Essay on "Mobile Phone Industry in Africa"

Essay 8 pages (2535 words) Sources: 3 Style: Harvard

[EXCERPT] . . . .

Mobile Phone Industry in Africa

Africa's attractiveness to MNCs from mobile phone industry

Africa is the second largest and second most populated continent, after Asia. The 992 million people (as of 2005: UN, 2006) in its 61 territories account for around 14% of the world population and the 30.2 million km2 (or 11.7 square miles) representing these territories account for 24% of Earth's total land area. The continent is made of 53 countries, including Madagascar, and various island groups that are associated to it.

PEST Analysis

Political factors. The African Union (AU) is a federation including all African states, except Morocco. The union, formed by an Act of Union aims to transform the African Economic Community from the federated commonwealth that is today, into a state. AU is led by a president elected by the Pan African Parliament and this individual together with the AU government run the day-to-day affairs of this entity.

The last decade witnessed increased networking among African states and organizations. Thus, for instance in the latest conflict, the civil war in Congo, neighboring African countries became more and more involved as opposed to earlier periods in which non-African, richer countries were those getting more involved in these kind of activities. Human rights abuses still occur in some African countries for political reasons, particularly in Congo, Sierra Leone, Liberia, Sudan, Cote d'Ivoire and Zimbabwe.

There are improvement signs reflected through democratic change and reduction of conflicts, and African leaders are taking more responsibility via NEPAD (the New Partnership for Africa's Development). Thus, while in 1973, only 3 presidents were elected democratically, by the year 2000, this figure jumped to 32 (Brandt21, 2004). Nevertheless, governance in these countries needs to be strengthened, conflict and corruption reduced and terms of trade improved.

Economic factors. Africa remains the world's poorest and underdeveloped continent, due to many reasons, such as corruption, political conflicts, high illiteracy rates, failed central planning or deadly viruses and diseases (e.g. HIV and malaria). Nevertheless, the demand for mobile phones across its territories is rapidly expanding. Since the liberalization of telecom industries in Sub-Saharan countries, GSMA (GSM Association) estimates that mobile industry invested over $35bn, thus providing around 500 million people (or the equivalent of 67% of this area) with mobile coverage.

The surge in mobile telephony investment fostered economic development and strengthened social ties. It has been noticed that demand in this area is driven by voice, rather than data. This can be explained by individuals using mobile phones to keep in touch with family and friends and the benefits of these services are materialized into increased well-being (e.g. perform call transfers from family at long distance) or reduced risk (call for assistance).

In the future it is expected for voice telephony to converge with digital services thus enabling access to a wider range of services (Scott et.al., 2004). Also, in the long-term hand-held devices will incorporate multiple features such as television, radio, phone and others. These features are expected to be more suited for the poor African societies because these features will offer the possibility to offer services tailored for low income individuals. The biggest challenge, however, will be to enable the poor to get access to these services.

In 2001, a little bit under 3% of the African population had access to a phone, but the number increased to 7% (roughly 53 million in 2004). According to African Cellular Statistics (Accessed March 2009), the number of subscribers is increasing at an average annual rate of 35% and the forecast is for this rate to maintain at the same high level (see appendix section for more detailed mobile telephony penetration rates).

Social factors. The African population has increased very fast in the last 40 years, with the vast majority of it being considered quite young. In fact, in some parts of the continent most of the population is under 25 years old.

Education levels are very poor, Africa being the continent with highest literacy rates in the world. However, the hundreds of years of colonialization showed an unexpected positive effect of international languages proficiency. Many of the African countries speak either English, French or Portuguese languages at a native level.

Also, because of the colonialization of the continent, white people were present everywhere within its territory prior to the decolonialization process, most of which concentrated in South Africa after this process. The religious beliefs vary from a region to another. The latest estimates by Encyclopedia Britannica point to cca 47% christians, 41% muslims and the rest a mixture of indigenous African religions.

Technological factors. As mentioned before in this paper, the biggest challenge of mobile telephony in Africa is to enable access to its services for poor people. The mobile telephony industry acknowledges the fact that next to 1bn customers are considered poor people and large chunck of this market in Africa (Scott et.al., 2004). Reseach results show that up to 80% of rural households use phones regularly (McKemey et.al., 2003), these people representing the vast majority of the continent's population.

The current technological level in Africa is quite low and it is difficult to predict the trend in the mobile telephony. However, the globalization process forces development in all regions across the world and research reports estimate that in 10 years, mobile phones will have the capacity to access basic data information (e.g. financial services) and in 30 years, every household on the continent should have access to handheld phone devices (Scott et.al., 2004).

Structural analysis of mobile phone industry

PORTER'S FIVE FORCES ANALYSIS

Rivalry/Competition. The key players in the African Mobile Industry have been divided into two categories (Nair, 2007): (1) mobile manufacturers (such as: Nokia OYJ, Sony Ericsson Mobile Communications AB, LG Electronics Mobilecomm U.S.A., Inc., Motorola Inc., Samsung Electronics Co., Ltd., BenQ Corporation, Alcatel, Ericsson Inc., Panasonic Mobile Communications Co. Ltd.; Mobile Phone Service Providers like Orascom Telecom Holding (OTH), Safaricom, Millicom International Cellular, Telkom SA Limited, MTN Group, CelTel Zambia, at&T Wireless, Sprint PCS, NTT DoCoMo, Inc.) and (2) mobile device manufacturers (such as: Fujitsu Microelectronics America, Sun Microsystems, Zarlink Semiconductor Inc., Infineon Technologies AG, Intel Corporation, RF Micro Devices, Inc. (RFMD) and Mitsubishi Electric).

A recent study made by TheMobileWorld.com (2007) identified the following eight companies as the fastest growing in the region:

Rank

Company

Country

Description

Globacom

Nigeria

It is a privately held company. From 2003 to 2007 became the 2nd largest mobile operator in Nigeria in which period it added over 6 million new customers to its portfolio.

Mobinel

Egypt

The company, which is owned by Orascom, an Egyptian conglomerate and Orange, the mobile phone division of France Telecom it's the 2nd largest in the Egyptian market and if it maitains its high growth rate it may pose a threat for Vodafone, the market leader.

MTN

Nigeria

The company has 46% of the Nigerian market and the Nigerian market is the 2nd largest in the company's revenues.

Vodafone

Egypt

It's a joint venture with Telecom Egypt. In 2007, 3.5 million new customers have been added to the company's customer base.

Vodacom

South Africa

The company has 58% of the South African market and in 2007, 3.9 new customers entered its network.

Safaricom

Kenya

One of the most profitable companies in Kenya with a total customer base of 3 million.

MTN

South Africa

Its operations outside the country turned it into the largest mobile phone operator on this continent. Despite reaching a maturity point, the company still deliveres 2.85 million additions/year.

Maroc Telecom

Morroco

It is the dominant mobile phone operation in the country with a customer base of 2.79 million in 2007.

Source: adapted from ClickAfrique.com, 2007

Entrants. The African mobile phone market is the fastest growing in the world after Eastern Europe, jumping from a little over 60 million subscribers in 2003 to 113.5 million in 2005 (Portio Research, 2006). The expansion of the globalization process enable faster development in many countries on the continent and implicitly an increase in the population life standard. Telecom services are considered basic in most developed countries, which is expected for a large chunk of the African individual's income to be channel to a mobile service provider. There are still plenty MNCs that haven't entered the African market or if they have, the market entry was through a low commitment solution, such as a partnership with an already established local player. Low commitment market entries are also associated with a lower revenue making possibilities. Hence, there's an opportunity to reap out large benefits, once the average individual income raises in this part of the world.

Buyers. Africa has large potential for mobile services providers offered by its large potential customer base. As mentioned in the beginning of the paper, the continent has the 2nd largest population in the world, after Asia with 992 million individuals. Most of these don't have a mobile device, nor do they have access to such services due to a poor infrastructure. However, the modernization of this infrastructure is happening very fast these days.

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