A combination of declining voice revenue, uneven regulations and high investment costs are threatening Africa's high mobile growth, according to a new report.
The report, entitled "Connecting Africa," by Booz & Co. said investors are now taking a hard look at further investment in Africa because of an increasingly unattractive investment environment, continued regulatory risks and extreme pricing pressure.
Mobile communications have over the past few years grown at an unexpected faster rate but revenue from the voice market is in free fall due to stiff competition, while network expansion has been slow due to the high cost of doing business in the region. This has forced bigger operators to invest more in the expanding data market in hopes of raising more revenue to balance their books.
Many African countries, including Zambia, have been reluctant to give tax holidays to operators to help them expand their networks. Higher taxes are also chewing into operators' profit margins.
Sustained shareholder disputes in many African countries have further proved to be a challenge to international telecom operators. For example, the Zambian government last month repossessed the 75 percent share in Zamtel acquired by Lap Green Networks of Libya, following a controversy in the manner in which the shares were acquired.
But Dobek Pater, a telecom analyst at African Analysis in South Africa, said in an email exchange that "small service operators may be more hesitant to assume the risk. But the frequent larger acquisitions we have been witnessing in Africa testify to the fact that investors are not deterred by the odd problematic development."
The Booz & Co. report, however, adds that operators are making lower margins as they decrease voice call prices to try and win over customers who frequently change networks.
International operators including Orange Telecom, Vodacom and Airtel in East Africa failed to sustain their reduced voice call prices aimed at winning customers and have suspended all promotions. They claim that competition coupled with rising inflation and the cost of doing business in the region has steadily been chewing into their profit margins over the past year.
The operators are now hoping that the increase in tariffs will help them expand their networks and invest in new technologies.