TMT intelligence Africa Digital Outlook 2019

Ovum TMT intelligence Africa Digital Outlook 2019 Broadband, digitization, and new services are driving Africa's digital future

CONTENTS ABOUT THE AUTHOR Summary...3 Introduction... 3 Ovum view... 3 Recommendations... 3 Financial outlook...4 Recent operator results... 4 M&A update... 4 Revenue forecast... 4 Telecoms market dynamics...5 Recent results... 5 Digital outlook...6 Broadband outlook... 6 Digital strategies and services outlook... 8 Service provider digital strategies... 8 MFS... 8 Digital media... 9 IoT... 9 Enterprise digital services... 9 5G and digital services...10 Matthew Reed, Practice Leader Matthew Reed is the Practice Leader for Ovum s Middle East and Africa regional research. He is responsible for the data and written research for the region, which includes detailed coverage of local markets. His research interests include operator strategy within the MEA region as well as network and regulatory developments. Matthew is a regular speaker and chair at industry conferences in the region. He also regularly comments on industry developments for local and international media. Copyright Ovum 2018. All rights reserved. The contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited. Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited. 2 TMT intelligence informa 2018 Ovum. All rights reserved.

SUMMARY INTRODUCTION Welcome to Ovum s Africa Digital Outlook 2019 report, which identifies and analyzes the most important developments and growth prospects in Africa s digital market. The report is based on Ovum s regional market research and databases. OVUM VIEW Data access is the most significant growth area for service providers. For African service providers, the most significant growth in revenues, users, and usage is coming from data access. Service providers are expanding the coverage and capacity of their broadband networks to take advantage of that growth. Most of the broadband expansion is in mobile broadband, and increasingly based on LTE networks. But there is also growth in fixed broadband, through fiber and fixed-wireless broadband (FWB) services. Mobile money is the leading digital service but others show promise. Most major African service providers are reporting good growth in mobile financial services (MFS) and are looking to expand their MFS offerings and businesses further. Other key digital service segments are digital media, the Internet of Things (IoT), and enterprise ICT services. Africa is seeing some early moves toward 5G. Vodacom said in August that it had launched Africa's first commercial 5G service, for two enterprise customers in Lesotho. Vodacom, MTN, and Comsol are also aiming to launch 5G in South Africa, though for Vodacom and MTN, lack of access to the necessary spectrum is holding up progress. The first use case for 5G in Africa will be for FWB, followed by enhanced mobile broadband (embb). As 5G technology matures it could enable a range of new services and business models. The digital divide continues to be a problem. Even as Africa sees progress with broadband and digital services, basic connectivity remains out of reach or not reliably available for many people on the continent. The gaps in connectivity represent a missed commercial opportunity for service providers, as well as an obstacle to achieving the economic and social benefits that should arise as broadband penetration increases. Footprint strategies are changing. The African telecoms market is no longer seeing the bold M&A moves or rapid territorial expansion of a few years ago. Even for big players, moving into a new territory might no longer mean setting up as a traditional telco. MTN is planning to launch as an MVNO in Namibia, for example. RECOMMENDATIONS Focus on broadband. For African service providers, the most significant growth opportunity in the near term is in data connectivity, so expanding broadband networks to seize that opportunity should be core to their strategy. For most service providers on the continent, the network focus should increasingly be on improving LTE coverage and capacity. Advanced African operators should also be developing network and commercial strategies for 5G. Develop digital strategies. Digital services represent the next phase of growth for most African service providers, and they should develop their plans for service offerings, target markets, and implementation. Service providers should also be using technologies such as analytics and virtualization to improve their own organizational efficiency. Tackle the digital divide. The key parties in the industry, including service providers, vendors, regulators, and governments, should work to improve the availability and affordability of communication services on the continent. All have responsibilities to ensure the orderly development of the market. For example, governments and regulators have a responsibility to ensure the appropriate allocation of spectrum, which is increasingly important as demand for mobile and wireless broadband grows. 2018 Ovum. All rights reserved. TMT intelligence informa 3

FINANCIAL OUTLOOK RECENT OPERATOR RESULTS Recent results from major operators in Africa show continuing strong growth in revenue from data access services as well as from MFS. MTN Group results for the first half of 2018 which include MTN's operations in the Middle East as well as in Africa show that data revenue was up 26.7% year on year on a constant currency basis, while digital revenue was up 7.6%, with the latter driven by the take-up of MTN's mobile money service. Data and digital services combined accounted for about 36% of MTN Group's service revenue in 1H18. Notably, MTN said its voice revenue increased as well, by 6.2%, following improvements to its voice packages. Overall service revenue was up by 10.2% year on year. MTN said the improvement was led by its operations in Nigeria, Ghana, and South Africa. Vodacom Group's data revenue for 2Q18 was up 9.6% year on year, and revenue from the M-Pesa mobile money service rose 18.1%. Vodacom Group's service revenue for 2Q18 was up by 4.2% year on year. Orange's revenue from Africa and the Middle East in 2Q18 was up 5.2% year on year, with the increase driven by data and mobile money services. The Orange Money service had 38.7 million customers in the region at end-june 2017, up from 30 million a year earlier. Bharti Airtel said that revenue from its Africa operations in the quarter to June 2018 increased by 13.9% year on year on a constant currency basis. Again, data and mobile money services were the leading growth areas. Airtel said that the number of data customers on its networks in Africa in June 2018 was up by 45.2% compared to the previous year. M&A UPDATE MTN sold its Cyprus unit in mid-2018 and is reported to be considering whether it should sell any other operations, particularly those in small or difficult markets. However, MTN is also looking to move into some new territories. It is planning to launch an MVNO in Namibia and has said it is interested in growth opportunities in Ethiopia. The Ethiopian telecoms market is dominated by a state-owned monopoly operator, Ethio Telecom, but in June, the government said for the first time that it planned to allow local and foreign private investment in the sector. MTN has held a value-added services license in Ethiopia since 2013. Millicom has withdrawn from several markets in Africa. During the first half of 2018, Millicom completed the sale of its operation in Senegal to local investors, and the sale of its unit in Rwanda to Airtel. In 2017, Millicom and Airtel merged their operations in Ghana. Millicom's remaining African operations are in Tanzania and Chad. REVENUE FORECAST Mobile revenue in Africa will rise from $54.9bn in 2017 to $68bn in 2022, Ovum forecasts (see Figure 1). Non-SMS mobile data revenue from mobile broadband access and mobile digital services is expected to more than double over the forecast period, growing from $13.1bn in 2017 to $32.1bn in 2022. 4 TMT intelligence informa 2018 Ovum. All rights reserved.

Figure 1: Africa, mobile revenue forecast ($bn), 2017 22 Voice SMS Non-SMS data 70 60 Revenue ($bn) 50 40 30 20 10 0 2017 2018 2019 2020 2021 2022 Source: Ovum TELECOMS MARKET DYNAMICS RECENT RESULTS The number of mobile subscriptions in Africa reached 1 billion toward the end of 2017, and 1.04 billion at the end of June 2018, which is a population penetration rate of about 82%. Nigeria is Africa's biggest mobile market in terms of subscriptions, with 150.3 million mobile subscriptions at end-june 2018, followed by South Africa with 99 million, Egypt with 98.8 million, Ethiopia with 64 million, and Algeria with 46.2 million (see Figure 2). At the end of June 2018, 43.5% of mobile subscriptions on the continent were based on mobile broadband connections (3G or more advanced devices and networks). This is considerably below the global average of 70.7%. Figure 2: Africa s 10 largest mobile markets by subscriptions, 2Q18 Africa's 10 largest mobile markets by subscriptions, 2Q18 Country Mobile subscriptions (millions) Mobile subscriptions penetration (% of population) Mobile broadband penetration (% of subscriptions) Nigeria 150.3 77.4 52.2 South Africa 99.0 177.9 74.2 Egypt 98.8 102.8 39.8 Ethiopia 64.0 60.6 16.0 Algeria 46.2 111.7 45.3 Kenya 43.3 88.3 50.1 Tanzania 41.7 72.2 44.4 Morocco 41.6 117.5 35.8 Ghana 39.2 135.4 47.4 DR Congo 35.5 42.5 35.1 Africa total 1038.1 82.3 43.5 Source: Ovum 2018 Ovum. All rights reserved. TMT intelligence informa 5

Africa is substantially behind most of the rest of the world in terms of fixed broadband development. Fixed broadband household penetration on the continent was just 7.3% at end-june 2018, the lowest rate of all the major world regions (see Figure 3). Only Central & Southern Asia has a similar rate, of 7.5%. In all other major regions, fixed broadband household penetration is substantially higher. On a simple demographic basis, Africa represents a huge growth opportunity. The United Nations (UN) expects the population on the continent to double in the coming 30 years or so, from 1.26 billion in 2017 to 2.53 billion in 2050. Africa will account for more than half of the world's population growth between 2017 and 2050. Less happily, the World Bank says that although the number of people living in extreme poverty (on $1.90 a day or less) around the world has declined sharply, from 1.9 billion in 1990 to 736 million in 2015, the number living in extreme poverty in Sub-Saharan Africa is on the rise. Sub- Saharan Africa accounted for more than half of the world's extreme poor in 2015, and the region will account for 90% by 2030, according to the World Bank. Figure 3: Fixed broadband household penetration, 2Q18 NORTH AMERICA WESTERN EUROPE EASTERN EUROPE 87.8% 84.7% 58.8% CENTRAL & SOUTHERN ASIA MIDDLE EAST 7.5% 53.0% LATIN AMERICA & THE CARIBBEAN AFRICA 7.3% OCEANIA, EAST & SOUTHEAST ASIA 43.8% 72.2% Source: Ovum DIGITAL OUTLOOK BROADBAND OUTLOOK As mobile data is the leading revenue growth area for major operators in Africa, most are expanding the capacity and coverage of their mobile broadband networks to facilitate further growth. Notably, many African operators are expanding their LTE networks. In March 2018, Nokia said it would carry out one of Africa's largest LTE rollouts as part of a network upgrade deal with Orange covering seven countries on the continent. Vodacom said that in the past year, its operation in South Africa became the first on the continent to provide 80% population coverage 6 TMT intelligence informa 2018 Ovum. All rights reserved.

with a 4G LTE network. Airtel said that nine of its operations in Africa had launched LTE as of mid-2018. Several operators are also using LTE for FWB. Telkom South Africa (SA) has more than 500,000 customers using its LTE FWB services. Telkom SA also offers DSL and fiber-based fixed broadband. The first use case for 5G is for FWB. Comsol, a wholesale provider in South Africa, says it plans to launch commercial 5G-based FWB services in 2019. Vodacom and MTN are also preparing to deploy 5G in South Africa. Vodacom said in August 2018 that it had already launched Africa's first commercial 5G service, for two enterprise customers in Lesotho. But 3G and, increasingly, LTE will power the growth of mobile broadband in Africa for the coming few years. The number of mobile 3G subscriptions on the continent will rise from 456.6 million at end-2018 to 697.6 million in 2023, according to Ovum forecasts (see Figure 4). LTE subscriptions will increase at a faster rate than 3G subscriptions, with the number of LTE subscriptions in Africa rising from 50.5 million at end-2018 to 271.6 million at end-2023. Ovum expects mobile 5G services to be launched in Africa by 2021, but the number of mobile 5G subscriptions on the continent will initially be small, rising to 5.9 million at end-2023. Other technologies are also being used to improve connectivity in Africa. These are not necessarily new: Wi-Fi is playing a growing role, for example. Facebook's Express Wi-Fi hotspot service part of the social media giant's Internet.org program has been launched in Nigeria, Kenya, and Tanzania, as well as in India and Indonesia. Express Wi-Fi is run in partnership with local internet service providers (ISPs). Google also has a Wi-Fi hotspot service, called Google Station, which was launched in Nigeria in mid-2018 and is expected to be available in 200 locations in five Nigerian cities by the end of 2019. Google Station has also been launched in India, Indonesia, Thailand, and Mexico. More radical approaches to improving connectivity include the plan by Google's sister company Loon to use high-altitude balloons to provide internet connectivity in remote areas. In mid- 2018, Loon signed a deal with Telkom Kenya to launch Loon's first commercial service in Africa in 2019. Loon will use its balloons to extend Telkom Kenya's LTE service in suburban and rural areas of Kenya. MTN plans to use systems developed as part of the Facebook-backed Telecom Infra Project to provide mobile network coverage in rural areas in Africa. Several new subsea cables launched in the past few years have substantially increased connectivity between Africa and the rest of the world. But terrestrial cabling within Africa often remains a bottleneck, so efforts to extend and densify that cabling make an important contribution to improving connectivity. In July 2018, pan-african fiber provider Liquid Telecom said it had reached an agreement with Telecom Egypt that would give Liquid a terrestrial fiber network stretching from Cairo to Cape Town. CSquared, a company backed by Google, Convergence Partners, Mitsui, and the World Bank, runs wholesale fiber networks in Uganda and Ghana, and plans to launch in other countries. 2018 Ovum. All rights reserved. TMT intelligence informa 7

The cost of access to broadband remains a barrier to take-up for many in Africa. Even though the price of basic smartphones has fallen to around $50, that is still a lot of money for those on low incomes. Research by the Alliance for Affordable Internet (A4AI), a nonprofit organization, shows that mobile broadband is less affordable in Africa than in the comparable low- and middle-income regions of Asia and Latin America and the Caribbean. In 2017, only four African countries Egypt, Mauritius, Nigeria, and Tunisia met A4AI's "1 for 2" target, which is that a 1GB prepaid mobile broadband plan should be priced at 2% or less of average monthly income. The "1 for 2" target has also been adopted by the UN's Broadband Commission. More positively, mobile broadband prices are declining in Africa as well as in the other regions studied by A4AI. Higher broadband penetration is associated with improved economic growth, and it should be in the interests of the industry and governments to address cost barriers to broadband growth. Figure 4: Africa, mobile subscriptions forecast by technology (millions), 2018 23 2G 3G 4G 5G Mobile subscriptions (millions) 1,400 1,200 1,000 800 600 400 200 0 2018 2019 2020 2021 2022 2023 Source: Ovum DIGITAL STRATEGIES AND SERVICES OUTLOOK SERVICE PROVIDER DIGITAL STRATEGIES MTN first adopted a digital strategy in 2012, and since then it has developed a portfolio of digital services that include e-commerce; MFS; music, video, and gaming services; and IoT and enterprise digital services. MTN's results for 1H18 show that digital services accounted for a little more than 10% of the group's service revenue in the period. Vodacom has a strategy, Vision 2020, which comprises five elements that together are intended to turn the service provider into a leading digital company: Vodacom will use big data and analytics to deliver more personalized services and guide development of new products and services. It will digitize customer service to improve the customer experience. It will focus on expanding its LTE coverage, preparing for 5G, and using big data to improve network planning and operations. It says it is digitizing its own organization and will increasingly use data to improve working practices and decision-making. It will bolster its brand and reputation by developing digital products and services that promote financial inclusion, education, agriculture, and healthcare. MFS MFS represent the most well-established category of digital services for many African service providers. 8 TMT intelligence informa 2018 Ovum. All rights reserved.

Typically, mobile money transfer is the main MFS offering, but many providers are developing other financial services, including payments, insurance, and regular banking services such as deposits and loans. MTN said earlier this year that it aims to become Africa's biggest bank. In the year to end-june 2018, the revenue from MTN's mobile money service increased by 50%, and the service had 24.1 million active users across 14 markets in June 2018. Mobile money is also the main plank of Orange's digital service strategy in Africa. At end-june 2018, the Orange Money service had 38.7 million customers in Africa and the Middle East, an increase of 29% year on year, though Orange said that 13.6 million were active users, indicating that there is a significant number of occasional or lapsed users. Mobile money is the most prominent category in Vodacom's digital service portfolio, too. Vodacom said that 32.3 million customers across its operations (including Safaricom) were using its M-Pesa mobile money service at end-1q18, an increase of 11.5% year on year. Safaricom accounted for 20.5 million M-Pesa customers. DIGITAL MEDIA Access to higher-speed broadband is enabling and encouraging greater use of digital media. In 2017, Telkom SA launched its own music and video service, LIT, and this is attracting respectable customer numbers and producing business benefits. By March 2018, there were 200,000 subscriptions to the LIT music service and 160,000 subscriptions to the LIT video service, and 20,000 LIT TV boxes had been sold. Additionally, the take-up of bigger data bundles has increased steadily since LIT was launched, Telkom said. A host of online video services have become active on the continent. Econet Media, a subsidiary of African telecoms, media, and technology (TMT) group Econet, has launched pay-tv and, more recently, OTT video services. The Kwese Play video service was launched in 2017 and operates via a set-top box. In 2018, in partnership with OTT video specialist iflix, Kwese launched the Kwese iflix service, which delivers video to smartphones and tablet computers via an app. In digital music, the global music streaming service Spotify launched in South Africa in 2018. IOT South Africa is the most advanced market in Sub-Saharan Africa in machine-to-machine communications (M2M) and IoT services, led by MTN and Vodacom. Fleet management and vehicle tracking are the most substantial use cases for M2M on the continent, but there are also deployments for healthcare, smart metering, and wildlife tracking. The transport, health, and utilities verticals all offer potential for continued growth in M2M and IoT, and, increasingly, so will smart home and smart city developments. Although smart living is generally less advanced in Africa than in other world regions, there are developments underway, such as the Smart Kigali plan to transform the Rwandan capital into a smart city. ENTERPRISE DIGITAL SERVICES Enterprises in Africa still need connectivity, communication tools, and business software but they are also looking for more sophisticated technology solutions that will help them improve efficiency, reach new markets, and develop new revenues. As a result, there is growing interest in technologies for analytics, automation, and virtualization. Deployments could include the adoption of IoT for the remote monitoring and management 2018 Ovum. All rights reserved. TMT intelligence informa 9

of operations. Enterprises might use CRM and e-commerce systems to develop their digital channels to customers. There are also growth prospects in Africa for data centers, cloud services, and cybersecurity services. There is an opportunity for established service providers to position themselves as partners to businesses in the development of enterprise digital services. Global players are taking notice too: Both Microsoft and Amazon Web Services are building data centers in South Africa. 5G AND DIGITAL SERVICES As in other major regions, the first use case for 5G in Africa will be for FWB services. That will be followed by embb, which will enable high-speed video and augmented reality. 5G FWB and embb are based on the first set of 5G standards, which were finalized in mid-2018 but only cover the radio side of the network. The next set of 5G standards, covering the core network, are due to be completed toward the end of 2019 and will have new capabilities, for massive IoT and ultralow latency. In Africa, these capabilities could enable new 5G services for automation and remote monitoring and management in sectors such as agriculture, health, industry, and smart cities. But it will take some years for 5G technology to mature and achieve significant scale, and for the new use cases that are expected to arise for 5G to develop. 10 TMT intelligence informa 2018 Ovum. All rights reserved.

Ovum TMT intelligence ABOUT OVUM Ovum is a leading global technology research and advisory firm. Through its 180 analysts worldwide it offers expert analysis and strategic insight across the IT, telecoms, and media industries. Founded in 1985, Ovum has one of the most experienced analyst teams in the industry and is a respected source of guidance for technology business leaders, CIOs, vendors, service providers, and regulators looking for comprehensive, accurate, and insightful market data, research, and consulting. With 23 offices across six continents, Ovum offers a truly global perspective on technology and media markets and provides thousands of clients with insight including workflow tools, forecasts, surveys, market assessments, technology audits, and opinion. In 2012, Ovum was jointly named Global Analyst Firm of the Year by the IIAR. For more details on Ovum and how we can help your company identify future trends and opportunities, please contact us at marketingdepartment@ovum.com or visit https://ovum.informa.com. To hear more from our analyst team join our Analyst Community group on LinkedIn www.linkedin.com/company/ovum and follow us on Twitter www.twitter.com/ovum.