Expanding subscribership and basic infrastructure make the market ripe for investment

Mirroring the trend throughout Africa, Ghana’s telecommunications industry is mostly driven by activity in the mobile segment. But the business also has a high level of competition that benefits from a liberalised market regime and a robust regulatory framework. The sector is crowded, with six operators in the lower to-middle-income country of 25m people, but this has not stopped operators from rolling out new infrastructure and services.

Changes

Recently, however, signs have pointed to price competition – which has largely driven subscriber growth up until now – potentially having run its course. Providers for the first time in years have begun to incrementally raise tariffs as they find their margins tightly squeezed due to a range of factors. The six mobile providers – along with an estimated 50 (of which only 18 are active) licensed internet service providers (ISPs) – have also had to face a more challenging business environment in recent months, which include power shortages, fibre cuts, and battery and diesel theft.

Mobile subscribers have surpassed 100% penetration, which has prompted operators to turn to data as the next frontier, both in terms of subscriber growth and revenues. The recent roll-out of 4G – which has seen licences allocated to newly formed indigenous firms, as opposed to existing operators in a bid to expand domestic content – should help stoke that in the future. For the moment, however, the majority of mobile data users do not consume large amounts of bandwidth.

High Impact

In spite of the large number of providers, in 2013 Ghana improved one position on Business Monitor International’s (BMI) Telecommunications Risk/Reward rankings to place fourth in sub-Saharan Africa behind Nigeria, Angola and South Africa, having scored above the regional average on all four of the key categories rated.

The high weighted score reflects the market’s solid growth prospects and overall political and regulatory stability. The report had indicated that the overall ranking would have been even higher were it not for relatively high market saturation and average revenue per user (ARPU) pressure. The Europe-based GSM Association (GSMA) has estimated that overall minutes of use (MOU) for mobile have increased 89% between 2009 and 2012, a testament to growing affordability and accessibility.

Regulatory Framework

As the country has been working to privatise and deregulate its telecoms sector, it has become a leader on the continent. The sector is guided by two main policies: the National Telecoms Policy (NTP) and the Information and Communications Technology (ICT) for Accelerated Development (ICT4AD) policy.

ICT4AD seeks to utilise ICT as a means to facilitate growth across all sectors of the economy, while the NTP aims to give affordable internet and telephone services access to every Ghanaian. The National Communications Authority (NCA), the Ministry of Information and National Orientation, and the Ministry of Communications are all tasked with overseeing development in the sector.

Fixed-Line Minimal

As with the vast majority of telecoms markets on the continent, most of the sector’s subscriber base has leapfrogged directly to mobile communications, resulting in very low fixed-line penetration numbers. Airtel and Vodafone are the only two carriers serving the fixed-line market, and total subscribers numbered just 270,422 at the end of 2013, a slight decline from the 286,495 figure for the beginning of the same year.

The fixed-line market is mostly comprised of nonresidential account-holders, who often purchase mobile and fixed-line bundles, with corporations making up the bulk of subscribers. Although the government is also one of the largest clients, it is aiming to reduce its fixed-line usage through the roll-out of broadband internet and a needs-specific voice over internet protocol (VoIP) technology, something that is being developed for public sector use as part of the broader e-Ghana initiative.

Mobile

Mirroring trends throughout the region, mobile subscribership has expanded nearly threefold over the past decade, rising from 30% to 87% of the population between 2005 and 2010, according to Kenya-based iHub Research. The GSMA has estimated that in the case of Ghana, every 10% increase in mobile penetration leads to a 1.4% rise in GDP, placing mobile communications alongside newfound resource wealth as key contributors to the country’s impressive economic growth that has been achieved in recent years.

Over the course of 2013 the NCA measured mobile subscribership as having increased from 26.1m in January to reach 28m by year-end, representing an increase of 7.4%. Though this places headline penetration in excess of 100%, due to the common practice of multiple SIM card ownership, “unique” subscribers are estimated to be far lower.

While there are no official NCA figures, a 2012 report by the GSMA estimates unique penetration to be 49%, while an OBG survey found that most estimates of that figure fell somewhere between 55% and 60%. Either way, this far surpasses the 31% average of people in sub-Saharan Africa in possession of a mobile phone, according to the GSMA.

Although a significant chunk of the population is still without access to mobile services, the pace of growth appears to be in decline, with BMI figures for mobile market growth having fallen from 21% in 2012 to 9.4% in 2013.

“The voice market is not entirely saturated, and there is room for further growth,” CEO of the Ghana Chamber of Telecommunications, Kwaku Sakyi-Addo, told OBG. “However, it is mostly the poor rural communities that are underserved.” Sakyi-Addo said that low literacy rates and insufficient availability of electricity, in addition to low purchasing power, are the main barriers towards mobile services reaching more remote outlying areas.

Coverage

According to the GSMA, in 2012 the country had 80% mobile coverage (measured by the percentage of the population with service, not by geography), which was 6% above the average coverage for West Africa, and just about on par with the 81% average for southern Africa.

Deploying infrastructure in far flung portions of the country is an expensive exercise, and for private operators this presents a hurdle as smaller villages lack the population density to provide the scale needed for generating commercial returns. However, in spite of the related costs, maintaining adequate infrastructure is crucial.

According to Haris Broumidis, CEO of Vodafone Ghana, “Networks are one of the main priorities for operators, in terms of customer relations – not only in regards to geographic coverage but also service quality.” Leo Skarlatos, former CEO of network solutions provider K-Net, believes that while government subsidies are required to encourage investments in rural telephone roll-out, under the right circumstances and business model a return on investment (ROI) can be generated for businesses. “This requires low build and operating costs and advanced power consumption technology that is not far away from being perfected,” Skarlatos said.

Retail Consumers

As in most other large African markets such as Nigeria, Kenya and Côte d’Ivoire, the majority of retail customers are pre-paid, as postpaid uptake is limited by the lack of a formal billing address system. The corporate market does present better prospects for post-paid activity, and according to Lucy Quist, managing director of Airtel, while typically it has been the larger enterprises that have purchased subscriptions for senior management, a wider range of businesses are seeing the benefit of offering subscriptions to a range of employees. “Businesses can assure they have greater continuity with customer contact as they retain the phone number once an employee leaves,” Quist told OBG.

However, the overall market potential is still somewhat constrained given the large size of the public sector in terms of overall formal employment and the fact that the government is not yet purchasing phone packages for its public sector staff.

The prevalence and likely continued dominance of pre-paid subscriptions and the tendency towards “multi-SIM-ing” could be interpreted as a positive market characteristic overall, as it provides evidence of active competition as consumers alternate between providers in an effort to take advantage of promotional deals and tariffs.

User Experience Magazine spoke to several multi-SIM users in Ghana who use phone lines with different networks to speak with people on that same network since calls are discounted that way. However, some users also have multiple SIM cards due to poor network quality, whereby consumers make the switch out of necessity when one network sees a high rate of dropped calls.

Data

As with voice, the majority of broadband connections are through a mobile platform – in the form of a data card or USB fob – rather than fixed-line ADSL (see IT chapter). According to the International Telecommunications Union’s “The State of Broadband 2013” report, 33.3% of Ghanaians had access to mobile broadband in 2012, placing the country first for Africa and 49th in the world. By February 2014, total data subscriptions reached 12.8m, equivalent to roughly 48% penetration.

As in so many emerging markets, operators, in the face of declining growth in voice subscriptions and the associated revenue generated (ARPU for some has fallen below $5/month) are aggressively seeking to expand their data subscriber base and generate more data usage per subscriber through value-added services. Among these services are mobile money, which customers can use to pay for services with their mobiles, and free insurance policies dependent on customers’ use.

“Given that only a limited proportion of the population currently has smartphones, as the number inevitably grows – and along with SME data enterprise activity – there is likely to be an explosion in data usage,” said Vodafone’s Broumidis.

Tigo pioneered the insurance scheme in 2011, after which Airtel and MTN followed. The free insurance ranges from $104 to $520 in coverage for one person and a family member provided the customer uses between $2.60 and $20.80 in airtime.

Pricing

Inflation for communications services and products for the year leading up to March 2014 was roughly at 5%, below the overall headline inflation of 14% and comparing favourably to the overall average and the other main expenditure baskets of housing, water and electricity (43.8% inflation), transport (27.3%), and clothing and footwear (16.7%).

Still, the rise is noticeable in part because of the tendency in previous years to push prices downwards in line with the high level of competition. Communication inflation for the 36-month period leading up to September 2012 hovered between 0% and 0.5%, and the more recent rise to 5%, Sakyi-Addo says, is a factor of operators unable to squeeze margins any further in light of increasing operating costs. According to the chamber, energy costs, which make up around 40% of operating expenditures for the industry, have increased by 70% over that same period, while other costs such as transport, rent on retail outlets and taxes have also been on the ascent.

“Relatively speaking, the Ghanaian consumer has had it good and this is evidence of competition serving its intended purpose. They enjoy some of the cheapest services in the region,” Sakyi-Addo explained. According to statistics from ITU, data in Ghana, for example, has been priced 4.5 times below COMPETITION: The high level of competition and the emphasis on price competition in previous years is, in part, a result of the success Ghana has had with the implementation of mobile number portability (MNP). Since MNP launched free of charge in July 2011, the cumulative number of porting requests registered by the NCA reached 817,202 and the programme appears to be maintaining momentum, with 447,095 ports taking place over the 12-month period ending August 2013 – a 21% year-on-year increase on the 370,107 ports registered for the same peri-Procedurally, Ghana has performed well, with the average porting time recorded as having dropped from five hours and 21 minutes in July 2011 to five “Relatively speaking, the Ghanaian consumer has had it good and this is evidence of competition serving its intended purpose. They enjoy some of the cheapest services in the region,” Sakyi-Addo explained. According to statistics from ITU, data in Ghana, for example, has been priced 4.5 times below the continental average.

Competition

The high level of competition and the emphasis on price competition in previous years is, in part, a result of the success Ghana has had with the implementation of mobile number portability (MNP). Since MNP launched free of charge in July 2011, the cumulative number of porting requests registered by the NCA reached 817,202 and the programme appears to be maintaining momentum, with 447,095 ports taking place over the 12-month period ending August 2013 – a 21% year-on-year increase on the 370,107 ports registered for the same period during the year prior.

Procedurally, Ghana has performed well, with the average porting time recorded as having dropped from five hours and 21 minutes in July 2011 to five minutes and 25 seconds by June 2013. Although overall ports to date represents only around 3% of the population, a lower figure is to be expected in a market with dual SIM ownership and a small proportion of post-paid contracts.

The Players

There are six mobile operators – five GSM and one CDMA – currently competing in the market, each with backing from an internationally listed group with a strong regional presence. South Africa’s MTN, which entered the market in 2006 through the acquisition of Investcom, is currently the largest player in both voice and data according to the NCA. In 2013 it held 46% of the voice market, followed by the UK’s Vodafone (21.5%), Sweden’s Tigo (14.3%), India-based Airtel (12.1%), Nigeria’s Glo (5.3%) and African telecoms player Expresso (0.48%). With just under 6.8m data subscribers in February 2014, according to the NCA, MTN’s data market share of 52.8% exceeded the collective shares of Vodafone (15.9%), Airtel (15.4%), Tigo (13%), Glo (2.4%) and Expresso (0.4%).

Of the 21 countries in which MTN has an active presence, Ghana ranked as its fourth-largest market for both revenues and subscribers for 2012, and in 2013 the firm announced that it would be investing GHS311m ($118.6m) towards network quality improvement and expansion projects.

Vodafone entered the market in 2008 when it paid $900m to purchase a 70% stake from the government for Ghana Telecom. The company, which marketed itself aggressively after entry, has since expanded its number of sites deployed from 300 in 2009 to reach 2000 by 2014. In January 2014 it announced that it would be allocating GHS55m ($20.97m) towards network upgrades and deployed 403 new sites by the end of March.

Airtel arrived through the acquisition of Kuwait-owned Zain’s 15 African operations. By the end of 2012, Airtel had about 1.7m subscribers, but by 2014, the mobile service provider’s base had doubled, with 3.5m customers within Ghana. The provider expanded into the insurance sector in early 2014.

Tigo, meanwhile, is the operating brand of Swedish-listed Millicom International Cellular (MIC), which has commercial operations in 13 markets across Africa and Latin America. As of mid-2014, the provider had about 4.1m customers and 17% of the Ghanaian market share in mobile service providers.

Glo initially acquired a licence in 2008 and has declared it is targeting the capture of a roughly 30% market share in the short term, although its launch was subsequently delayed until 2012. The telecoms company has opted to invest in its own towers – which, according to local media reports, number more than 1000 – rather than participating in infrastructure-sharing initiatives.

Expresso has been present in Ghana since 1995 and relies on CDMA wireless technology. It has a market share of below 1%. Its parent company, Sudan’s Sudatel Telecom Group, has openly stated that it will be looking to sell off some of its assets across the continent, raising the prospect of the possible entrance of a new operator.

Currency Pressure

Ghana has faced a decline in currency valuation in recent months, with the cedi depreciating 60% against the US dollar in 2014. The Bank of Ghana (BoG) implemented measures to stem the fall, but has since reversed those measures as the currency has slowly been recovering (see Banking chapter). “Currency volatility is a major issue for us, and we as with the rest of the industry, purchase most of our equipment from abroad in US dollar contracts. If we sign a contract today, and the terms call for payment in one month, because of rapid depreciation the cost of that equipment becomes a lot more,” Jackson Gomashie, the IT manager at an ISP called iBurst, told OBG.

Taxes And Duties

Another challenge facing the sector comes from the fiscal burden operators must deal with. Ghana’s telecoms sector has benefitted from robust oversight and a liberalised and competitive regulatory framework, but private sector representatives have raised concerns over the level of taxation. A report released in 2012 by Delta Partners, a UAE-based investment firm, calculated that the taxes, tariffs and licences issued to the telecommunications sector in Ghana accounted for 10% of all government revenue.

In a 2011 Deloitte/GSMA Global Mobile Tax Review, which surveyed 30 countries in sub-Saharan Africa and that ranked tax as a proportion of the total cost of mobile ownership (TCMO), Ghana came in eighth place at 22%. Mobile operators in the country contribute 2.5% of their revenues as a health insurance tax that goes towards a government health services fund, while a further 2% of company revenues are paid out as regulatory fees.

Although not a direct tax, the Chamber’s SakyiAddo points out that operators are also burdened by a 20% import duty and 15% value-added tax placed on handset devices. “While the policy might be a short-term revenue generator for the government, it comes at the expense of the government’s longer-term goal of providing mobile and internet services to the entire population,” he said.

Since 2010 the government has imposed a minimum interconnection fixed rate of $0.19 per minute on inbound international calls, $0.06 of which is a set amount surcharge collected by the Ministry of Finance. The GSMA found that mobile network operators experienced a 35% drop in international calls in the month after the surcharge was introduced.

In addition, the report also found that the surcharge has also brought about an increase in the illegal practice of SIM boxing to redirect international calls through VoIP, as due to the gap in charges between where calls are terminated, this now creates arbitrage opportunities.

A Fine Balance

One area in which regulation has been particularly active is ensuring service quality, something that Ghana generally done a better job of improving than most of its neighbours in the region. Nonetheless it does suffer from disruptions to coverage. In the second quarter of 2013, for example, the NCA fined each of the operators, with the exception of Vodafone, for not meeting prescribed quality of service (QoS) standards.

Glo received the highest fine of the five and was penalised GHS200,000 ($76,240) for its determined breach. MTN and Airtel were each fined GHS100,000 ($38,120) for defaulting on their commitments in the central and western regions. Tigo was sanctioned GHS50,000 ($19,060) for falling below quality standards in the central region, while Expresso was ordered to build sites in Kasoa and Essikado for not meeting its obligations there. FAIR FINES?: According to Praveen Sadalage, the managing director of BusyInternet, “The fines being imposed are a slap on the wrist, but one needs to look at the picture more holistically to get to the root of the problem.” Airtel’s Quist disagrees, viewing the fines as a meaningful deterrent not only for the financial losses accrued, but for the reputational damage caused in the court of public opinion. “Operators can contest the fines, but the minute they are announced to the public, they are considered guilty regardless of the final verdict,” she said.

The Chamber’s Sakyi-Addo believes that while it is justifiable for the regulator to clamp down on operators who are not adequately investing in infrastructure, there is a need for flexibility in terms of measuring indicators. “Applying first-world key performance indicators in a third-world environment becomes a challenge as telecoms does not operate in a capsule,” Sakyi-Addo explained. “There are external factors beyond the operators’ control that impact on QoS such as power cuts, cable theft, a lack of urban and rural planning, and a slow and costly permitting process for towers.”

K-Net’s Skarlatos concurs that there are QoS impediments that operators cannot influence, such as the need to ensure faster turnaround for tower permits to maintain quality. “Upon adding excess subscribers within a certain radius around a single tower, call quality will drop unless a second tower is constructed,” he told OBG.

Outlook

While operators are confronted with cost and operational pressures, Ghana’s scope for growth in data and value-added services is high, and a clear and robust regulatory regime ensures an even playing field for the nation’s six operators. In addition to the 1.5m local jobs and 10% of total tax revenue the sector generates, active competition engenders better services and more affordable prices for end-users. This has lead to some of the highest penetration rates in West Africa, especially in terms of data usage. Ghana’s trend towards the sharing of infrastructure, in particular tower co-location, and the arrival of more advanced technologies (see IT chapter) is expected to lead to greater efficiencies and help offset rising costs of the industry. That, in turn, is expected to bring the sector back to sustained profitability for operators while also opening up new opportunities for network providers and vendors.