Growth in mobile telephony will act as an economic multiplier

The long-awaited launch of 3G service in April 2014 is helping to open new avenues for growth in Gabon’s increasingly saturated mobile telecommunications sector. Subscriber numbers continue to rise, but with real penetration of nearly 100%, future growth will come from the introduction of higher-value services. With four operators serving a market of around 1.63m people, competition is already fierce, and providers are working to improve the quality of service and expand their networks in order to gain an edge. In the short term, limited fibre-optic connectivity and national infrastructure are likely to slow down the takeoff of 3G services. However, once access to the new Africa Coast to Europe (ACE) submarine cable is unlocked, strong demand for mobile services should drive the sector forward quickly.

Mobile Operators

The state-owned operator, Gabon Telecom, dominated the industry and had a monopoly until liberalisation of the sector in 1999. The market has since grown to include three other mobile providers over the past decade, and subscriber numbers have risen exponentially as competition has pushed prices down.

Today, Gabon Telecom, which is majority-owned by Morocco’s Maroc Telecom, remains the sole provider of fixed-line telephone services and the second-largest mobile operator via Gabon Telecom Mobile, which was rebranded from Libertis in early 2014. The company saw the largest year-on-year ( yo-y) increase in subscriber numbers in 2013 to reach 35.5% of the market. According to figures from the Regulatory Agency for Electronic Communications and Postal Services (Autorité de Régulation des Communications Électroniques et des Postes, ARCEP), subscribers jumped by one-third y-o-y to reach 1.04m, narrowing the gap with Airtel, which according to ARCEP, holds the largest number of subscribers.

Airtel has been the market leader for the past five years; although ARCEP figures indicate that its subscriber numbers dropped in 2013 by 6.3% to 1.12m, Airtel maintains a 38.1% market share. The operator accounted for 48% of total turnover in the telecoms sector, or CFA139.5bn (€209.3m) in 2013, compared to 18% for Gabon Telecom Mobile (CFA51.7bn, €77.6m). The Indian-owned operator, which has activities in 17 African countries, acquired its Gabon licence from Kuwaiti operator Zain in 2009, which in turn had acquired it from Celtel Gabon in 2007.

Moov-Ing In

Atlantique Telecom, a West African company that operates in the region under the brand Moov and is owned by the UAE-based Etisalat group, became the third mobile operator in 2006. Moov holds the third-largest market share, with 19.05% of subscribers (561,500) and 12% of sector turnover (CFA34bn, €51m). Moov also saw the fastest rate of mobile subscriber growth in 2013, rising 51% y-o-y.

Bahrain-based Usan, a subsidiary of the Lebanese group BinTel, obtained the fourth mobile licence in 2009 and operates under the name Azur. The company carved out a 7% market share in its first years of operation and climbed to 7.5% in 2013 thanks to a strong uptick in subscriber numbers, which rose 27.7% y-o-y to reach 222,241.

The Lebanese group signed a partnership with Monaco Telecom in June 2014 that aims to increase BinTel’s share in the Gabonese market to 20% by 2019. Monaco Telecom will reportedly help to retool BinTel’s business plan and to fundraise in the first stage of the deal, and later will cooperate in marketing, infrastructure upgrades and roaming for three years.

Sector Performance

Mobile subscriptions have increased by leaps and bounds over the past decade, but annual growth has slowed in recent years as the market nears saturation, expanding by just 5.6% in 2011 and 6.2% in 2012.

However, mobile internet user numbers jumped 17% in 2013 to reach a record 2.95m, spurred on by lower prices for data services. This trend is expected to continue in 2014 as the gradual introduction of 3G stimulates demand for faster data access.

However, as with many African markets reaching saturation, the sector’s capacity to absorb new users is nearing an end. Gabon became one of the first countries in Africa to exceed a 100% mobile penetration rate in 2008. According to ARCEP estimates, mobile penetration increased from 148% in 2010 to 194% at year-end 2013. These numbers are inflated by several factors, notably the large number of inactive prepaid accounts and the widespread practice of owning multiple SIM cards to take advantage of varying service coverage and promotions offered by different carriers. Prepaid contracts account for more than 99% of mobile customers in Gabon, which encourages ownership of multiple SIM cards without guaranteeing increased usage. “Today, it is difficult to measure the penetration rate. For sure it is above 100% and that is the problem in measuring it. It is probably at 200% or 250% now,” Antoine Pamboro, director-general of Airtel, told OBG Operators are working to move toward post-paid contracts, which provide more revenue and encourage customer loyalty. Post-paid contracts offer an average revenue per user (ARPU) 10 times that of prepaid services, but there is little demand for contracts as of yet. Prepaid mobile ARPU declined by roughly 30% from 2007 to 2011, and fell another 10% from CFA6422 (€9.60) per month in 2012 to CFA5763 (€8.60) in 2013, according to ARCEP data. However, Gabon’s ARPU remains competitive in the sub-region given the country’s relatively high purchasing power and strong demand for talk time.

Price Pressure

Tightening competition between Gabon’s four mobile operators has put pressure on prices. Operators began introducing per-second billing in 2013, and Gabon Telecom became the last operator to adopt this system in April 2014, billing all domestic mobile voice calls at CFA1 ($0.0015) per second. At present mobile number portability is not allowed, which means that mobile numbers cannot be transferred between operators. If introduced in the future, as it has been in a number of other continental markets, number portability will further encourage customers to switch between carriers.

Changes in Ownership

The Gabonese market is facing a potential restructuring in terms of ownership as the Gulf operator Etisalat increases its presence on the continent. In May 2013 Etisalat finalised its acquisition of Vivendi’s 53% share in Maroc Telecom for €4.14bn, and noted that Morocco will serve as a base for its expansion into African markets. The company said it would start to consolidate Maroc Telecom and its subsidiaries from May 2014.

Maroc Telecom has held a 51% stake in Gabon Telecom since 2007, in addition to its other subsidiaries in Mali, Mauritania and Burkina Faso, while Etisalat currently holds a stake in Atlantique Telecom’s Moov. At the time of press, officials have not yet indicated what form if any this consolidation will take in Gabon, but if a deal materialises, it could create a larger footprint for a merged operator. The two groups are currently restructuring their broader African operations, with Etisalat having confirmed in May 2014 the planned sale of its network of West African business to its Moroccan operator for $650m.

3G Revolution

The launch of 3G service puts the telecoms sector on the cusp of considerable growth. Gabon has lagged behind other countries on the continent, primarily due to insufficient fibre-optic connectivity and delays in the licensing process. An initial 3G tender was held in 2010, and Airtel was tentatively awarded the first licence in October 2011 at a price of CFA5bn (€7.5m). However, the licence was never executed due to government concerns of insufficient broadband connectivity, the elimination of Gabon Telecom’s cable monopoly, standard licensing fees and, according to ARCEP comments, a desire to preserve market competition.

The state then issued a 3G/4G licence to Airtel in January 2014, and the operator launched initial service in selected areas of the capital the following April. Airtel announced that the entire Libreville region will be covered by the third quarter of 2014 and aims to reach provincial capitals by the end of the year.

Gabon Telecom was awarded the second 3G/4G licence in March 2014, and the company plans to launch service before year-end 2014. Azur is currently in the process of negotiating a 3G/4G licence but, as the smallest operator, will need time to obtain the necessary financing for the CFA5bn (€7.5m) licence fee and further infrastructure upgrades.

Mobile Internet 

Mobile data usage has already spread rapidly in Gabon based on slower 2.75G EDGE technology. The number of mobile internet subscribers jumped 79.7% in 2012 and another 26.3% in 2013 to reach a total of 582,964 users – over one-third of the population. The 2012 spike was largely related to operators’ efforts to reduce data prices in anticipation of the launch of 3G and tougher competition after the ACE cable commercialisation.

Airtel cut its mobile internet prices by a third in 2012 and now offers 5 Mb of usage for CFA250 (€0.38) and up to 1 Gb per month for CFA14,000 (€21). Gabon Telecom Mobile has also cut its tariffs several times in the past two years, and its data packages now range from CFA250 (€0.38) for 5 Mb of usage to CFA20,000 (€21) for one month of unlimited data connection. Azur’s prices currently range from 50 Mb per week for CFA1500 (€2.25) to 500 Mb per month for CFA10,000 (€15) and unlimited monthly usage for CFA22,000 (€33).

Today, mobile telephony accounts for 94% of all internet users in Gabon, compared to just 2% for Gabon Telecom’s fixed-line service and 4% for other internet service providers (ISPs), according to ARCEP. The significant jump in the mobile client base has more than doubled the country’s internet penetration rate in the past two years from 19% in 2011 to 41% of the population in 2013.

Fixed Line

As in so many emerging markets, fixed telephone service continues to lose ground to the mobile market. Subscriber numbers have dropped nearly 37% from 30,381 in 2010 to just 19,252 in 2013, including a 15% decrease in 2013 alone. Penetration now hovers below 1.3%. Fixed internet subscribers also fell from 23,657 in 2011 to 9896 in 2013.

According to ARCEP, income from fixed-line telephony still contributes 13% of total sector turnover, with revenue holding steady at roughly CFA38.4bn (€57.6m) in the last three years. This is largely thanks to the government, which has traditionally been the largest consumer of fixed-line telephone and internet. However, the state is introducing an internal communications system based on WiMAX technology, which it then intends to transition to 3G/4G technology once the ACE cable is commercialised and the necessary infrastructure is in place. This will further eat into fixed-line activity.

Fibre-Optics

As the historic incumbent, Gabon Telecom had a monopoly of the country’s sole submarine fibre-optic cable, the SAT3/WASC, allowing it to cement its position as the sole provider of fixed telephone lines. This monopoly was broken up in late 2012, and while growth in 3G and internet service will rely on the existing 1.2-Gbps capacity of the SAT3 cable in the near term, the commercialisation of the ACE cable, which will quadruple national broadband capacity to 4.9 Gbps will have a significant impact. Cable landings were completed in Libreville and PortGentil in December 2012, but access to the cable has been delayed by efforts to establish the public authority that will manage public IT infrastructure, the Société de Patrimoine des Infrastructures Numériques (SPIN) and to select a private company to operate the cable. SPIN is expected to choose a private concessionaire and set the conditions and tariffs for ACE access before the end of 2014.

The government has outlined a $68m investment plan in 2013-14 to extend cable access to Franceville and eventually to the Congolese border, which will help to expand fibre-optic access nationwide. Of this funding goal, $58m was contributed through a World Bank loan facility to support the broader the Central African Backbone project (see IT overview).

Network Investment

Companies have invested heavily in the past three years to expand and upgrade their networks in preparation for the 3G launch. Gabon has an estimated urbanisation rate of 86%, and roughly half of the population resides in the two main cities, including 700,000 in Libreville and 100,000 in Port-Gentil. Naturally, network density is the greatest in these cities, and much of the investment in the coming year will be devoted to strengthening urban infrastructure. Private operators will be responsible for connecting their networks to the cable landing stations and either drawing cable or broadcasting to their individual clients.

Rural Access

Given Gabon’s sparse rural population and technical difficulties related to the terrain, approximately 85% of which is covered with dense rainforest, the cost of maintaining cellular networks increases exponentially outside of major cities. A number of private companies working on forestry, mining or petroleum projects in isolated areas primarily rely on satellite-based VSAT or private VPN technology in order to ensure the stability of cellular and internet connections (see IT overview).

However, operators are required to provide coverage in all provincial capitals under their licence agreements, so the build-up of the national 3G network will continue in the coming years. In the meantime, satellite service remains the most viable, cost-efficient solution in many rural areas, though it remains an expensive technology relative to the purchasing power of rural populations. Bharti Airtel signed an agreement with Gulf-based satellite service provider Thuraya in April 2014 to provide universal satellite coverage across its African markets, including Gabon. Airtel began commercialising these products in May 2014, according to company reports.

Infrastructure Sharing

Regulatory authorities are working to develop a set of incentives to encourage companies to mutualise telecoms infrastructure, which could help to significantly reduce equipment and maintenance costs and improve service quality, particularly in rural areas, but no announcements have yet been made. Such infrastructure sharing has helped lower costs elsewhere in Africa, including Ghana and Nigeria, where multiple operators use towers owned by an independent standalone company. However, considering that operators have already invested heavily to develop their networks and the high level of competition on the market, plans for tower sharing in Gabon may require significant incentives from the state. “Mobile operators are determined to improve service quality, which could be further helped by tower-sharing – a benefit of which would also be a reduction in costs,” Abdoulaye Cissé, director-general of Moov, told OBG.

New Services

As has happened elsewhere, operators are expecting the expansion of 3G coverage will make a host of new products and services available, including mobile apps, voice over internet protocol, videoconference, mobile television and data transfers. At present, conventional voice and SMS activity remain the primary sources of sector income, but value-added services – which bring in higher revenues – are expected to make a major jump when connection speeds improve. These will be critical to future growth, given that the mobile market is nearing saturation and monthly ARPU is decreasing.

Operators have already begun rolling out such services over the past two years, beginning with mobile money and banking. Airtel was the first to launch its programme, Airtel Money, in March 2012 in partnership with BGFI Bank, and picked up 80,000 customers in first six months of operation. Gabon Telecom launched its own mobile money programme, Mobicash, in April 2014 in partnership with Union Gabonaise de Banque. Azur is also developing Azur Money, which it plans to introduce in the near future.

Wider Use

A growing list of employers and retailers are now engaging with mobile payment platforms, including the national electricity utility, Société d’Electicité et d’Eau du Gabon (SEEG). A number of banks, including Ecobank and Banque Internationale pour le Commerce et l’Industrie du Gabon (BICIG), are working to move payment and banking services onto independent mobile platforms. These primarily consist of money transfers and account balance checks. For example, BICIG’s Mobiledan programme, launched in late 2013, allows subscribers to pay their SEEG electricity bills by mobile device on any network, without the need for a formal BICIG bank account.

Regulatory Context

Telecoms companies should see strong growth in 2014 as the market deepens, but new fiscal regulation is also on the cards. Two levies will be applied to mobile operators in 2014 as the government looks to build up its strategic investment reserves and to channel private revenue into key social services. Mobile operators pay 2% of net revenue into a special fund, Fonds Spécial du Service Universel. The fund, created in 2007, aims to ensure universal access to information and communications technology by financing the build-up of telecoms infrastructure in areas that offer little return to operators. ARCEP also reserves the right to apply fines equivalent to 10% of net turnover to compensate for damages or licence violations.

In addition, the government is also preparing to introduce a new levy that will channel another 10% of operators’ net revenue into a fund to support the universal health care programme. The fund, which is managed by the National Health Insurance and Social Welfare Fund, will also be supplied by a 1.5% tax on international money transfers leaving the Economic Community of Central African States.

The money will specifically go to support public health care costs for Gabon’s most vulnerable populations. Universal health coverage is a much-needed service in Gabon and stands to significantly impact efforts to reduce social inequality.

However, mobile operators argue that the fiscal burden is increasing faster in the telecoms sector than others, and at a time when fierce price competition and heavy investment in 3G infrastructure has already strained sector finances. Mobile operators and ISPs jointly established a Telecoms Operators Federation in 2014 in an effort to generate consensus among sector actors and strengthen their capacity for collective bargaining with the government. In the near term members will propose measures that could potentially ease the financial burden, for example, that taxes be based on profits rather than turnover.

Service Quality

Service quality has been a focal point in recent years, due in part to rising call volumes and increased scrutiny. ARCEP noted that the quality of mobile connections has declined since 2010, a trend which was brought to light during the 2012 Africa Cup of Nations football tournament when mobile networks were unable to accommodate the uptick in voice and data traffic.

In an effort to reverse this trend, ARCEP introduced twice-yearly audits to test network quality and coverage nationwide at a given moment. Following the first audit in March 2012, ARCEP imposed a total of CFA3.7bn (€5.6m) in fines on the country’s four mobile operators for failing to meet the quality standards stipulated in their licences.

Subsequent audits in December 2012 and June 2013 highlighted continued challenges, but things are generally looking up. The results of the most recent audit were published in September 2013, with Gabon Telecom coming in first in terms of network coverage, success rate in voice calls and data download rate. Moov came second, followed by Airtel and Azur in fourth place. For the first time, ARCEP observed that there had been an improvement in the quality of service across all four operators’ networks.

Handset Regulation

ARCEP is also working to reduce the prevalence of counterfeit phones, citing potential health risks related to products not manufactured according to international standards. According to ARCEP statements, counterfeit handsets are sold in Gabon at prices around $20-30. A campaign to randomly inspect retail inventories is set to begin shortly in the capital, before expanding to other cities later in 2014. The initiative is meant to go hand in hand with efforts to reduce the price of mobile handsets in order to make this technology accessible to a broader population. Officials have not specified whether this will be done through the application of state subsidies or other means.

Outlook

Gabon’s telecoms sector is undergoing an important shift in 2014. The highly competitive market will see two of its four operators merge, potentially changing the balance with the traditional market leader. The gradual launch of 3G coverage in the country will open up a number of long-awaited opportunities for expansion. Its implementation may be delayed in the near term by efforts to commercialise the ACE cable, but the potential offered by faster data connections is significant. As operators work to shoulder the sector’s fiscal burden, competition is likely to become even tighter. Even so, the telecoms market has proven to be very dynamic and will continue to serve as an economic multiplier in the years ahead.