Thursday, March 25, 2010

Africa - The Rationale For Indian Telecommunications Investment In Africa

[glg group] Although India and Africa are vastly different in many respects they are also very similar in terms of their current total populations and aggregate, or average wealth, as well as their history of European colonialism. Mobile telecommunications is another area of similarity between the subcontinent and the continent. In both environments mobile telephony has emerged as the vehicle through which tens indeed hundreds of millions of Africans and Indians have gained their first access to telecommunications services for voice communication and messaging. The economic and social impacts of this development – the result of a combination of technological progress and market liberalization – have already been remarkable. Yet the potential of telecommunications access has only just begun to be exploited. It will be multiplied many times as and if new broadband wireless networks are deployed. Both Africa and India pose formidable challenges to the further development of affordable, more powerful telecommunications services, which are in some key respects very different from those confronting operators in regions such as Western Europe, North America, and Japan. These obstacles are the result of low income levels and major deficiencies in infrastructure (transport, electric power) as well as institutional weaknesses and episodes of social violence that erupt in many localities. Nevertheless it is encouraging how many innovations have been introduced from inexpensive terminals adapted to harsh environments to renewable, self-contained energy sources to imaginative distribution channels and operational procedures to enable affordable, suitable and useful services to be brought to millions of low ARPU users. Indian operators have been pioneers in these developments. Interest in the low cost Indian operator model has been heightened by Bharti's attempts to become a major player in Africa through an acquisition. So it is instructive to assess the differences between Africa and India to understand the extent to which Bharti's Indian experience can be transferred to Africa. There are significant differences between India and Africa in terms of the economies of scale that can be achieved and the required investments given their very different population densities, workforces, and political and regulatory structures. Africa includes over 50 countries and hence regulatory regimes, while India has one regulator, albeit with 23 mobile license areas or circles. India is also a high density area, so it inevitably enjoys greater economies of scale and lower capex per population covered compared to African countries. Furthermore India is one of the fastest growing economies in the world with a large service sector. Hence not only does the Indian economy do more value addition and exhibits a relatively higher propensity to spend than Africa, but it is better equipped to implement the outsourcing model for which Bharti and its private sector compatriots are well known.Nevertheless the potential for growth in Africa is enormous. Mobile markets in Africa are turning into a battleground between operators based in Europe, the Middle East, South Africa, and India, and quite likely China. M&A will undoubtedly be part of the initiatives and competitive maneuvering that will define and reshape the future structure and dynamics of these markets that are not only important in their own right, but also provide core elements of the capabilities available to Africans that can enable them to enhance the quality of their lives and the wealth of their economies.

The Rationale For Indian Telecommunications Investment In Africa

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