7 July 2017

Africa's Calm Before the Storm - Economic Pressures May Help Create the End of Peak Voice and SMS

Tagged:
analysis

London — A combination of worse economic times and changes in Africa's calling and messaging habits seem to suggest that the market may have reached peak voice and SMS under the old analogue business model. Russell Southwood examines the statistical tea leaves to see what they suggest.

For a number of years I have been asserting that all services will eventually become data and that this transition has already begun in Africa. Currently the evidence of that transition is mixed and I want to try and work out what's actually happening by looking at three different countries: Zimbabwe, Kenya and Nigeria.

Earlier this week the Zimbabwean regulator POTRAZ announced its first quarter 2017 industry stats. On a topline basis, the revenues declined from US$199.2 million in the fourth quarter of 2016 to US$179.8 million. According to the regulator, the decline was due to substitution of voice and SMS services with OTT services like WhatsApp but the regulator rather sensibly observes that the overall impact of OTTs on the performance of mobile operators is expected to continue unless they offer innovative ideas to counteract this competition

Voice revenues, which accounted for 58.9% of mobile operators revenues, sank from 1,069,944,767 minutes in the previous quarter to 993,582,256 minutes, a decrease of 7%. International voice minutes declined by 13.8% from one quarter to the next. Both incoming and outgoing international minutes have been in long-term decline since 2014. By contrast, data traffic has doubled over two years, Q1 2015. Reports based on the stats suggested that SMS had also declined but there are no figures in the report.

According to the first quarter stats from Kenya's regulator, the Communication Authority, the number of voice minutes on incoming by 0.2% and outgoing by 0.9% so a much less dramatic overall decline in domestic minutes. SMS sent has actually doubled in comparison to the same quarter in 2016. And although on-net SMS declined from the last quarter, overall SMS traffic doubled from the same quarter last year. However, international incoming SMS declined by 7.5% compared to the last quarter.

Overall international outgoing voice minutes have grown only a very small amount, 0.6% and although they have bobbed up and down a bit have declined since Oct-Dec 2015. The total used International Internet Bandwidth in the country increased to reach 879.5 Gbps during the quarter under review from 860.5 Gbps recorded in the previous quarter.

So to summarize what's happened in Kenya, a much less clear-cut picture than Zimbabwe but nevertheless a fall in domestic voice revenues, a slight fall in international outgoing minutes but a significant increase in SMS.

Nigeria is affected by a very different kind of decline. According to the regulator NCC, from January to April 2017, the sector lost 3.7 per cent of its active voice subscribers. From 155.1 million at the beginning of the year, it went down to 149.3 million, meaning that about 5.86 million subscriptions were lost in the period.

Similarly, the active mobile internet subscribers suffered the same fate, falling from 91.5 million to 90 million, showing a loss of 1.15 million (1.26 per cent) in quarter one.

But against this decline, data consumption increased dramatically. February 2017 saw consumption of 22,019.66TB, March had 30,627.40TB and April saw 31,160.00TB data consumption, which was a reflection of 41.5 per cent usage increase between February and April 2017.

Without going into great detail, the pattern is completely different in Senegal where both voice minutes and SMS are still steadily increasing.

So what is actually happening? The picture is mixed but the following conclusions can be drawn:

- Africa may be rising but its economies are not. The tightened economy in Nigeria has already led to a significant fall in subscriber levels. The focus on registration has slimmed down the number of active voice subscribers. A tightening economy may also account for the decline in voice and SMS in Zimbabwe. In Kenya, where the economy has been slightly more buoyant, the declines have been less dramatic. But overall there's been a decline in voice revenues. So it may be as much tightening economies as OTT services leading to voice and SMS declines.

- Where the Zimbabwean regulator may be right is that in a situation where African consumers want to spend less money on communications, they will (or likely have already) migrated to OTT services for voice and messaging. The limitation on this migration is that those with basic phones cannot join the party. However, static international voice revenues with declining margins and static or declining voice revenues will affect those countries with the highest smartphone penetration first.

- Data continues to grow and the Nigerian figures are astounding placed against the backdrop of an economy near the bottom of whatever economic cycle is happening. The difficulty for operators is that data has significantly less good margins than things like SMS. And these reduced data returns will somehow need to finance networks designed to carry high-volume data throughput rather than voice. The market carnage from these issues is best exemplified by Etisalat Nigeria, which was one step away from bankruptcy and is now in the sick bay awaiting attention.

The transition to OTT services using data in Africa will creep up on operators and the process will be accelerated in those countries where their economies have gone into decline.

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