Ghana’s telecoms operators eye expansion

Competition is heating up in Ghana’s telecoms market, with growing demand for data prompting operators to roll out large-scale investment programmes in order to expand network capacity.

With the bulk of Ghana’s internet access now coming via mobile handsets –as is the case in many emerging markets – the pressure on network infrastructure has increased dramatically. In the two years to March 2015, for example, mobile data penetration nearly doubled, from around 8.8m people to 16.1m, with total penetration increasing from 34.8% to 59.7%, according to the National Communications Authority (NCA), the sector regulator.

Investing in the network

To keep pace with growing demand, several of Ghana’s top mobile operators have announced sizeable investments to boost capacity and position themselves to offer a wider portfolio of services.

Ebenezer Asante, the newly-appointed CEO of MTN Ghana, the South African telecoms operator’s local subsidiary, announced $103m worth of investments in June to “expand, optimise and maintain” its network this year. This comes on top of the more than $2.4bn already invested between 2006 and 2014.

Nor is MTN the only one. Tigo, the branded name for the local subsidiary of Sweden’s Millicom International Cellular, announced in July that it would channel $24m into its own network expansion efforts, to be completed by the first quarter of 2016. The company aims to open 275 new base stations, in addition to the 1050 already in operation across the country. This should help improve network quality and geographical coverage, while also easing bottlenecks in areas known for heavy usage, boosting internet speeds and call quality.

In a similar move, in late July Airtel Ghana announced plans to expand its network with a view to improving data services, with GHS200m ($51.7m) earmarked for the build out.

Infrastructure sharing

The expansion of proprietary infrastructure is only one facet of the push by the telecoms sector to ensure ample capacity for the growing demand.

Unsurprisingly, given the high cost and capital-intensive nature of telecoms and IT infrastructure in West Africa, where inputs such as electricity are expensive, tower sharing is on the rise. International tower companies, including American Tower Corporation, Eaton Towers and Helios Towers, have a sizeable presence in Ghana.

Tower co-location serves as a cost-saving measure that prevents duplication of capital expenditure for operators, and in Ghana, five of the six mobile operators having struck tower deals in the form of either sharing or outsourcing over the past few years. New Nigerian arrival Glo is the exception, using its own infrastructure.

Untapped potential

Market fundamentals also bode well for the industry. The number of mobile phone subscribers rose to 31.2m, for a penetration rate of 115.6%. However, as many Ghanaians own two or more SIM cards, unique subscriber penetration is estimated to be much lower. While the NCA does not compile unique subscriber data, the Europe-based GSM Association estimated that penetration stood at around 50% as of 2013, though this has likely risen since.

Value-added services are also becoming increasingly accessible for lower-income customers thanks to the growing affordability of smartphones. Among the measures helping to boost the use of smartphones, which currently account for just under one-sixth of all handsets used in Ghana, is the suspension of a 20% tax on imported smartphones. The measure was due to come into effect at the beginning of the year, though press reports indicate implementation has been patchy.

Tariff costs are also comparatively low. According to the Ghana Chamber of Telecommunications, the average call in Ghana costs around GHS0.09 ($0.02) per minute – the least expensive on the continent – and have been aided in part by the NCA’s efforts to encourage mobile number portability, which emphasises price competition by allowing customers to retain their number even when switching operators.

The programme was initially launched in 2011, but has seen considerable growth since then: the length of time it takes to complete a port has dropped from five hours to five minutes, and by February 2015, nearly 10% of the population had ported their numbers.

One eye on the margins

Low prices are due in large part to fierce competition in a relatively small market, reinforced by the high price sensitivity of the telecoms industry. Mobile operators have traditionally been reluctant to increase call tariffs even as back-end costs rise, which has further heightened the need for new sources of revenue.

“It will be 3G and 4G that drive market growth,” Gareth Townley, managing director at Eaton Towers Ghana, told OBG. “SMS and voice have become pretty saturated, but data demand is continually expanding in Ghana.”

External cost pressures are also increasing for Ghana’s mobile operators, with consumer and producer price inflation on the rise – up 17.1% and 23.1% year-on-year in June, respectively – and the cedi down 22% in the first sixth months of the year. This has driven up the cost of imported equipment, while power disruptions necessitate the use of expensive generators to bridge gaps.

Despite growing concerns that tighter margins could see operators rethink their plans to double down on network expansion projects, for the moment the near-term outlook appears to herald even greater accessibility and affordability for consumers, as firms bank on value-added services to support average-revenue-per-user rates.