The State of African 4G: An Xalam Market Brief - Retail Broadband

> On the surface, 4G service rollout in African markets appears to be going well. Around 115 LTE networks are commercial, or expected to launch in the continent before the end of 2018. On average, since 2015, around 20 new 4G networks launch in Africa every year. The African 4G subscriber base has been doubling every year (though from a small base) and operators are reporting double-digit traffic growth numbers.

> The reality, however, is more nuanced. Despite the positive growth, the African market is falling behind on 4G. The region accounts for ~5% of global mobile broadband connections, but only ~2% of 4G connections. African 4G penetration (of overall mobile subscriptions, or the population) is the lowest in the world, as is 4G network coverage of the population. Spectrum allocation has been a challenge, and 4G business models remain in flux.

> Building on Xalam Analytics' extensive market trackers and 4G dashboards, this report provide the most extensive analysis available on the current state of African 4G markets. It provides insights on the nature, pace and size of 4G deployments, the nature, and value of 4G spectrum used, critical obstacles to African 4G monetization and more.

> The report also explores critical 4G questions, such as the future of Rwanda's 4G wholesale model, the impact of upcoming 5G on 4G, the impact of 4G on operator EBITDA and cash flows and more.

> A reference report for all stakeholders and investors in African mobile broadband markets.

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Market Study ~ October 2018 ~ Xalam Analytics ~ GBP 779

 

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On the surface, 4G service roll-out in African markets appears to be going well. Around 115 LTE networks are commercial or expected to launch in the continent before the end of 2018. On average, since 2015, around 20 new 4G networks launch in Africa every year. Operators are reporting double-digit traffic growth numbers. The African 4G base has been doubling every year, though from a small base.

We estimate the number of 4G connections on the continent at around 50m in 2017, a number which, on current trajectory, should rise to around 90m in 2018. Subject to a variety of assumptions, the number of 4G connections should quadruple to reach close to 350m within the next five years.

So what's the problem?

 

Look deeper, and Africa is falling fast behind the rest of the world on 4G adoption. The region accounts for ~5% of global mobile broadband connections, but only ~2% of 4G connections. Likewise, Africa's contribution to 4G is materially lower than its broader contribution to global GDP, mobile subscriptions, or mobile broadband connections. African 4G penetration (of overall mobile subscriptions, or the population) is the lowest in the world, as is 4G network coverage of the population. Only about 25% of the African population is covered by 4G networks (vs. a 60%+ global average). Around 75% of Africa’s 4G connections come from five countries: Morocco, Tunisia, Egypt, Algeria and South Africa. Only a quarter of the African population even has access to 4G, and when they do, they’re not using it.

African 4G Commercial Availability, 2018

Africa 4G Map

Sources: Xalam Analytics Research; the State of African 4G, 2018

There are other troubling signs. While the rest of the world is pushing ahead with 4G and pushing to introduce 5G, African 3G has remained robust. Data available from a sample of around 20 markets in sub-Saharan Africa suggests that mobile operators have added 20% more 3G base stations than 4G over the past 18 months. This pattern shows few signs of abating and is not necessarily a bad thing.  Today, 3G is the most credible, readily available solution to extend mobile broadband coverage beyond core urban centers in a cost-effective manner. It’s the pragmatist’s solution.

Why is Africa falling behind on 4G?

 

For one, terrible spectrum economics. 4G spectrum allocation has been prolific in financial terms. But it has also been late, dysfunctional, and borderline disastrous for overall 4G market growth. Lower (and more cost-effective) 4G bands are either not available or not clean enough for use. Companies with capital do not have the spectrum. Those with the spectrum do not have the capital; M&A is frowned upon, so they’re generally not allowed to talk to each other. The outcome is predictably damaging. African operators are having to pay dearly for spectrum, only so they can use the most inefficient spectrum bands available to offer 4G services, compounding what is an already tenuous business case.

Africa is also falling behind because of terrible terrestrial fibre economics. In somewhat of an ironic technology twist, high-speed wireless access at scale is closely tied to the availability of abundant, affordable metro and interurban fibre networks. And yet, half of African markets are either strict, or loose terrestrial fibre monopolies. In many markets, critical issues around rights-of-way are essentially crippling the fibre marketplace, with a knock-on effect on 4G adoption. The expansion of satellite-base solution is helping – but this is an issue that cannot be fixed without better fibre economics.

The monetization of African 4G is highly problematic. For our report on the state of African 4G, we analyzed the operational and financial performance of around 70 operators, in 20 African countries, where relevant data is available, including around 20 operators with 4G services. We found no solid correlation between strong 4G adoption and increased mobile operator profitability. Far from helping turn around African mobile operators’ cash flow problems, 4G is making them worse over the medium term.

This is a problem. If stronger 4G adoption does not, in time, translate into better operating margins, its impact on cash flows can be utterly destructive, given the capital costs of purchasing 4G licences and rolling out networks. In our assessment, for many African providers, 4G will ultimately look like 3G did in Europe. A commercial success (in user terms), but an economic failure.

Why this matters – 4G impacts everything

At some level, the travails of 4G may very well not matter. First tier MNOs must deploy 4G to address demand, and because it is central to efforts to transform themselves away from a declining voice business. They mustbuild, even if they lose money doing it. Further, the adoption of high-speed mobile broadband is an entrenched trend; while most projections of 4G connections should have a 10%-20% downside, the broader long-term outlook is consistent.

The problem, ostensibly, is the short/medium term, which we expect to be extremely challenging for the marketplace, as growth falls short and cash flow models get challenged. Over the medium term, this market is just not as big as we all think it is, traffic growth headlines notwithstanding.

This matters because 4G, in essence, impacts everything. It’s a barometer for how fast, and how ready the African market will be in entering the much ballyhooed fourth industrial revolution. 4G adoption is the baseline foundation for cloud services, data center, video streaming, and even e-commerce projections. African fintech is arguably the only sub-segment impervious to how fast 4G grows, as it is not as bandwidth-dependent.

We are already observing the impact of slower than expected 4G adoption on adjacent markets. SMEs sidestepping cloud services because of unavailable, or too expensive high-speed data services. Data center markets operating at 10% of their potential. Video streaming services not picking up as fast as expected, for largely similar reasons. Tighter e-commerce models due to a smaller than expected addressable base.

This will get better, to be sure. But if you’ve been building a business case assuming widespread 4G adoption in Africa over the next 2-3 years, you’re going to have to dial those back.

 

Table of Contents

 

EXECUTIVE SUMMARY - THE DIFFICULT CASE FOR AFRICAN 4G
PART I BREAKING DOWN THE AFRICAN 4G MARKET: STATE OF ROLLOUT, SPECTRUM VALUE, AND ADOPTION
STATE OF ROLLOUT: 100+, UNEVENLY DISTRIBUTED 4G NETWORKS
Africa 4G – More than 100 4G networks are now operational
Africa 4G – Not evenly distributed
Africa 4G network deployment – Increasingly a large MNO game
Africa 4G network deployment – Striking Regional Differences
Africa 4G network coverage – a slow and steady expansion
Africa 4G network deployment – Major pan-African groups are catching up
AN ANALYSIS OF AFRICAN 4G SPECTRUM ALLOCATION
Africa 4G spectrum allocation progress: mostly complete, with lots of work in progress
Africa 4G spectrum allocation progress: roadblocks abound
Africa 4G spectrum allocation progress: a digital switchover failure
Spectrum allocation – an over-reliance on refarming
Showing the money: African 4G spectrum sales have surpassed 3G
Showing the money: Egypt, West Africa make the most of 4G spectrum sales
Africa 4G spectrum value – 800 MHz valued like 2G, 4G pricier than 3G was
AFRICA’S 4G ADOPTION: BREAKING DOWN THE NUMBERS
Africa’s mobile Internet addressable base
Africa 4G Connections – to grow 4x over the next five years
An uneven uptake – African 4G adoption by region, and the West Africa gap
Africa’s top 20 4G markets – a country view
Africa’s top 4G providers – a top line view

PART II ANSWERING CRITICAL 4G QUESTIONS
WHY IS AFRICA BEHIND ON 4G - AND CAN THIS BE FIXED?
African LTE in global context
(Sub-Saharan) Africa is falling behind on 4G
4G coverage and penetration are lagging global trends
Why Africa is falling behind – A financially-prolific, yet disastrous 4G spectrum allocation
Why Africa is falling behind – Inflexible, befuddling and self-defeating spectrum regimes
Why Africa is falling behind – Terrible terrestrial fibre economics
Mobile leased capacity demand rising by ~30% annually
Africa terrestrial fibre – Not competitive everywhere
THE RWANDAN 4G MODEL: SUCCESS OR FAILURE?
The Rwandan 4G case – an overview
The Rwandan 4G case – 4G is here, but nobody’s using it
The Rwandan 4G case: coverage, pricing and adoption
Why the Rwandan 4G model hasn’t worked
DOES THE ARRIVAL OF 5G MAKE AFRICAN 4G MOOT?
The 5G case
The African 5G impact: Not here yet, but already a potential game changer
The African 5G impact – 4G will do fine for now
CAN AFRICAN 4G BE MONETIZED?
The 4G impact on data revenue
The 4G impact on ARPU
4G – not a panacea for mobile revenue pressure
The 4G EBITDA case – for many MNOs, there isn’t one
The keys to 4G success: low spectrum costs, owned fibre, market scale
PART III APPENDIX & TABLES

STATE OF ROLLOUT: 100+, UNEVENLY DISTRIBUTED 4G NETWORKS
Number of Africa LTE Commercial Networks – 2012-2019F
Africa 4G Network availability – December 2018 (Forecast)
Distribution of African 4G Network availability – December 2018 (Forecast)
Number of Africa LTE Commercial Networks by Provider Type – 2012-2019F
Africa Mobile Networks by Region – 2018 E
% of MNOs that have a 4G Network – Regional average 2018 E
Africa 4G Networks by Region – 2018 E
4G network coverage of the population in sample African markets – 2018E*
Number of Africa LTE commercial networks by major operator group – 2018E*
AN ANALYSIS OF AFRICAN 4G SPECTRUM ALLOCATION
Africa 4G spectrum allocation – View by status of the process
Africa 4G spectrum allocation – View by status of the process
Digital switchover status in Sub-Saharan Africa – February 2018
Distribution of Prime 4G LTE Bands – Africa vs. Global (% of Commercial LTE Networks)*
Key Phases of African spectrum licensing
Financial proceeds from 4G spectrum sales across African markets
Median Value for Sample Frequency Bands in African Markets
Median Value by Technology Generation and Spectrum Blocks in African Markets
AFRICA’S 4G ADOPTION: BREAKING DOWN THE NUMBERS
Evolution of African mobile broadband connections – 3G vs. 4G
Regional contribution to 4G and selected macro-indicators
Africa 4G connections and penetration – a country view
Africa Top 20 4G Providers – based on active connections - 2018F
Africa 4G connections by pan-African telco group – 2018F
WHY IS AFRICA BEHIND ON 4G - AND CAN THIS BE FIXED?
LTE Connections Around the World – 2017-18E
Africa contribution to key global industry indicators
Africa contribution to global LTE connections
4G Penetration of mobile subscriptions – How Africa fares vs. the world
4G networks coverage of the population – How Africa fares vs. the world
Nigeria – 800 MHz spectrum allocation vs. Mobile CapEx
Ghana – 2600 MHz spectrum allocation vs. Mobile CapEx
Evolution of Fibre Sites – Sub-Saharan Africa*
Evolution of Mobile Leased Capacity Requirements – Sub-Saharan Africa*
Africa Terrestrial Fibre – Competitive Context Map - 2017 E
SSA Fibre Country Distribution - by Market Context - 2017 E
% of SSA installed fibre - by Market Context - 2017 E*
THE RWANDAN 4G MODEL: SUCCESS OR FAILURE?
Rwanda 4G network coverage vs. African markets - 2018 E
Rwanda 4G adoption vs. African markets – 4G as % of mobile base
Rwanda 4G data pricing vs. African markets – Q4 2018E
Rwanda 4G adoption vs. 3G
DOES THE ARRIVAL OF 5G MAKE AFRICAN 4G MOOT?
Cell site capacity requirements by technology generation
CAN AFRICAN 4G BE MONETIZED?
Data contribution to revenue vs. MBB penetration – 3G vs. 4G MNOs – 2018 E
Evolution of ARPU vs. 4G Penetration (2014-18) – South Africa
Evolution of ARPU vs. 4G Penetration (2014-18) – Zimbabwe
Average mobile services revenue growth – 4G MNOs vs. 3G-Only MNOs
EBITDA margin vs. 4G Penetration – 4G MNOs vs. 3G-Only MNOs
TABLE: 4G CONNECTIONS BY COUNTRY