London — As voice and data prices in Africa continue to come down, its mobile operators have some quite difficult strategic business choices. Some have chosen to diversify their businesses and others are seeking to build platforms - like MTN's Ayoba - to compete with the international OTT operators. Russell Southwood looks at how to make sense of these changes and whether Jio's business model in India provides pointers to the future.
Right from the beginning Africa's mobile operators were faced with some pretty stark questions about what business they were in. Those running MTN Nigeria in the early days ran electrical networks and a fuel delivery business of some considerable scale. But these were businesses that supported the core voice product.
The road started to fork with the launch of mPesa in Kenya in 2007. For several years this was not a hugely profitable business but the key was using the agent network. It gave agents an additional revenue stream and over time Safaricom built it to the point where it is over a quarter of its revenues. It has itself launched other financial products (like Fanikiwa loans) but it has also allowed an ecosystem of other independent providers who have played a key role in driving its growth.
The dilemma for African MNOs is that they now have in broad terms two different businesses: traditional mobile voice (basic phones, non-data users) and the growing data business. However, the latter is growing slowly and will not (with some exceptions) eclipse voice revenues in most countries in 3-5 years. So what's the dilemma, you might ask? Keep the voice business going while increasing the data business.
It's not so simple. Put very crudely, the more mobile subscribers have access to data-enabled devices, the more they use data to make voice calls. Over the past three months I have completed over a hundred calls with business leaders and less than 1% have been using mobile voice: most have been on WhatsApp or Zoom. Put another way, the higher-value mobile voice subscribers are leaving in significant numbers. They are incurring less chargeable voice minutes and are using lower margin data to make calls.
The script for MNO digital transformation therefore either calls for you to sell an order of magnitude more data at low margins to make up the difference or find other revenues. Only those with large data market share can sell at low prices with high volumes.
At the centre of any future digital business strategy is the idea of creating a platform on which people can get all their services and as with mPesa you aim to take a percentage of these mass data-delivered services. With mPesa, the early mover who is prepared to take a long-term risk has the chance of being at the centre of an ecosystem. In old money, this used to be expressed as "owning the customers", now it's much more likely to be about making yourself indispensable to the digital life of your customers. The challenge for the MNOs is that the competition is no longer coming just from other MNOs. It also from the OTT platforms, who themselves want to build mass revenues and ecosystems for their considerable customer bases.
When Herman Singh was at MTN he said that as a mobile operator it faced a stark choice:" Voice, data and text (revenues) will decline. Do we just hand over to the OTTs (the Over-The-Top operators like Facebook and Google)? We need to become OTTs ourselves. The opportunities in the space are awesome".
However, whilst MTN's social platform Ayoba was a good try it does not in the short term have the critical mass needed to become the all-purpose platform it was designed to be. In November last year it had 1 million actives across all of the territories where it had been rolled out. It would need at least five times that number of actives to be at "first base" to claim to be an OTT competitor. To be fair, it has built up over US$100 million in gaming revenues.
But all the while new international social platforms are coming to Africa. Witness the energetic campaigns being run by TikTok and its creatives in the last month. The data shows modest declines in Facebook use in key African countries, while other platforms like Pinterest and Instagram take up a small part of its dominant market share.
Ok, so it's difficult to compete with platforms but why not buy yourself into "mass gateway" business that will set well on your existing platforms like USSD? Or as Orange has done in Europe with Orange Bank and as Safaricom did in January with its purchase of a stake in Circle Gas (branded M-Gas in Kenya), a Pay-As-You-Go cooking gas service.
The problem with buying these business is that they are challenging because they are breaking new ground in fields that MNO managements are not familiar with. Whilst Safaricom launched its e-commerce platform Masoko in 2017, almost three years ago, there is precious little razzmatazz about its user numbers. At a global scale, Orange Bank has struggled to 0.5 million customers, a number that is not really setting the world on fire.
So what has Jio in India to say that might provide light in this darkness? Its business model has the advantage that it started as an all-data player: its voice offer is free. It also offers very low monthly data packages. But if it is a disruptor, it is also one with - until recently - very deep pockets. Its "market grab" strategy has been to strip out the voice revenues of its competitors and build its own data services offers on the back of the kind of data prices Africa can only dream about: its customers have access to cheap GBs of data, not MBs.
It wants to become the "gateway platform" that provides a whole range of digital services. In time, it might even become the Amazon of India as increases its customer base with its new e-commerce platform JioMart (launched in June) in partnership with WhatsApp. It raised US$20.2 billion from 13 investors, more than entire Indian start-up ecosystem raised last year.
You can see how the centre of gravity of the MNO world is shifting as you look at the investors in JioMart. Both Facebook and Google have invested similar billion dollar sums along with General Atlantic, Silver Lake, Qualcomm, Intel and Vista. Now you have to say that one rich man has built a profitable customer base and has used this to attract much bigger investment funds for its new platform. It may or may not succeed but it's an audacious play from a relative newcomer.
You don't yet get the same kind of strategic clarity from African MNOs. To be fair, they operate in smaller, often fragmented markets. But without some of this strategic clarity, they are vulnerable to long-term decline. Small bets on new businesses are not really enough of a sign of changing the future of the business. Am I being unfair?