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Countries covered: Africa
After years of slow growth and outright despair at whether broadband would ever take off on the African continent, our research suggests that the market is inching ever closer to a tipping point. As submarine cables find their way along Africa’s coastlines, the continent is slowly, but inevitably emerging from what we have long referred to as the Dark Ages of African bandwidth, an era of bandwidth bondage of sorts, characterized by excessively high prices, near-zero broadband penetration rates and self-defeating regulatory models. How things change. The African bandwidth revolution is nearly here, with all its implications for subscriber growth, social transformation business models and investment opportunities.
Our analysis yielded the following points, as it pertains to market upside, economic model issues, and the investment case for broadband in Africa:
- There is strong demand for broadband in Africa, if the price is right.
- Longstanding supply bottlenecks are being slowly, but surely removed; last mile competition is an increasing reality, wholesale segments are being liberalized, wireless technology has improved enough to provide alternatives to wireline broadband.
- We estimate the number of broadband subscriptions in Africa at about 7.6m at the end of 2009, up nearly 60% from 2008 levels. Subscriber growth has been remarkable in many respects; over the past three years to 2009, African broadband has grown at a compound rate of 80%, faster than even mobile subscriber growth (though from a smaller base).
- It is indisputable that Africa’s broadband growth is still primarily driven by North Africa and South Africa. Outside of this NA-SA group, the other areas of growth are in countries we refer to as “Volume” markets. Their contribution to overall broadband subscriber growth has increased steadily, from only about 10% in 2007 to 20% by the end of 2009.
- Broadband usage by speed has been evolving as well; only about a third of African broadband subscriptions were 1Mbps and above in 2008; by the end of 2009, that number had risen to 55%, most of which were mobility-based.
- We expect the African broadband subscriber market to treble in size between 2009 and 2015 to about 25m, buoyed by the mix of demand and supply catalysts described above.
- In revenue terms, we estimate Africa’s Internet retail revenue at about $4bn in 2009.
- We see a direct, unmistakable correlation between bandwidth wholesale and retail prices.
- The challenges created by the dramatic increase of mobile data traffic will be a reality in Africa too.
- We see the potential for network issues and the subsequent deterioration of customer experience as the biggest risks to our mobile broadband subscriber and revenue projections. Nonetheless, we argue that African broadband will succeed because it will be prepaid and metered.
- The broadband revenue case is solid, in our view; our research points to substantial prop-up potential on the revenue side. Current monthly broadband average revenue per data user is up to 10x higher than voice average revenue.
- The CapEx case is challenging for mobile operators; to manage the substantial increase in traffic, operators will have to increase their backhaul investments, to bulk up transmission capacity around base stations.
- The OpEx impact largely depends on the network provisioning structure of the operator.
- We like the WiMAX/FWB business case a lot better than we did only eighteen months ago. Specifically, we prefer WiMAX/FWB assets that display a combination of specific, identified attributes.
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- List Of Exhibits
- Companies Mentioned In This Report
- List Of Abbreviations
- Executive Summary
- Demand And Supply: Build It, And They Will Come
- Growth And Potential: The Making Of An $8bn Broadband Retail Market
- Business Model Issues: Pricing, Margins And The Challenge Of A Data Traffic Tsunami
- The Investment Case: Solid, Depending On Where The Bet Is Made
- The Larger View: The Implications Of A Mobile-centric Information Age
- Report Structure
- Introduction: Entering Africa’s Bandwidth Revolution
- 1. Broadband: Some Definitions And Preliminary Points
- 1.1 Report Purview
- 1.2 Quality And Sources Of Data
- 1.3 African Markets Are Not Created Equal; The Big, The Value, And The Low Income
- 2. Africa’s Phases Of Broadband Growth - From Bandwidth Scarcity To The Applications Era
- Section Iafrica Broadband Demand: Build It, And They Will Come
- 1.1 The Demand Side: Sizing Up Household Demand
- 1.1.1 Defining The Household Addressable Market
- 1.1.2 At $25 A Subscription, A Market Of 25m Households
- 1.1.3 Identifying The Best Household Demand Opportunities
- 1.2 Broadband Business Demand
- 1.3 The Supply Side: Under Transformation
- Section II: Africa Broadband Projections: Towards A 25m Broadband Market Error! Bookmark Not Defined.
- 2.1 Historical Growth - Picking Up Steam
- 2.1 Broadband Subscriber Outlook: 2011 And 2012 As Tipping Years
- 2.2 More Than Connections: Strong Growth In Internet User Base
- Section III: The Rise Of Mobile Broadband: Tremendous Upside, Far-reaching Implications Error! Bookmark Not Defined.
- 3.1 The Rise Of Mobility Solutions
- 3.2 African Broadband Pricing: The Link Between Wholesale And Retail, And The Push Towards Bandwidth Commoditization
- 3.3 The Mobile Broadband Capacity Problem
- 3.4 Why African Mobile Broadband Will Work: No Unlimited Usage Here
- 3.5 The Big Picture: Are Mobile Networks An Adequate Foundation For The Information Age?
- Section IV The Broadband Investment Case In Africa
- 4.1 The 3g Case: In Most Cases, Solid
- 4.1.1 The 3g Upside: A Growing User Base
- 4.1.2 The Revenue Case: Strong
- 4.1.3 The Capex Case: Time To Raise That Backhaul Spend
- 4.1.4 The Opex Case: How Big A Challenge Depends On Operator Provisioning Structure
- 4.2 The Wimax/Fwb Case: Better Than It Was
- 4.2.1 Improving Operating Environment For Isps
- 4.2.2 Small Volumes, Better Economics, But Tough Competitive Outlook
- 4.2.3 Identifying The Best Wimax/Fwb Opportunities: Beyond The Bandwidth
- 4.2.4 Wimax Pan-african Plays And Scale Economics
- 4.2.5 Pure Play Isp Valuation - Still At A Discount To Mobile
- Section V Dynamics And Outlook By Market Grouping
- 5.1 The North African/South African Markets - Leading The Way
- 5.1.1 North Africa/South Africa Broadband Demand Profile: A Compelling Addressable Market
- 5.1.2 The Supply Side - A Constraining Environment Is Loosening Up
- 5.1.3 Technology Evolution: Adsl And 3g Well Established, But Still Not Fast Enough
- 5.1.4 Retail And Pricing Models
- 5.1.5 Retail Broadband Arpu And Revenue
- 5.1.6 Outlook - Subscribers By Market And Revenue
- 5.2 Volume Markets: The Next Best Thing
- 5.2.1 Volume Markets Broadband Demand & Supply: Improving Conditions
- 5.2.2 Technology Evolution: Adsl And 3g Well Established, But Still Not Fast Enough
- 5.2.3 Retail And Pricing Models
- 5.2.4 Outlook - Subscribers By Market And Revenue
- Section VI From Iburst To Orange: Profiles Of Key Isp Plays
- 6.1 Iburst Africa
- 6.1.1 Overview
- 6.1.2 Operations
- 6.1.3 Services
- 6.1.4 Outlook
- 6.2 Africa Online
- 6.2.1 Overview
- 6.2.2 Operations
- 6.2.3 Services
- 6.2.4 Outlook
- 6.3 Orange
- 6.3.1 Overview
- 6.3.2 Operations
- 6.3.3 Outlook
- 6.4 Mtn
- 6.4.1 Overview
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