatives when discussing Nigerian mobile market growth. Thanks to a mix of intense competition, sensible regulation, scantiness of alternatives and strong demand, Nigerian mobile subscriber market has grown by a compound average of about 70% over the past three years. This is Africa’s largest mobile market in subscriber terms, one that adds 10m-12m new subscriptions annually. 

Starcomms share of the Nigerian active line subscriber market was around 2.4% at the end of June 2008. Such a share would be too small anywhere else, but is relatively solid in a market that generates $6bn-$7bn in revenue each year. The company is the also largest of the non-GSM service providers, with a 34% share of that segment. Starcomms should benefit from persistent medium term growth. The company’s revenue line is already benefiting from this dynamic; first half 2008 revenue rose by more than 100% to NGN17.5bn (US$145m).

 

Beyond the above, we believe the underlying upside for Starcomms is in the company’s leadership position in the mobile Internet access provision segment. Other than mobile voice, broadband access, in our view, is the single most significant Nigerian telecoms opportunity of the next five years.

 

The full Investor Research Note is available upon request to all purchasers of AfricaNext Research reports.

Is Globacom’s Sixth Mobile License Economically viable?

On June 20, Ghana’s National Communications Authority (NCA) announced it had awarded the country’s sixth mobile communications license to Nigerian operator Globacom Communications. Some investors may find it doubly puzzling, first that Ghana would auction a sixth mobile license in a market with a population of 22m, and second that some players would bid as much as USD50m for it. We do not.

From the standpoint of the NCA, we find the transaction highly justifiable. For Globacom, we believe the economics of the deal are questionable, at least on the surface, but there is a “bigger picture” factor that may make it worthwhile. Our analysis makes four main points:

• It has been suggested that it is somewhat excessive of Ghana’s telecoms regulator to award a sixth mobile license. We do not believe it is. 

• Ghana’s mobile market is unusually deep. Market shares have a top-heavy slant, there are few signs of growth softness and existing margins are high.

• In our view, the license fee is a relatively minor issue; the challenge in making the investment viable lies with the Capex requirements of the venture. For this reason, announced investment plans do strike us as mildly excessive.

• Globacom may be enigmatic, but its moves are always underpinned by ruthless business logic; this one is no exception.

Full analysis:Download arn_globacom_ghana.pdf