A decade ago, an African GSM license was an attractive ticket for international investors to enter a market with huge profit potential. But most regulators on the continent have found ways to raise money by licensing more GSM spectrum and fixed line operators, with the argument that competition would drive down cost of services. It has done that, but has also meant continued struggles for smaller, newer companies.
"Newly licensed operators do bring much needed competition, but one has to be careful of oversaturating the market and making it unattractive to potential investors; telecommunications investments are quite expensive especially when deployed in rural Africa and it is important to ensure that the return on investment is still attractive to potential investors," said Tinyiko Valoyi, CEO of Mavoni Telecoms, an investment vehicle that is focused on acquiring spectrum in African countries to deploy 4th Generation networks.
Last month, Tanzania licensed new mobile services provider, bringing the total to 12 with a population of 37 million, Ghana has 4 providers and a population of 10 million, Benin has 6 providers against a population of 8 million, Nigeria has 9 providers and a population of 150 million and Burundi has 6 providers and a population of 7.5 million, among others. Most countries, regardless of population, have at least two providers.
The increase in number of operators has led to lower cost of voice calls, which has reduced the Average Revenue Per User (ARPU) and led to lower profit margins for newer entrants with no financial muscle to challenge older service providers.
Because of falling margins, shareholder squabbles have emerged as witnessed in the Democratic of Congo between Vodacom and CWN, and in Kenya between France Telecom and the government of Kenya over shareholding and investment in Telkom Kenya. Vodacom has had similar shareholder problems when trying to enter Nigeria while MTN was faced with law suits in Ghana.