Clearer signals: As the mobile market approaches saturation, operators look to 3G and value-added services for growth

Competition continues to grow in Gabon’s mobile telephony sector, as four operators vie for market share in a population of just 1.5m. As mobile subscriber numbers are nearing saturation, future growth will be driven by the expansion into new products and services. Two projects that have long been in the works – commercialisation of the new Africa Coast to Europe (ACE) fibre-optic cable and the launch of 3G service – are expected in the next 12 months.

In anticipation of the rise in capacity, mobile operators are working to introduce value-added services and improve overall network quality. This move stands to boost sector activity at an important time, as fierce competition squeezes operators’ profit margins. Substantial public and private investment will be needed to improve Gabon’s telecoms infrastructure, but the sector holds considerable potential for expansion once this important issue is addressed.

MARKET GROWTH: The combined turnover of telecoms operators has increased by 24% since 2009, reaching CFA261.3bn (€392m) in 2012. Mobile telephony accounted for 85% of sector turnover in 2012, generating revenue of CFA226bn (€339m). The mobile segment has expanded rapidly since the liberalisation of the sector in 1999; turnover has increased by 30% in the last four years, including 13% growth in 2012 alone. The state-owned operator, Gabon Telecom, was partially privatised in 1999, and Maroc Telecom acquired a 51% share in 2007. The market diversified with the addition of three other mobile providers over the past decade, and subscriber numbers have exploded as competition has pushed prices down.

Gabon became one of the first countries in Africa to exceed 100% mobile penetration in 2008. Operators estimate that the gross number of mobile customers reached 2.52m in 2012, well beyond the population estimate of 1.5m people. This figure is inflated by inactive pre-paid accounts, as well as the widespread practice of owning multiple SIM cards to take advantage of coverage disparities and special promotions across different networks. The market remains firmly anchored in pre-paid contracts, which account for an estimated 99% of customers, a situation that encourages the ownership of several SIM cards without increasing overall usage. Some operators are trying to shift towards post-paid mobile services, but the banking penetration rate will need to grow before such services can take root. Operators are also working to streamline their registers by removing inactive accounts; for example, Gabon Telecom culled an estimated 300,000 inactive accounts from its database in 2011.

The Regulatory Agency for Electronic Communications and Postal Services, (Autorité de Régulation des Communications Électroniques et des Postes, ARCEP), estimates that accounting for holders of multiple SIM cards, the total number of mobile customers reached 1.64m in 2012, a 6% increase year-on-year. While positive, this growth rate is down from growth of over 25% in both 2009 and 2010. ARCEP estimates that the real penetration rate is approaching 98%, leaving little room for growth in terms of subscriber numbers.

Operators’ average revenue per user (ARPU), historically one of the highest in the region, has declined roughly 30% in the past five years as the client base nears saturation. Future growth will come from the introduction of new products, rather than price competition. The launch of 3G service, anticipated by early 2014, as well as the recent arrival of products such as mobile money, should help to generate new sources of revenue for operators. While small, the Gabonese market has proven to be a rapid adopter of new technologies, and this bodes well for growth in the future.

FIXED LINE: As Gabon’s mobile revolution continues, the fixed-line telephony market has steadily lost ground. Gabon Telecom had a monopoly on fixed-line telephone service and access to the country’s fibre-optic cable, the South Atlantic 3/West Africa Submarine Cable (SAT3/WASC), until late 2012. Although the field has now been opened to other operators, Gabon Telecom’s existing infrastructure and client base mean that it is likely remain the primary fixed-line operator. Fixed subscriber numbers have dropped 38% from 36,460 lines in 2009 to 22,611 in 2012. While mobile penetration is approaching 100% today, fixed-line penetration has dropped to 1.5% of the population.

The public sector is the primary client for fixed-line services, but this may fall further in the near term as the government looks to adopt a new internal telecommunications system. The state has distributed roughly 500 WiMAX internet keys as an interim measure, and is exploring options for the installation of an internal communications platform that would rely on 3G or long-term evolution (LTE) technology.

Further expansion of the fixed-line network would be limited by the sparse population outside of cities and the absence of price competition. However, the imminent arrival of a new fibre-optic cable to the country could help to increase demand for fixed internet service, and telephone lines could be bundled with internet access in the future.

LEGACY OPERATOR: The future of Gabon’s telecoms sector lies in mobile telephony, where four domestic operators are vying for market share. Gabon Telecom, operating under the brand Libertis, now has the second-most mobile subscribers. Its mobile clients expanded 46% to reach 777,378 in 2012, giving Libertis a 30.8% share of the mobile market. This is on par with its market share average since 2009, and a considerable gain on the 22.5% share it held in 2011. These earlier losses may be partially reflect to the operator’s efforts to remove inactive accounts in 2011.

Gabon Telecom’s turnover from both telephone and internet services rose by 9% year-on-year to reach CFA75.3bn (€113m) in 2012. This increase was largely supported by mobile services, whose revenue expanded by nearly 31% year-on-year to reach CFA40bn (€60m), after a major drop in turnover in 2010 and stagnation in 2011. Revenue from fixed-line internet and telephone services, however, dropped by 9% to just over CFA35bn (€52.5m) as the expansion of the mobile market continued to erode demand for fixed lines.

OTHER PLAYERS: Celtel Gabon was awarded the second mobile licence in 2000. The firm was rebranded as Zain in 2007 when the Kuwaiti group acquired Celtel’s African operations. India-based Bharti Airtel acquired the group in 2009, and it now operates under the brand Airtel. While Airtel’s mobile subscriber numbers dropped from 1.3m in 2011 to 1.2m in 2012, it maintained a solid lead with 47.6% of total subscribers.

Turnover from mobile operations grew 8.2% year-on-year to reach CFA146.6bn (€220m), accounting for more than half of sector revenue. The company has invested heavily in expanding its products and services and turnover and estimates that its network currently covers 85% of the country, up from 80% in 2008, following a CFA50bn (€75m) investment in equipment purchases, network modernisation and expansion.

Atlantique Telecom, a West African group operating under the brand Moov, became the third mobile operator in 2006. Atlantique Telecom, which operates several other African networks in addition to that in Gabon, is owned by the UAE-based Etisalat group. Moov had just over 370,000 subscribers in 2012 for a 14.7% market share. This is down slightly from a 15.8% market share in 2011, but generally on par with its performance since 2009. Turnover from mobile service grew by almost 21% year-on-year to reach CFA28.8bn (€43.2m).

Bahrain-based Usan, a subsidiary of the Lebanese group BinTel, obtained the fourth mobile licence in 2009 and operates under the name Azur. It has carved out a 6.9% share of the mobile market in its first four years of operation. Subscriber numbers increased by 3.7% in 2012 to around 174,000, and turnover inched up 2.5% to CFA10.6bn (€15.9m). Revenue exploded in Azur’s first two years of operation from CFA394m (€591,000) in 2009 to CFA11.4bn (€17.1m) in 2010 but both turnover and subscriber numbers dropped by roughly 9% in 2011 as the initial take-up slowed.

Azur has reportedly invested CFA28bn (€42m) since launching operations in 2009. The firm estimates that its network covers 2.4% of the national territory – focused on Libreville, Port-Gentil and the surrounding areas. Though small, this area does cover an estimated 72% of the Gabonese population.

INTERNET CAPACITY: Much of the revenue and subscriber growth witnessed in 2012 can be attributed to the expansion of mobile internet, which is becoming less of a luxury as prices come down. Mobile internet customers increased 78% year-on-year to reach 461,461 users in 2012. This is a significant rise from the 22.3% growth seen in 2011. Mobile clients represent the vast majority of total internet users (93% in 2012) and are likely to continue to be the majority, even when the cost of fixed-line internet service eventually decreases. Part of the reason behind this uptick is a series of price cuts that have been introduced since 2012. Both Libertis and Airtel have cut mobile internet prices by 25-33% in anticipation of increased competition in 2014.

While Gabon has a number of infrastructural challenges to overcome, the telecoms sector is on the verge of a major transition as operators prepare for the official launch of 3G services. Commercialisation of the ACE fibre-optic cable, expected by year-end 2013, should allow for the launch of 3G by 2014. The ACE cable will raise Gabon’s broadband capacity from 1.2Gbps to 4.9Gbps, which will improve the speed and accessibility of internet connections for a broader audience. Furthermore, access to the ACE’s bandwidth will be open to all operators at standardised prices, which will help to generalise these technologies and bring mobile internet prices down further.

3G LICENCES: The government originally launched a tender to mobile telecoms operators for 3G licences in 2010 for CFA33bn (€49.5m), quite a steep price given the returns expected from a market of only 1.5m people. After much consideration, Airtel was finally awarded the first 3G licence in October 2011 at the much-reduced price of CFA5bn (€7.5m). Airtel negotiated access to the SAT3/WASC cable from Gabon Telecom in preparation for the launch of 3G services in late 2011. However, the government has yet to issue the final enabling licence, as it continues to study the circumstances surrounding the introduction of 3G.

The limited bandwidth of the SAT3/WASC cable was one possible obstacle to the 3G launch, but ARCEP is also concerned with competition. Gabon’s telecoms licences are generally more expensive than in other parts of the sub-region, and the CFA5bn (€7.5m) 3G licence price might prove prohibitively high for smaller operators. So far, Airtel is the only operator to have officially obtained a licence and the price tag may be sufficiently dissuasive to limit extensive competition.

In addition, the government is currently discussing whether to issue 3G licences to the two mobile operators that have shown interest or to simply relaunch the licence tender process altogether in the second half of 2013. At the time of writing, the state has yet to communicate when a decision will be released, but the official domestic launch of 3G mobile services continues to be expected before January 2014. Regulators are also weighing whether to offer the country’s operators the option to jump directly to 4G technology services and to offer 3G licence extensions in the future.

Gilbert Nzola Nze, director-general at the Ministry of the Digital Economy, told OBG that once the remaining political decisions are made, “these developments will provide a stimulus the ICT sector has not seen before. Mobile operators will benefit from increased data speed and reduced costs, which will help to make this technology more accessible to the public. The telecoms outlook for 2013 year-end is positive for operators across the board.”

VALUE-ADDED SERVICES: Value-added services such as voice over internet protocol (VoIP), videoconference, mobile television and data sharing represent no more than 5% of current operator revenue, according to industry estimates. However, such services are expected to see a major jump after the introduction of 3G. Indeed, the sector depends on it, since the market is nearing saturation and the ARPU is decreasing.

Given the anticipated level of demand for value-added services, ARCEP and mobile providers will be carefully studying their pricing models. Given the constraints on current broadband access, many mobile internet plans are already priced according to the level of traffic, which should help to avoid some of the pitfalls related to “over-the-top services” such as VoIP, internet television and other high-volume applications. The existing network has proven, at times, to be incapable of handling spikes in demand for voice and SMS traffic, and this could be a concern for the introduction of more sophisticated services.

MOBILE BANKING: One value-added service that has experienced initial success is mobile money. Mobile financial services should increase operators’ revenues and expand access to banking services to a larger segment of the population. The banking penetration rate is now estimated around 10% in Gabon, a low figure considering the country’s national per capita income (see Banking chapter). This, combined with near-complete mobile penetration, make Gabon an attractive market for such value-added services.

Mobile money programmes create a virtual financial platform that allows customers to make payments, purchase goods and services or transfer funds on a mobile phone and without a formal bank account. Airtel was the first to launch this service in 2012 with its Airtel Money programme, in partnership with the local BGFI Bank. Officials recently announced that plans are in the works to create a partnership with Western Union that could facilitate international money transfers.

Gabon Telecom announced in March 2013 that it will partner with mobile financial services specialist Mahindra Comviva to launch mobile money services. The programme, Mobi Cash, coupled with “mobiquity” mobile financial applications, was launched in 2010 by Gabon Telecom’s parent company, Maroc Telecom, and has already been deployed in other subsidiaries. Other operators have also been mooted as potentially exploring options for mobile money. Moov’s network in Côte d'Ivoire, for example, currently offers Flooz, a mobile money service backed by a local bank.

QUALITY CONTROL: ARCEP has observed a continuous degradation in network service quality since 2010, at the same time that price wars have eaten into operators’ profits. Market competition has led operators to push to extend their infrastructure networks despite dwindling investment budgets, occasionally to the detriment of the quality of the connection.

The 2012 African Cup of Nations football tournament, which Gabon co-hosted in January-February, highlighted this problem. ARCEP launched twice-yearly audits to test network coverage and connection quality nationwide at a given moment. An audit in mid-2012 confirmed that the providers’ networks were unable to handle the increased volume of voice and data traffic seen during the tournament, resulting in poorer connection quality across the board. ARCEP imposed a total of CFA3.7bn (€5.5m) in fines on the country’s four mobile operators in March 2012 for failing to meet the quality standards stipulated in their licences.

In addition to service quality concerns, ARCEP also intervened in January 2013 to correct irregularities in the payment of inter-network call fees, which cover inter-operability costs. The sector regulator created a standardised price list for inter-network calls in 2009, and stepped in again in 2011 to facilitate agreements among operators over unpaid interconnection fees. Special rates apply to the significant market power (SMP) in terms of subscriber numbers and turnover; according to ARCEP, the SMP (such as Airtel, currently) is required to pay a fee of CFA38 (€0.06) for calls to any of the three other networks; other operators pay CFA30 (€0.05) for calls to the leading network. ARCEP also moved to correct under-reporting of incoming international calls in February 2-13. Since March 2012, a minimum tax of CFA137 (€0.21) is applied to all incoming international calls. ARCEP found that the SMP had under-stated the volume of incoming calls at the time of the audit in December 2012.

INFRASTRUCTURE BUILDING: Meanwhile, operators are working to improve and expand their infrastructure networks, to position themselves for the arrival of 3G and subsequent uptick in traffic. According to local press reports, Gabon Telecom plans to expand its network through the addition of 120 new relay antennas nationwide in 2013-2014. The company plans to strengthen its ADSL offer in the interior of the country by expanding internet service to two additional provincial capitals, Makokou and Koulamoutou, in addition to the six cities it already serves.

In late 2012, Bharti Airtel launched an overhaul of 16 of its African networks in partnership with Swedish firm Ericsson. Under the network transformation programme, Ericsson will upgrade and extend elements of its network, including switching, radio, data capacity, charging systems and consumer-service platforms. Bharti Airtel executives then announced in June 2013 that the company plans to invest a total of $125m in Gabon to strengthen its 3G and 4G networks (when these are made available).

The government has outlined a $68m investment plan in 2013-14 to extend cable access to Franceville and eventually to the Congolese border, as part of the Central African Backbone (CAB) project, funded by the World Bank and the African Development Bank.

The basic technical preparations for this expansion are complete. Cable landings in Libreville and PortGentil were delivered in December 2012. The government is now working to set the conditions and tariffs for access to ACE bandwidth, which will be managed by the Société de Patrimoine des Infrastructures Numériques (SPIN), and finalising the process of granting 3G licences via the telecoms regulator, ARCEP.

MERGERS & ACQUISITIONS: As Gabon’s mobile telephony segment expands, several moves stand to cement the already important role played by foreign firms. Usan Gabon’s parent company, Lebanon-based BinTel, also manages Azur brands in the Central African Republic and in the Republic of the Congo. As of March 2013, BinTel was reportedly looking for a buyer for all three units. While Azur is the newest entrant on the Gabonese market and holds the smallest share of mobile subscribers, its position as the top-rated network for connection quality in 2012 may help to propel the brand forward in Gabon, and its tight regional focus could be an attracting factor for potential partners.

The future of Gabon Telecom is also under consideration as the stakeholders in its parent company shift. Vivendi is in negotiations for the sale of its 53% stake in Maroc Telecom, which in turn owns 51% of Gabon Telecom. Etisalat had been competing with the Qatari state-owned firm Ooredoo (previously known as Qtel), but Etisalat emerged as the top contender when Ooredoo withdrew its bid for the €4.2bn stake in June 2013. Should it be successful, this would open up the possibility of a merger between Gabon Telecom and Etisalat’s Gabonese holding, Atlantique Telecom. The deal is unlikely to close before late 2013, as the Moroccan government owns a 30% stake in Maroc Telecom and must approve Vivendi’s choice of buyer.

OUTLOOK: The current absence of 3G services means that the Gabonese market has considerable room for growth, despite the small size of the population. The introduction of services like rapid data transfers and mobile financial services will be critical for further sector expansion. Commercialisation of the ACE cable has been held back by administrative processes and projects to expand digital infrastructure.

Provided that regulators reach an agreement before year-end and the first 3G licences are officially granted, the market stands to leap ahead in 2014. Private companies have an important role to play in providing the technical support necessary to expand and refurbish the national telecoms infrastructure. Much work remains to be done, but the proactive role taken by ARCEP to enforce quality standards and competition bodes well for sector growth in the medium term.