OBG talks to Phillip Sowah, Managing Director, Airtel; Michael Ikpoki, Former CEO, MTN; Adil EL Youssefi, CEO, Tigo;Kyle Whitehill, Former CEO, Vodafone

Interview: Phillip Sowah,Michael Ikpoki,Adil EL Youssef,Kyle Whitehill

What can be done to maintain higher average revenue per user (ARPU) levels?

PHILIP SOWAH: We have a huge challenge there. Prices have dropped as low as they can go, and we are looking to make up some of the revenue loss with data packages. We are pushing data quite heavily and will be pushing it much more aggressively. We focus on creating a reason for a high-valued customer to pay for a high-value service – like paying a bit more for preferential speeds, for example. The idea is to create a package for everyone, so we have to focus aggressively on the mass market so that they don’t lose out. The real challenge is to find ways to decrease operating costs. Our focus is the mass market, and with some of the costs already included, it makes it harder for operators to play the game the way it should be played and benefit the customer. We expect two more submarine cables to come online very shortly, which will give us more flexibility. Now, for example you may pay GHS30 ($15.50) for 2 GB, and in six months it will be GHS30 for 5 GB. As the prices fall, we will just be able to provide customers with more data; we expect usage will go up quite heavily.

MICHAEL IKPOKI: The reality is that in every telecom market you see that ARPU levels are progressively going down. It now depends on the range of products and services one can introduce to stimulate continued usage. The focus will be on data, mobile content and additional digital services. Data will present a significant opportunity for customers to spend on the network, which goes in line with our current infrastructure expansion plans. It will be critical for mobile operators to be more precise about getting the right products and services for the right segments of the market. These measures should help to stimulate a reasonable ARPU level relatively to what is happening in the industry. In many emerging markets competition levels have increased, which resulted in price declines; this is nothing unusual. Tariffs in Ghana are perhaps the lowest you can find in Africa, so capex-intensive investments like data extension might also lead towards consolidation, like happened recently in Uganda. There is only a limited amount of scale you can reach to lower your operational costs; if that is not enough, consolidation might be an alternative.

ADIL ELYOUSSEFI: Maintaining attractive ARPU levels is difficult in this very competitive industry. Price pressure tends to be very high, even for the leaders of the market. The main thing is ensuring that customers benefit from the value of the services they are offered and not necessarily from the price per unit. There is a propensity to move away from unit price to bundles.

Nowadays, it is much more about looking at the customer’s demands and preferences than just putting out a price, which is not sustainable in such a competitive environment. The modern consumer wants a smartphone, wants to browse, wants entertainment and wants information; therefore, the data-services are a big component to help us mitigate the decrease of ARPU level in voice services.

KYLE WHITEHILL: Ghana has not seen any great change in ARPU in the last three or four years: levels have remained pretty static at around GHS$8-9 ($4. 13-4.65) per month per user. All that has changed is that the amount of value you get for your money has significantly improved. Consumers still spend the same but they are getting a tremendous amount of value.

We want to retain ARPU but also to build much more value to our customers. Ghana has some of the cheapest voice options in the region, and what you see is that the relatively few users are sustaining the industry through voice and data usage.

What are the challenges to increasing revenue streams from value-added services (VAS)?

WHITEHILL: Ghanaians have been slower than we hoped to adopt VAS and mobile data. Mobile data, when you talk to some of our customers, is still seen as something that someone with a lot of money has, rather than applicable to a farmer or a local shopkeeper. People still perceive it as being a premium product and we, as operators, must instil the notion that you can have access to a lot of stuff with basic data technology. There is a tremendous change in demographics, as it is mostly 25-year-olds seeking help on how to get the most out of their phones. We see that data is not a mass-market product. People in Ghana mainly want to talk to each other; only a niche has a desire to connect to the internet. Mobile voice will still be the catalyst for growth in the next two years, and mobile data will kick in subsequently.

YOUSSEFI: Data is booming across the world and has become the biggest value-added service. Ghana has the highest mobile penetration rate in the Horn of Africa. Since PCs and tablets are financially out of reach for most customers, Ghanaians would rather access the internet through their GHS50 ($25.84) phone. People care about speed, about price and about not being limited in their data volumes. Capacity fills up very quickly, however, so infrastructure investment is something that we, as an industry, need to keep pushing for. Beyond data, entertainment shows potential. People in Africa and in Ghana like music, they like to dance, they like to tell and hear stories so, we are trying to source local and African content through voice, texts and video.

SOWAH: Data is a major focus nowadays, but the quality of data provided is also important. Ghanaians are heavy users of entertainment, games, and quizzes, and there’s a demand to bring in more soccer entertainment services, for example. Mobile money is a priority, but it is not a significant revenue generator yet, as it still has some time for it to grow. The person-to-person money transfer is likely to be the biggest revenue generator in the short-term. Customers can pay their electricity and water bills through their phones through our deals with the Electricity Corporation and Water Corporation of Ghana. The interesting thing that has been proven about VAS is that exclusivity doesn’t really work very well. When it is opened up to all other operators, the market expands, and then it boils down to who provides the best service. When SMS or call-back ringtones came about, for example, everyone’s revenue went up, regardless of network. Voice will continue to be king, but data will be a much more significant part of revenue streams, and we believe that mobile money will also play a big role in the medium-to-long term What are the infrastructural constraints in terms of improving coverage and service delivery?

YOUSEFFI: The fundamental thing is transmission and maintaining a functional fibre network around the country. The government is doing a great job rolling out new roads and highways, but in the process contractors may cut our fibre. Moreover, every day we have fibre cuts due to excavation work from official and illegal miners. We are already having a hard time maintaining our current infrastructure and managing operational challenges, so expanding to more remote rural areas will just produce more customer dissatisfaction because they would have interrupted service. We hope that the industry, government and public institutions can concentrate their efforts on stabilising the current network and fixing it, and then focus on extending service beyond urban areas.

IKPOKI: When discussing rural areas you need to talk about balancing a couple of factors. You have the economic factor, the logistics factor and the prioritisation factor. Our decisions are economic in the sense that the nature of our business is that we deploy facilities in areas where the more coverage, the better the value you are getting for your infrastructural investment. That means you have to balance that reality when you move into areas that are sparsely populated. In that respect we are looking at more low cost solutions, technological advancements that can enable us to offer those kinds of services to areas which aren’t as populated as the urban areas, and which will give us a reasonable balance in terms of economic viability. Logistically, you always have to deal with the issue of access, since infrastructure is far less developed than in urban areas. From the prioritisation point of view, you have to consider that we don’t have an infinite amount of money to invest in the network, which means that you have to prioritise if you have a limited amount of capital to be invested. When talking about extending coverage to rural areas the government should take an active approach too. We are now contributing 1% of our net revenues to the Ghana Investment Fund for Electronic Communications (GIFEC), but there needs to be a wider policy discussion to be done by the industry as a whole. This goes beyond rural telephony; it should shed light to the question of establishing a medium-term plan for the industry, since the telecom sector is very critical to economic development. If we don’t create the right environment where operators can make the amount of investment that is needed to support the growth of the market, then we will really have a challenge.

SOWAH: Extending coverage is limited by several factors. The recent rise of petrol prices will be a major challenge moving forward, as we all use diesel generators at each of our sites. This immediately makes the business case harder to justify, particularly in rural areas where you have most of the electricity cuts. We all deal quite heavily with GIFEC, which is a universal service fund that all operators contribute to, as they help offset some of the costs involved in deploying sites. We have a lot of fixed costs, and those costs don’t go away. There is a bottom limit on our prices, but when cost of petrol and electricity go up, your employees expect their salaries to grow as well.

WHITEHILL: Rural mobile coverage is a fantasy, and it will remain a fantasy in emerging markets because it makes no financial sense, and there isn’t the technological capacity to do this. Rural Ghana is going to struggle. There has to be some sort of industry cooperation, some sort of public-private partnership (PPP), to expand both mobile and fixed-line services. President Dramani Mahama declared in his state of the nation address that his absolute priority is to drive broadband coverage in the country, but telecoms operators can’t afford to do this on their own. So we are very keen in working alongside the government helping the e-learning and e-services proposition.

The future of these projects relies on PPPs.

What can be done to shift consumer behaviour towards post-paid services?

IKPOKI: Ghana is still a predominantly pre-paid market with 99% being pre-paid customers. That doesn’t mean that one should stop actively working with the post-paid market, as that market is also changing.

The larger corporate market, as well as the small-andmedium-size enterprise segment, both have a lot of potential for growth. Their needs are different – they require a lot more data usage and roaming services, for example, so creating attractive packages to tailor those needs will lead to long term customers.

SOWAH: It will take some time for it to develop in Ghana, because there is this mentality that customers are used to controlling the cost of the services that they subscribe to and they get upset when they get a big bill, even if they spend much more on pre-paid.

Because they are in control of it, there is an acceptance of it. As the formal sector grows, however, postpaid will grow as well, because companies are giving employees phone service as part of their perks. We will be launching a hybrid of both post-paid for company use and pre-paid for personal use very shortly.

So if there is a credit limit set by the company, you can tap into the personal one and not run out and have to wait for the next month to start, which is quite cumbersome. So again, it all comes down to creating the right products and services.

WHITEHILL: The challenge is two-fold: the first one is that the intent to pay by post-paid customers is very low; people don’t actually like to pay their bills. The second issue is the integrity of the postal system. The ability to physically get someone their bill is extremely costly and has low return. For these reasons, it will be very difficult to move into a society where you directly debit customers’ bank accounts. Even if they do, you see the pattern of people emptying out their bank accounts before they are debited, and put the money back in the next day. You see in Ghana that even people with money and can pay, culturally just don’t like anything that they haven’t prepaid for. This will continue to be a very big challenge until the banking infrastructure is solid and reliable and people get used to paying by direct debit. For the medium-term Ghana will remain a very vibrant pre-paid market.

YOUSSEFI: Fundamentally, post-paid is better for local operators since there is lower churn and steady revenue streams tend to be higher. But post-paid also has incurred costs – such as mailing invoices, collecting payments and providing customer service. Scaling that up to the mass markets is still quite a challenge once you include operational costs, investments in collections, and billing. Furthermore, we need to bring in more convenient services to customers, offer lower-commitment terms and, most importantly, deal with the challenge of mailing information, since no one has a mailing address here in Ghana. Post-paid services are a good idea on paper, but execution for individual customers is another story. Corporate customers are the biggest target for post-paid services.

Which mobile VAS offers the greatest potential for immediate and short-term growth?

YOUSSEFI: We don’t see mobile banking as a valueadded service; we see it as a completely different service that you can use with your phone. We have over 30 banks locally, so banking is not really an issue here in comparison to Eastern Africa. Ghana is a small country, so it’s not that difficult to send money around. Having said that, we still see a lot of potential for people to use airtime for their payments and mobile money for savings since there is a big culture of savings in Ghana. This is a good opportunity; we are investing extremely heavily in it and have seen signs of success so far, even if it is at a very early stage and the numbers are still quite small. Mobile money is the future, so we are investing accordingly now.

WHITEHILL: Mobile money is a phenomenon in East Africa that hasn’t transferred to the rest of Africa. We still don’t believe that mobile money in the form that you see it in East Africa is an easily transportable product at the moment. The mobile money products in Ghana are tiny with very little transactions done on those platforms. We see opportunities in financial inclusion and financial services rather than personto-person money transfers in the foreseeable future. For the moment, it is all about mobile data. There is no killer app, nor a killer service. There are, however, 1.5m Facebook users and 1.5m Twitter users in Ghana. There is a massive amount of social networking going on; we must bring these services to people’s phones.

IKPOKI: We have started to do a lot of work in that area. Perhaps the most successful one has been the Caller Ring Back Tones (CRBT). Operators in that respect need to be more precise in terms of understanding what exactly the market wants. We are now in the process of doing a lot of work with local content developers. Local service providers have increased in quality and abundance, so it is only a matter of time until new products enter the market. As an example, we have launched an online service portal that targets students, and provides them with relevant material, which is useful for them and enables them to interact. One can say that there are a lot of services out there available to be used, but the key will be to pick the right ones and tailor them to particular customer needs. It will be interesting to see how mobile operators work together with other private partners and develop apps that are relevant for this specific market segment. If that happens, then increased usage of data is likely to be on a continuous rise.