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October 01, 2005

Telecoms in Africa.

Owen has a piece up about mobile telecoms in Africa. Essentially, everyone knows that reducing taxation on them is a good idea but they need the money now and so we should fund the change by plugging the gap in revenues.

Yes, yes, I know, everything reminds Owen of the necessity to send more money.

Another thing that’s just popped up is Nicholas Negroponte unveiling the $100 laptop (of which I want at least one) via the BBC.

But as I noted way back in March, the laptops are not really the main problem. It is, in Negroponte’s own words, the incumbent telecoms monopolies.

Which, no doubt, means that Owen will be calling for more money to be sent. Sigh. There is an alternative, of course. They can simply sell off their State owned monopolies and use that to plug the revenue gap until the supply side reforms increase revenue in the longer term. As Owen states that the reforms will.

Why not? After all, we did.

October 1, 2005 in Make Poverty History | Permalink


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I've been contracting for a mobile telco that has operations in several African countries and we've currently working in two of those (on and off).

I would have said that in sub Saharan Africa, most incumbents face competition from at least one mobile network if not more. eg. Congo has five operators, MZ three. Obviously fixed networks are another story.

Against that, independents (eg Vodacom) often have a portion of shares held by the government/incumbent.

Another factor that needs highlighting is termination charges. When a call starts on one network and terminates on another, the caller pays his network only. That network then pays the terminating network for ending the call. Small companies tend to have more offnet calls than large companies. In order to increase competition, the cost of termination is regulated. If this is too high, competitors will not enter the market, if too low, the cost of the terminating network will not be recovered.

Of course your point about selling off the state run networks is obviously barking. Why own 30% of an independent that makes a profit when you can own 100% of an enterprise that loses money?

Tim adds: The usual example given is Ethiopia which has only the State incumbent for mobiles...and much lower usage levels and penetration.

Posted by: JohnM | Oct 1, 2005 3:32:14 PM

I think it was early days in d^2 digest that I explained why you have to be bloody careful what you privatise in an undeveloped financial system with no capital controls ...


Posted by: dsquared | Oct 1, 2005 11:25:09 PM

dsquared pretty much covered it; who do they sell to? There isn't enough money in the local economy (by definition, they're underdeveloped), so they sell off their primary assets to overseas capitol?

A country that is developing needs to keep profits within the country while it developes as much as is possible. Maybe if there was some way of selling things of, even if only partially, but ensuring that the profits for the first X years after the sell off were only allowed to be invested domestically? Workable?

Tim adds: I’m unconvinced by the argument that industry has to be locally owned. Extremely unconvinced. Tha vast majority of the benefit (according to Nordhaus, 97%) goes to the general population and only the remainder goes to those who own the business. Not enough to worry about.

Posted by: MatGB | Oct 2, 2005 1:35:41 PM

Owen's probably not going to like this because quite frankly I do not see more money as the answer.

My experience is largely limited to South Africa, and I am not in the telecoms industry. The following is what I managed to deduce from conversations with SA Telkom employees after a year of trying to get a new telephone line installed in my house (the physical cable that is).

In SA, after the arrival of democracy, the government semi-privatised the state-owned, fixed telecoms provider. Unfortunately they allowed themselves to be persuaded to grant a ten year monopoly to Telkom on the grounds that private enterprise would not expand the infrastructure into the previously disadvantaged communities. Telkom undertook to provide X number of new lines per annum to these communities.

For this to make business sense (and Telkom were by this stage a business although still run with a civil service mentality) these services needed to generate a certain level of income and have a very low maintenance requirement. Unfortunately a combination of higher than expected payment default and massive cable theft blew these two assumptions out of the water and Telkom started loosing money. Even call boxes weren't working because the cash boxes represented a nice target for theives.

Consequently Telkom went back to the government asking for a review of the service provision requirement. The government listened and agreed that the situation was untenable. However if the demand for X thousand new services to black communities annually was to be scrapped the government wanted something in return. Firstly it wanted the monopoly status revoked so that it could sell a second network licence. Secondly it placed a demand on Telkom that any new infrastructure be installed equally across all communities without regard to business viability.

Telkom could live with the first demand, but the second needed consideration as it still placed them in the position of installing infrastructure in areas that did not generate sufficient income. Eventually an accountant devised the solution. Henceforth Telkom would avoid installing loss making infrastructure by considering every new application as a business proposition. If the estimated ROI is too low the application is denied. The ROI hurdle has been set at such a level that almsot no new domestic infrastructure, anywhere in SA, is approved. Only the large corporations in the major centres generate sufficient business to justify that sort of capital expenditure

We now sit with a situation where there is still no second fixed service provider despite the licence being up for grabs. This can be explained by the high costs of setting up a new network, the low number of skilled technicians available in the country and the risk of government interference. New service infrastructure to private homes and small businesses has al but ceased.

On the other hand we have three cell service providers all making a handsome profit and whose services are continuing to expand even into the poorest, most remote, communities.

Where individuals cannot afford a cell phone, entrepreneurs (usually "Spaza Shop" owners) have set up "cell phone cabins" which operate like old fashioned call boxes. The only difference is that they are manned and thus a low security risk.

In my opinion the only hope for the future of telecommunications in Africa is the mobile phone system. Even in cases where the state has a shareholding these services are still run by private enterprise.


Posted by: Remittance Man | Oct 3, 2005 10:04:21 AM