War of attrition: Six mobile operators make for a highly competitive market

Now entering its 20th year, the Ghanaian mobile market has evolved into one of the most developed in sub-Saharan Africa. The country has six telecoms operators all vying for the custom of the country’s 24.9m inhabitants. Falling tariffs, improved coverage and the consistently timed roll-out of new products have resulted from the increased competition and have proved highly beneficial to consumers – facts sure to please the National Communications Authority (NCA), the market regulator.

The first mobile network launched in 1992, Mobitel, was also the first on the continent. Shortly thereafter, the creation of the NCA and the privatisation of state-owned operator Ghana Telecom in 1996 ensured the country would also lead the way in terms of deregulation. However, despite the markets meteoric rise during the subsequent decade, it was only during the past five years that it has seen significant growth, becoming ever more dynamic.

Globacom, Nigeria’s second-largest telecom operator, was awarded its mobile and 3G licence from the NCA in July 2008 for $50.1m. Under its mobile brand, Glo, the company has entered the market by aggressively advertising its wares long before its network went operational on April 29, 2012 – for which it received a fine from the NCA of $200,000. Under the terms of its licensing agreement, Glo was to have launched operations by April 20, 2012.

THE FIELD: The current range of mobile operators contains some of the biggest names in global telecommunications, including MTN, Vodafone, Airtel, Tigo, Expresso and Glo, which are all now operating in the country. South Africa’s MTN entered the market in 2006 through its global purchase of Investcom, which included the Areeba Ghana mobile network. With approximately 10.64m subscribers, it maintains the largest share of the market, accounting for 47% at the end of May 2012. However, increased competition from new operators has slowly started to erode MTN’s hold over the sector in recent years. MTN’s share has decreased slowly since 2009, when it controlled 55%.

The UK’s Vodafone has 4.67m subscribers nationwide and holds 21% of the market. Vodafone came onto the market in August 2008 when it acquired 70% of state-owned Ghana Telecom for $900m. In addition to operating its mobile network, Vodafone is responsible for the National Communications Backbone Company, a wholly owned but independent subsidiary that is working on the expansion of the country’s fibre-optic network.

In third place is Millicom International Cellular, operating under its Tigo brand in Ghana, with 3.46m subscribers and 15% of the market. Millicom, formerly known as Mobitel Ghana, launched the country’s first mobile network in 1992.

India-based Bharti Airtel, which entered the Ghanaian market in 2010 by purchasing the African operations of Kuwaiti telecom outfit Zain for a reported $10.7bn, follows closely in fourth, with 3.02m subscribers and a 14% market share.

Glo quickly chalked up 470,000 subscribers in its first month of operations having reported nearly 2m pre-registered SIM cards. Expresso follows in sixth, with 200,000 subscribers – equivalent to roughly 1% of the total market share. Expresso, like Millicom, has been in business in Ghana since the 1990s, when CellTel opened its mobile network in 1995, though Expresso Telecom only began operating the network in 2008 after it purchased the network from Hutchison Telecom for a reported $75m.

MARKET SATURATION: Mobile market penetration was equal to 24% in 2006 with 5.2m subscribers, a substantial increase on the total of just a few thousand present a decade before. By the end of 2011 the number of subscribers had risen to 21.2m, representing average annual growth of 32%. As of the first quarter of 2012 mobile subscriptions stood at 21.7m, according to the latest available data from the NCA. This brings the latest mobile penetration rate to 87.1%. This is far higher than Africa’s average of 53%, and well above the average of the developing world (78.8%) and slightly greater than the world average of 86.7%, following data through 2011 from the International Telecommunications Union.

These numbers leave little room for manoeuvrability among the operators as they all vie to attract the remaining potential customers. As gaining new customers becomes more and more difficult in the medium to long term, a focus on penetrating the vital youth market, as well as attracting rivals’ customers, are likely to be the only options for operators looking to expand their market share.

In July 2011 the NCA made mobile number portability a reality, allowing customers to switch from one operator to another and retain their original number. Given the desirability of holding on to certain numbers for retail clients, this continues to drive further competition among operators. Indeed, in the first three months after the legislation was passed, 105,678 customers had switched operators, although in such a fragmented market, few operators reported large net gains as a result.

In fact, the main company with the potential to reap the benefits of the new legislation is new entrant Glo, which will necessarily need to siphon customers from rival operators in order to be successful.

BUILDING HYPE: There is no concealing the competitive nature of the mobile market. A range of advertisements offering new products, services, promotions and deals from any one or more of the country’s six mobile operators can be found along the major streets in Accra. Glo has been the most active since coming onto the market two years ago, with a strong marketing campaign preceding its April 2012 launch, although the others are not far behind.

The telecommunications sector is the country’s largest single spender when it comes to advertising because the operators are continually jockeying for position in the increasingly competitive market.

With all six operators running 3.5G or 3.75G networks around the country, every one of them is keen to raise customer spending via non-voice services, as attracting new clients becomes more and more difficult. However, mobile data packages are not the only non-voice products rolling out as mobile financial services (see analysis), commerce, advertising and even radio are all new services being developed to further tap into existing customer’s wallets.

TARIFFS & ARPU: The strong competition among operators has reduced prices dramatically in the country and mobile tariffs are among the lowest in Africa. According to data published in May 2012 by the NCA, the industry average tariff was just GHS0.0872 ($.044) per minute. However, several companies are offering rates less than that. Tariffs for Tigo (GHS0.03, $0.02), Glo (GHS0.08, $0.05) and Airtel (GHS0.084, $0.05) all fell below the industry average. Yet, price is not the only motivator of customer behaviour in the Ghanaian market. Thus, the larger firms can charge higher rates and supplement the user experience with dedicated services. Rates for MTN (GHS0.09, $0.05), Expresso (GHS0.0954, $0.06) and Vodafone (GHS0.144, $0.09) all placed above the local average. Airtel and Vodafone were the only two to offer free interconnection to operators on other networks. The average of the surcharges for off-network calls charged by the other players is GHS0.1136 ($0.07), approximately 30% higher than the on-network call rate.

Though average revenue per user (ARPU) among operators is low by regional standards – market leader MTN reported $6.60 per month in March 2012 – it has remained stable over the past two years. Ebenezer Asante, a sales and distribution executive at MTN, told OBG, “ARPU has actually remained somewhat steady over the past three years despite increased price competition, primarily because it has been balanced by a rise in consumer spending.” Even so, operators are working with fine margins, constantly on the lookout for new sources of revenue from existing customers. However, even stable profits may not be enough in a market this competitive.

CONSOLIDATION: Asante believes the slim margins on which the mobile sector is currently operating cannot be sustained in the medium to long term, and that the market is already beginning to experience a measure of consolidation. It is a view shared by many; six operators in a developing market of 24m is generally considered to be one to three too many.