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Africa Calling: Listen Up!

By Anindya Ghose, Daniel P. Paduano Fellow, Robert L. & Dale Atkins Rosen Faculty Fellow & Associate Professor of Information, Operations and Management Sciences

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Africa has leapfrogged through a massive technology boom and at a speed that has largely gone unnoticed.

After the recent global summit at Davos, many observers remarked how pessimistic they felt about the future of the world. Among the movers and shakers there, uncertainty reigned, about the US economy, about the European economy, and even about the economies of the emerging markets. The only beacon of hope was Africa.

Africa has leapfrogged through a massive technology boom and at a speed that has largely gone unnoticed. During my recent visit to east Africa in January, I had the opportunity to learn about the remarkable developments in that part of the world, particularly in the technology world. A new middle class is emerging in areas of the continent, signaling new growth opportunities for several industries. Perhaps the most important is mobile communications—an increasingly critical part of daily life. The next challenge is for mobile operators to expand their menu of value-added services and increase per-customer revenues—as part of a virtuous cycle that will both benefit from and help ratchet up economic growth via the subsidiary industries that will be created.

Some statistics quickly reveal the situation. Africa is unique in that while PC Internet penetration is very low (similar to the US in the mid-’90s), mobile penetration in some places rivals that in the rest of the world. Over the past five years, the number of mobile subscribers across Africa has grown by almost 20 percent annually. By the end of 2012, there will be 735 million mobile subscribers in Africa—more than America or Europe. Around a tenth of Africa’s land mass is covered by mobile-Internet services—a higher proportion than in India.

African companies have also pioneered integrative technologies, such as mobile banking, and now one in two mobile bankers globally is African. In Tanzania, the mobile penetration is about 50 percent. Compare this to bank account penetration in that region, which is just around 15 percent. This is one reason why the mobile money institution MPesa has extremely high adoption rates in East Africa (highest in Kenya, followed by Tanzania). Nearly 18 million Kenyans use mobile phones to manage their bank accounts, depositing and transferring money remotely to avoid excessive travel and wait times.

Mobile advertising—of which 90 percent is still done through SMS—presents another surprising statistic. Of the total digital media spending today in Tanzania, 70 percent is on mobile alone, which is stunning when we compare it to the US. The rest of the spending is distributed among search ads, display ads, and the like. Currently the mobile providers in East Africa (for example, Vodacom, Airtel, and Tigo) are pushing content themselves and thus are acting like media houses. However, the future belongs to third-party content providers that will eventually be replacing the mobile providers as content suppliers for the mobile platform.

Feature phones still dominate the African ecosystem. In 2011 there were 32 non-smart phones for every smart phone. Most people have two feature phones, one for daytime and another for evening. This is because tariff structures for outgoing calls vary based both on time of day and on the carrier. Thus, a unique feature of the east African mobile market is that a subscriber may often have separate accounts with competing firms. This need to carry two devices is inconvenient for users, but, recently, low-cost Chinese manufacturers (mostly on the Android platform) have devised a cost-effective way of combining both competing chips in a given smart phone. Moreover, these sub-$50 smart phones are becoming increasingly popular. It is projected that by 2015 there will only be six feature phones for every smart phone. This means more opportunities for mobile commerce and mobile advertising. According to an October 2011 study, South Africa, Nigeria, and Kenya were ranked in the top 15 mobile advertising countries worldwide.

While encouraging news, telecom operators in Africa now need to increase the average revenue per user. Customers on four of the major mobile network operators in Africa spend an average of from $5 to $7 each per month! Alarmingly, price competition is whittling that figure down further. Perhaps the only way to boost consumer spending on mobile is through appropriate pricing of value-added services such as the mobile Internet and mobile apps. Telecom operators would benefit from variable pricing of content uploading and downloading services as firms in the Asia-Pacific region, notably in South Korea, have done. The beneficial effects of variable data pricing policies are demonstrated in our recently published paper in Management Science in which we had collaborated with firms in South Korea.

For many in Africa, their first and possibly only Internet experience will be via the mobile Web. Therefore, telecom operators can increase revenues by pushing more targeted local content. Of course, users’ disposable income needs to increase for them to spend more on mobile. However, that economic growth will be fueled by subsidiary industries. Indeed, exciting developments are happening in industries that use the mobile platform for offering a variety of goods and services. In one of many examples, South African entrepreneur Suzana Moreira’s startup moWoza uses SMS to help African migrants order, pay for, and select a place for parcel pickup. Instead of having to actually ship a bag of maize, for example, they can simply order one near the person they are buying it for. Ingenious to say the least!

Africa is rich with new opportunities, particularly in mobile. With proper cultivation, they could yield a harvest that would benefit the region’s economies in ways few would have predicted.