Africa - rapid growth of telecom

Africa’s telecom industry is fastest growing

Africa has the fastest growing telecommunication industry. A new survey by Ernst & Young released Thursday shows that between 2002 and 2007, the industry grew by 49.3 percent as opposed to Asia which recorded a 27.4 percent growth.

The report pools Kenya in the category of countries with highest net addition of subscribers per month. The net addition in this group is estimated at between 20 and 49 percent.

The world bank in a report titled Africa’s Infrastructure: A Time for Transformation, estimates Kenya’s mobile penetration at 95 percent and a coverage gap of only 5 percent.

The Ernst & Young report’s estimate growth of the industry almost doubles that of Brazil which stood at 28 percent in the same period and is almost seven times the growth France which grew at 7.5 percent over the same time.

But the report titled Africa Connected: A Telecommunication Growth Story also shows that the operators in the industry faced major challenges that need to be overcome for the industry to grow to its full potential. Political uncertainty was singled out as one of the key challenges faced by telecoms operators.

Says the report, “although the political situation has been relatively stable for the last few years, operators are still mindful of the potential for serious conflict.”

The report also outlines the regulatory regime as the other major bottleneck in the industry with 88 percent of the operators interviewed in the survey saying the continents regulatory bodies were not robust enough.

Speaking during the launch of the report in Nairobi, Safaricom’s chief executive officer Michael Joseph lamented that most regulators were not exposed to business.

“With most regulators having evolved from the post and telecommunication corporations, the regulators were still bureaucrats who want to regulate regulations instead of facilitating the business” said Joseph.

Joseph also pointed out that most regulators were not independent as they are political appointees. A good example of the negative impact of political regulators Joseph said was South Africa.

“In South Africa you have a regulator who keeps on interfering with the market all the time. As a result you have a huge market where there are only three operators,” he said adding that the situation had made the country to have the highest call charges in the continent.

Speaking in the same meeting Communication Commission of Kenya (CCK) Manager policy and economic regulation James Njeru concurred with Joseph saying that regulation was a difficult business for African regulators given their background, where they were moving from post and telecommunication monopolies with a major focus on liberalizing the market.

“However, we are slowly moving into facilitation of business as witnessed by the recent enactment of the amendment to the Kenya Communication Act and the development of the framework for unified licensing,” said Njeru.

The report also identifies a heavy tax burden on consumers and operators as the other major challenge for the industry, with the average taxation on the operators’ profits standing at 30 percent.

“Kenyans, for example, pay a tax of 26 percent on mobile communication and Safaricom has been acknowledged as the the highest corporate tax payer in the country, says the report.

While the report acknowledges that the the industry is highly profitable, it also points out that the return on investment could be delayed due to poor infrastructure.

Joseph gave the example of infrastructural challenges facing Safaricom which had 2000 standby generators because to frequent outages in the country.

“Safaricom spends over KShs 171million on diesel due to lack of power in the country. This makes cost of investment in Kenya to be five times more than South Africa,” say Joseph.

As a result of the rapid growth, the report notes, the industry was attracting foreign interest while in some cases operators were merging in a consolidation drive that is likely to last for some time into the future. An example of consolidation is the merger between Telkom and France Telecom in Telkom Kenya