THE STATE OF AFRICAN 4G

Transcription

1 THE STATE OF AFRICAN 4G AFRICA S MOBILE BROADBAND EXPLOSION TAKES SHAPE A CONNECTING AFRICA WEBINAR OCTOBER 3, 2017

2 1. A STATUS REPORT ON AFRICAN 4G 2. THE AFRICAN 4G SPECTRUM CHALLENGE 3. ASSESSING THE 4G IMPACT: WILL THE DIVIDES DEEPEN? 4. ASSESSING THE 4G IMPACT: PRICING, MODELS, AND OUTLOOK

3 An Acceleration of 4G Network Rollout But It s Early in the Game Number of Africa LTE Commercial Networks F Mapping of Africa LTE Commercial Networks LTE Networks ~70% of African LTE networks have been operational for less than 18 months F Sources: Xalam Analytics Research, GSA, Operator Data ~ 106 LTE networks that are commercial, or expected to launch before the end of network mark to be crossed by the end of the year; The evolution is across Africa - Only ~15 African markets do not have an LTE network or are not expected to have one by the end of this year; We re still in the early stages of a growth phase 70% of African LTE networks have been operational for less than 18 months. Size indicates number of commercial LTE networks Source: Sources: Xalam Xalam Analytics Analytics Research Research, GSA, Operator Data Xalam Analytics LLC

4 African 4G in Global Context LTE Connections Around the World E NA - ~325m* EUR - ~250m ME - ~38m APAC - ~1.1 bn AFR - ~40m* LATAM - ~160m* Sources: NA and LATAM from Ovum and 5G Americas (Q2 2017); APAC, Europe, from GSMA (2016); Middle East and Africa are Xalam Analytics Estimates (Q2 and Q F). Xalam Analytics LLC

5 The Core Opportunity for African 4G Africa LTE Targets From Realistic to Challenging 2G Mobile Internet Customers The Mobile Broadband Base The Unconnected Base The Connected, but Constrained ; ~215m connections (2017 F) ~45% of mobile Internet connections For LTE, a conversion opportunity; The Connected ; ~ m connections (2017 F) ~55% of mobile Internet connections ~85%-90% are 3G-based For LTE, a migration opportunity; The Unconnected ; ~400m-500m voice connections (2017 F) Not connected to the Internet For LTE, a remote opportunity; Xalam Analytics LLC

6 2. THE AFRICAN 4G SPECTRUM CHALLENGE

7 Cost of Spectrum and Concerns of 4G Economic Viability African 4G Spectrum Allocation has not been Effective Nor Efficient Lack of Flexibility of Spectrum Utilization Regimes

8 The Cost of African Spectrum 4G Has Already Surpassed 3G Main Phases of African Spectrum Licensing 3G Spectrum Licensing Phase ~$4bn in Proceeds 2G Spectrum Licensing Phase ~$10bn in Proceeds* 4G Spectrum Phase* ~$5bn So Far *including renewals; proceeds from the 4G licensing phase including 2G licence renewals Source: Xalam Analytics estimates Xalam Analytics LLC

9 The Cost of African Spectrum Not Quite Down Median Value of African Spectrum by Generation Type Price per Pop per MHz per Year $0.014 $0.012 $0.010 $0.008 $0.006 $0.004 Governments are looking to maximize revenue from 4G spectrum Block sales tied to 2G/3G renewals highly preferred; higher value, delay the obsolescence of 2G 4G is valued higher than 3G; when combined with 2G renewals, 4G spectrum is valued at near historical 2G levels Buyers expectations of spectrum value have evolved; spectrum sellers have not. $0.002 $ G Only 2G Renewal + 4G 2G Renewal + 3G 4G Only 3G Only *Based on analysis of 78 spectrum transactions in African markets between 2000 and June 2017; excluding some low-end outlier transactions, mostly in East Africa Source: Xalam Analytics research Xalam Analytics LLC

10 A Fundamentally Urban-Centric Spectrum Allocation Structure Distribution of Prime 4G LTE Bands Africa vs. Global (% of Commercial LTE Networks)* Global Africa Africa has an extremely high reliance on spectrum refarming; 70% 65% African 4G spectrum allocation is highly urban-centric; 60% 50% 40% 30% 47% Less than 25% of African LTE operators have access to sub- 1GHz bands for non-urban deployments; ~20% of LTE networks are TDD-based 20% 17% 17% 10% 9% 5% 9% 7% 6% 6% 6% 6% 0% 1800 MHz - Band MHz - Band 20* 2600 MHz - Band MHz - Band MHz - Band Other Bands *Based on mid to large-scale commercial deployments; some smaller LTE TDD deployments may be omitted; Africa estimates use primary band only; ~20% of networks have more than 1 licensed band, though only one may be operational; another ~15 LTE networks have the 800MHz and the 2600 MHz bands as secondary/tertiary allocations; Global estimates as of Q1 2017; Africa estimates include projections to year-end 2017; Sources: Xalam Analytics Research; Global Estimates from GSA Xalam Analytics LLC

11 A Rigid and Inefficient Spectrum Regime Misallocated? Share of 4G Spectrum vs. Share of Country CapEx 90% Share of Country Mobile CapEx 80% 70% 60% 50% 40% 30% 20% 10% African 4G spectrum owners (red dots) In many markets, ~20%-50% of available 4G spectrum controlled by players with <10% of CapEx; The larger problem is the lack of flexibility in the spectrum regime; no spectrum M&A, inability to trade spectrum, licences tethered to technologies, etc. The lack of flexibility compounds the impact of inefficient spectrum allocation due to cost, legacy allocation issues. A critical obstacle to faster African 4G growth. 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Share of Available 4G Spectrum *Based on 800MHz, 2.6GHz, 2.3GHz spectrum in use, and/or held by commercial operators (Q2 2017);excluding refarming on 1800MHz 2G spectrum; Red dots based on African countries including South Africa, Nigeria, Kenya and Ghana; grey dots based on UK, US, India; US, UK and India spectrum data from Allnet Labs, Ofcom, DOT respectively; CapEx data from operators; Africa data is Xalam Analytics estimates based on operator data. Source: Operators, Allnet Labs, Ofcom, India DOT, Xalam Analytics Research Xalam Analytics LLC

12 3. ASSESSING THE 4G IMPACT: WILL THE DIVIDES DEEPEN?

13 The 4G Divide Risk 1: Africa vs. the World Africa Share of Global Population, GDP, Mobile Broadband and LTE 18% 16% 16% Africa s share of 4G is currently lower than its broader contribution to the global economy; 14% 12% 10% 12% Current projections suggest that 4G share will accelerate to mobile broadband levels; But market constraints create a risk of falling further behind. 8% 6% 4% 5% 5% 4% 2% 2% 0% Share of Population Share of Mobile Connections Share of GDP Share of MBB Connections Share of 4G Share of 4G Sources: Estimates as of Q2 2017; Africa data and projections by Xalam Analytics Research; GDP and population data from the World Bank (2016); Global Mobile Broadband Connections from Ericsson Mobility Report (2017); Xalam Analytics LLC

14 The 4G Divide Risk 2: Urban vs. Rural 3G vs. 4G Coverage of the Population in Sample African Markets 120% 100% 80% Primarily 3G* Rural The concentration of licensed 4G spectrum around upper- GHz bands creates risks of concentration of 4G deployments in urban areas; 60% An implicit ceiling for 4G coverage; 40% 20% 0% Senegal Cameroon Kenya Tanzania South Africa Urban The emergence of U-900 3G technology will help mitigate this challenge; 3G will remain a fundamental component of African broadband connectivity. 3G 4G *Based on widest network coverage available Sources: Operators, Xalam Analytics Research Primarily 4G *Subject to availability and cost of spectrum Xalam Analytics LLC

15 The 4G Divide Risk 3: The Haves (4G) vs. the Have Not (4G) Number of Tier-1 Mobile Operators that Have Acquired 4G Spectrum Sample Markets (Q2 2017) Ghana Senegal Congo, Rep. Nigeria Cameroon Kenya Mali w/ Acquired 4G spectrum* w/out Acquired 4G spectrum* The cost of 4G spectrum, combined with the cost of rolling out networks, makes 4G a highly expensive pursuit; Not the 2G era any more: expectations of value creation have changed; Some operators are refusing to pay, creating a market standoff with regulators and falling behind vs. 4G; Sowing the seeds of systemic competitive imbalance going forward. *Excluding 1800 MHz refarming; Tier-1 defined here as the market s traditional GSM mobile operators only. Sources: Xalam Analytics Research Xalam Analytics LLC

16 4. ASSESSING THE 4G IMPACT: PRICING, MODELS, AND OUTLOOK

17 The 4G Impact on African Mobile Broadband Pricing: A Mixed Picture How 4G Impacts Connectivity Pricing Ghana Example Lower-end usage pricing remains high this is the next challenge The advent of 4G has accelerated a decline in the overall cost of connectivity; Mobile broadband competition is topheavy - 4G still largely a heavy-data user solution; Much of the decline is driven by Tier 2 and Tier 3 Mobile Broadband Players. The lowest price points come from third tier 4G players.and 3G players looking to keep up Circle size indicates level of data usage, from low 500MB/month (smallest circle) to heavy (~10GB); colors reflect the type of operator offering the service. Sources: Operator pricing data, Xalam Analytics Research Xalam Analytics LLC

18 The Outlook: 4G is Reshuffling the Deck in the African Mobile Market Critical 4G Considerations by Type of Service Provider TIER 1 MOBILE OPERATORS TIER 2 MOBILE OPERATORS TIER 2-3 DATA PROVIDERS TARGET COVERAGE National Urban + Suburban + Rural National Urban + Suburban Mostly 2-3 main urban centres TARGET MARKETS All segments All segments Upper-usage consumers SMEs and enterprise CRITICAL BUSINESS MODEL CONSIDERATIONS ~60%-80% of revenue still comes from voice Increase data contribution + build digital services portfolios Do not want to be a dump pipe ~60%-80% of revenue still comes from voice Increase data contribution Reach/Sustain a modicum of profitability Survive Fully data-centric: ~60%-80% of revenue comes from data services; There s nothing wrong with data pipes Survive FOR THIS GROUP, 4G IS An opportunity to accelerate their transformation An opportunity to transform A big financial headache An opportunity to preserve/rejuvenate their businesses Sources: Xalam Analytics Research Xalam Analytics LLC

19 Leveraging research and data analytics to help investors identify opportunities in AME digital transformation. Xalam Analytics, LLC Part of the Light Reading Research Network US Office: 1 Mifflin Place, Harvard Sq. Suite 400 Cambridge, MA London F: M: