the state of african 4g · 8. the cost of african spectrum – 4g has already surpassed 3g. main...

THE STATE OF AFRICAN 4G

AFRICA’S MOBILE BROADBAND EXPLOSION

TAKES SHAPE

A CONNECTING AFRICA WEBINAR

OCTOBER 3, 2017

2. THE AFRICAN 4G SPECTRUM CHALLENGE

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

OUTLOOK

1. A STATUS REPORT ON AFRICAN 4G

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

3

An Acceleration of 4G Network Rollout – But It’s Early in the Game

© Xalam Analytics LLC - 2016

Sources: Xalam Analytics Research, GSA, Operator Data

Number of Africa LTE Commercial Networks – 2012-2017F

~ 106 LTE networks that are commercial, or expected to launch before the end of 2017 –100 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.

Sources: Xalam Analytics Research, GSA, Operator Data

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~70% of African LTE networks have been operational for less than 18 months

Mapping of Africa LTE Commercial Networks – 2017

Size indicates number of commercial LTE networksSource: Xalam Analytics Research

4

African 4G in Global Context


LTE Connections Around the World – 2016-17E

NA - ~325m*

LATAM - ~160m*

AFR - ~40m*

EUR - ~250m

APAC - ~1.1 bn

ME - ~38m

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 Q4 2017 F).

5

The Core Opportunity for African 4G


Africa LTE Targets – From Realistic to Challenging

The Unconnected Base2G Mobile

Internet Customers

The Mobile Broadband Base

“The Connected”; ~260-300m connections (2017 F) ~55% of mobile Internet connections ~85%-90% are 3G-based For LTE, a migration opportunity;

“The Connected, but Constrained”; ~215m connections (2017 F) ~45% of mobile Internet connections For LTE, a conversion opportunity;

“The Unconnected”; ~400m-500m voice connections (2017 F) Not connected to the Internet For LTE, a remote opportunity;

2. THE AFRICAN 4G SPECTRUM CHALLENGE

Cost of Spectrum and Concerns of 4G Economic

Viability

Lack of Flexibility of Spectrum Utilization Regimes

African 4G Spectrum Allocation has not been Effective – Nor Efficient

8

The Cost of African Spectrum – 4G Has Already Surpassed 3G

Main Phases of African Spectrum Licensing

2G Spectrum Licensing Phase

~$10bn in Proceeds*

3G Spectrum Licensing Phase

~$4bn in Proceeds

4G Spectrum Phase*

~$5bn So Far

1998-2010 2006 - 2015 2014 - 2020

*including renewals; proceeds from the 4G licensing phase including 2G licence renewals Source: Xalam Analytics estimates


9

The Cost of African Spectrum – Not Quite Down


Median Value of African Spectrum – by Generation Type

*Based on analysis of 78 spectrum transactions in African markets between 2000 and June 2017; excluding some low-end outlier transactions, mostly in East AfricaSource: Xalam Analytics research

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.

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2G Only 2G Renewal + 4G 2G Renewal + 3G 4G Only 3G Only

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10

A Fundamentally Urban-Centric Spectrum Allocation Structure


*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

Distribution of Prime 4G LTE Bands – Africa vs. Global (% of Commercial LTE Networks)*

47%

17% 17%

7% 6% 6%

65%

9%

5%

9%6% 6%

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1800 MHz - Band 3 800 MHz - Band 20* 2600 MHz - Band 7 2300 MHz - Band 40 2500 MHz - Band 38-41 Other Bands

Global Africa

Africa has an extremely high reliance on spectrum refarming;

African 4G spectrum allocation is highly urban-centric;

Less than 25% of African LTE operators have access to sub-1GHz bands for non-urban deployments;

~20% of LTE networks are TDD-based

11

A Rigid and Inefficient Spectrum Regime


*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

Misallocated? Share of 4G Spectrum vs. Share of Country CapEx

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.

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Share of Available 4G Spectrum

African 4G spectrum owners

(red dots)

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

13

The 4G Divide Risk 1: Africa vs. the World


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);

16%

12%

4%5%

2%

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Share of Population Share of Mobile Connections Share of GDP Share of MBB Connections Share of 4G - 2017 Share of 4G - 2022

Africa Share of Global Population, GDP, Mobile Broadband and LTE

Africa’s share of 4G is currently lower than its broader contribution to the global economy;

Current projections suggest that 4G share will accelerate to mobile broadband levels;

But market constraints create a risk of falling further behind.

14

The 4G Divide Risk 2: Urban vs. Rural


*Based on widest network coverage availableSources: Operators, Xalam Analytics Research

3G vs. 4G Coverage of the Population in Sample African Markets

The concentration of licensed 4G spectrum around upper-GHz bands creates risks of concentration of 4G deployments in urban areas;

An implicit ceiling for 4G coverage;

The emergence of U-900 3G technology will help mitigate this challenge;

3G will remain a fundamental component of African broadband connectivity.0%

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Senegal Cameroon Kenya Tanzania South Africa

3G 4G

Urban

Rural

Primarily 3G*

Primarily 4G

*Subject to availability and cost of spectrum

15

The 4G Divide Risk 3: The Haves (4G) vs. the Have Not (4G)


*Excluding 1800 MHz refarming; Tier-1 defined here as the market’s traditional GSM mobile operators only.Sources: Xalam Analytics Research

Number of Tier-1 Mobile Operators that Have Acquired 4G Spectrum – Sample Markets (Q2 2017)

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.

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Ghana Senegal Congo, Rep. Nigeria Cameroon Kenya Mali

w/ Acquired 4G spectrum* w/out Acquired 4G spectrum*

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

OUTLOOK

17

The 4G Impact on African Mobile Broadband Pricing: A Mixed Picture


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

How 4G Impacts Connectivity Pricing – Ghana Example

The advent of 4G has accelerated a decline in the overall cost of connectivity;

Mobile broadband competition is top-heavy - 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

Lower-end usage pricing remains high – this is the next

challenge

18

The Outlook: 4G is Reshuffling the Deck in the African Mobile Market


Sources: Xalam Analytics Research

Critical 4G Considerations by Type of Service Provider

TIER 1 MOBILE OPERATORS

TARGET COVERAGE

TARGET MARKETS

CRITICAL BUSINESS MODEL

CONSIDERATIONS

FOR THIS GROUP, 4G IS…

National Urban + Suburban + Rural

All segments

~60%-80% of revenue still comes from voice Increase data contribution + build digital

services portfolios Do not want to be a “dump pipe”

TIER 2 MOBILE OPERATORS TIER 2-3 DATA PROVIDERS

An opportunity to accelerate their transformation

National Urban + Suburban

All segments

~60%-80% of revenue still comes from voice Increase data contribution Reach/Sustain a modicum of profitability Survive

An opportunity to transform A big financial headache

Mostly 2-3 main urban centres

Upper-usage consumers SMEs and enterprise

Fully data-centric: ~60%-80% of revenue comes from data services;

There’s nothing wrong with data pipes Survive

An opportunity to preserve/rejuvenate their businesses

Leveraging research and data analytics to help investors identify opportunities in AME digital

transformation.

Xalam Analytics, LLCPart of the Light Reading Research NetworkUS Office: 1 Mifflin Place, Harvard Sq. Suite 400Cambridge, MA 02138LondonF: +1 617 844 1385M: +1 617 953 7259

[email protected]

@xalamanalyticswww.xalamanalytics.com

the state of african 4g · 8. the cost of african spectrum – 4g has already surpassed 3g. main...

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