AFRICA STRATEGYIN TELECOMMUNICATIONS INDUSTRY

TEAM 9 – GREENWICH COHORT

Thu Ha LeAlmudena Jimenez CruzStephano BosmanClarisse HerbreteauNabila LarakiJacob Parackal

Macro environment

Political, economic,

social, technological,

environmental, legal

Industry environment

Competitors

Markets

The organizatio

n

AFRICA STRATEGY IN TELECOMMUNICATIONS INDUSTRY

MACRO ENVIRONMENT

OF AFRICA

PPolitical factors: Many African countries are just out of the civil war. Corrupt previous governments have left behind them disorderly regulatory regimes. Governments tend to intervene in the industry.

TTechnological factors: 3G mobile services Expansion of GSM networks Upgrades in data transmissions due to rapid growth of ADSL and wireless broadband services.

SSocio-cultural factors: Women in sub-Saharan African countries contribute over 40% of the economic activity of most nations. The literacy of women is low. Increase in the use of mobile phones.

EEnvironmental factors: Stress on saving energy due to high energy consumption in the industry. New technologies for energy saving network towers and grids.

EEconomic: factors: 6% growth rate predicted in the sector for the year 2011 in Africa. Very fertile market, with a significant increase in consumption of new technologies. Sensitive economical disparity depending on the regions of the continent Tremendous investment in the sector since 2007.

LLegal factors: Unified licensing introduced in 2006. Continuing liberalization of VOIP (Voice Over Internet Protocol). Privatization of national telecommunications services in the region is continuing with significant premiums over reserve prices being paid.

Demand Condition

• Unsophisticated local demand to high demands• Fresh to segmented and sophisticated local markets• Wants in North Africa and South Africa are similar to the Western world

Related Supporting Industries

• Can find isolated supporting firms for BPO, Network rollout and for other related industries.• Services and machinery are imported

Factor conditions

• Abundant, cheap and qualified human resources• Tax breaks offered to encourage additional investment

Firm Strategy, Structure and Rivalry

• Good local Competition• Imitation of technology• Profit maximization using low CAPEX

COMPETITIVE ADVANTAGE OF AFRICA(PORTER’S DIAMOND)

TELECOMMUNICATIONS INDUSTRYPORTER’S FIVE FORCES MODEL

Threat of new

entrants

Threat of substitute

products orservices

Bargaining power of suppliers

Bargaining power of

consumers

Competitive rivalry

within an Industry

HIGHHIGH

LOW /MODERATE

LOW

LOW

IS THE TELECOMMUNICATIONS INDUSTRY ATTRACTIVE IN AFRICA? YES

COMPANIES

1. Virgin2. Vivendi3. Airtel4. Etisalat5. Vodafone6. Orange

1. VIRGIN MOBILE

Africa strategy

Joint venture with Cell C in South Africa since 2006 Cell C is 100% owned by 3C Telecommunications Virgin’s marketing know-how Opportunities and colonial ties Try-out of emerging market

2. VIVENDI TELECOM

Africa strategy

Acquisition of 53% of MAROC TELECOM Maroc telecom subsidairy is 2nd largest operator in Africa 15,3 M mobile telephone customers. 60,3% of market share in Morocco. Competition: MEDITEL & WANA. Geographic expansion of Maroc telecom group with acquisitions of Mauritel in Mauritania, Onatel in Burkina Faso, and Gabon Telecom, and SOTELMA in Mali 3G telecommunication Introduction of “Mobi cash “ the first money transfer and payment in Morocco Intensive marketing campaigns and promotions offers

3. AIRTEL

Africa strategy

Operates in 16 African Countries. Mode of entry: Acquisition Focus: Rebranding, improved network coverage, excellent customer care and range of products to chose from. CAPEX: Expand with lower capex and discussion with the government for utilizing USO fund for network. Partners: Looking for strategic partners and setting up of base in Nairobi. Telecom Population: Increase minutes of usage from 50-60 minutes to 250 minutes and increase the net density. Make Phone the mobile laptop for the common man in Africa.

4. ETISALAT

Africa strategy

Direct investment in Egypt, Sudan, Nigeria and Tanzania; and through Atlantic Telecom in West Africa (Benin, Burkina Faso, Togo, Niger, Central African Republic, Gabon and Ivory Coast). Then, all them were rebranded to Moov.EXPANSION STRATEGY (no leader position): be available in more countries and to more customers.MORE COUNTRIES: Diversification of sources of income regionally and internationally through entering markets with low penetration and high population.MORE CUSTOMERS: focus on private customers and business sector. Better services and stable profit.

5. VODAFONE

Africa strateg

y

Operates in 9 countries with high market shares: Egypt (44.35%); DCR (49%); Kenya (73%); Lesotho (80%); Mozambique (40%); South Africa (59%); Tanzania (46%), Ghana (17%), Libya (15%) Market entry mode: acquisition (Telecom Egypt 1998, Safaricom Kenya 2000, Ghana Telecommunications 2008); joint venture with Telkkom and Venfin in South Africa => Vodacom 1993; non-equity partnership agreement with Almadar Aljadid Libya 2010. Shift towards multi-media and high-end data services, . Focusing on the business segment through including IT Services within its portfolio.

6. ORANGE

Africa strateg

y

Implemented in 15 African countries, primarily focused on the French-speaking areas of North and West Africa, and has then expanded its operations to the English- speaking region of Africa and to other more rural areas. Development and modernization of services through “3G network”. Offer low-cost handsets In Kenya, launched “One Kenyan Shilling per MB” tariff to become the most affordable internet bundle Launch of “Orange Money” online payment services

WHY AFRICA?

Telecom Industry in developed markets has been saturated Africa market: - Cellular and fixed-line telephone penetration rates are low, offering

significant customer and revenue growth potential. - Wages are low; many workers speak English, French along with the

enormous number of the available workforce.- Government policies attract FDI: improved environment, economic

reform, private sector encouragement and better FDI regulatory framework (allow profits to be repatriated freely or offer tax incentives etc…)

Transnational strategy

Joint-venture

Acquisition

Medium($1,000-4,000)

Low(<$1,000)

License

Per capita income

FDI

High(>$4,000 )

Vodafone

Etisalat

Virgin

Vivendi

Orange

Airtel

AFRICA EXPANSION STRATEGY

COMPARATIVE CASE ANALYSIS

Market entry mode: Most cases through dominant acquisition Timeline: Case-by-case basic Geographic expansion: Operates in the countries that used to be colonized and

are open to foreign equity ownership Strategy: Parent Driven Investment Products and services: Centralized product strategy Pricing: cheap

SIMILARITIES

DIFFERENCES

Market entry mode: some cases through buying license (Vodafone, Orange, Etisalat) or joint venture (Vodafone, Orange, Virgin)

Brand name: While others operates under its own brand name in Africa, Vodafone operates under name of its subsidiaries in some African countries e.g. Safaricom in Kenya, Vodacom in South Africa, Almadar Aljadid in Libya

Geographic expansion: Virgin only operates in South Africa, Vivendi operates in 4 Northwest African countries, others expand to operate in most areas of Africa.

Products & services: Virgin - Online store, limited package deals, pre-paid billing ; Airtel – high innovation (e.g customer relationship management solution)

SUMMARY AFRICA STRATEGIES IN TELECOM INDUSTRY

Target new emerging market Takeovers, buy-outs, joint ventures Direct marketing Nation wide network coverage Cheap pricing Limited services Colonial entry barriers Rural area vs major cities

POSSIBLE BENEFITS AND PROBLEMS OF CURRENT STRATEGY

• Integrate into an existing business that already knows the culture and how the country does business

• Able to use partners’ network to offer its customers a range of service, which utilize ‘home’ network capabilities as well as extended coverage within Africa

• Enable to meet their needs for unified communications, centralized customer care and services using local network.

• Lower cost of operation

• Benefiting from lower roaming charges

• Powerful brand association

BENEFITS

PROBLEMS

• Cultural, administrative, geographical and economical distances (CAGE framework)

• Increase in cost of integrating and management • Decreased corporate performance and services • Potentially lowered industry innovation• Suppression of competing businesses • Decline in equity pricing and investment value

• Conflict for control and decision-making between Parent company & subsidiary

• Governments’ support could decline (E.g: Vivendi and Morocan government)

REFERENCES Airtel

http://www.airtel.com/wps/wcm/connect/airtel.in/airtel.in/Home [Accessed 5 March 2011] Etisalat

http://www.etisalat.ae/index.jsp [Accessed 3 March 2011]

http://www.ameinfo.com/137846.html [Accessed 3 March 2011]

http://www.bi-me.com/main.php?id=25953&t=1&c=33&cg=4&mset= [Accessed 3 March 2011]

http://www.balancingact-africa.com/news/en/issue-no-254/money/uaes-etisalat-buys-5/en [Accessed 3 March 2011]

http://www.arabianbusiness.com/etisalat-considers-africa-investments-198228.html [Accessed 3 March 2011] International Telecommuncations Union

http://www.itu.int/ITU-D/ict/publications/world/world.html [Accessed 15 March 2011] GDP

http://www.indexmundi.com/g/r.aspx?t=0&v=66&l=en [Accessed 6 March 2011] National Income per capital

http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD [Accessed 12 March 2011] Orange

http://www.itweb.co.za/index.php?option=com_content&view=article&id=38751:orange-outlines-strategy-for-africa [Accessed 6 March 2011]

http://euroafrica-ict.org/wp-content/plugins/alcyonis-event-agenda//files/Orange_development_strategy_in_Africa.pdf [Accessed 6 March 2011]

http://hbr.org/product/orange-cameroon-a-global-telecommunications-compan/an/BAB136-PDF-ENG [Accessed 6 March 2011]

http://www.telecompaper.com/commentary/france-telecom-sets-tough-goal-to-double-emerging-markets-revenue [Accessed 6 March 2011]

Vodafone

http://enterprise.vodafone.com/discover_global_enterprise/global_reach/ [Accessed 3 March 2011]

http://www.safaricom.co.ke/index.php?id=1025 [Accessed 3 March 2011]

http://allafrica.com/stories/201002161110.html [Accessed 3 March 2011]

http://www.vodacom.co.za/vodacom/ [Accessed 3 March 2011] Vivendi

http://www.vivendi.com/vivendi/Maroc-Telecom,953#Network [Accessed 3 March 2011] Virgin

http://www.virginmobile.co.za/ [Accessed 3 March 2011]

APPENDIX 1: CAGE ANALYSIS

APPENDIX 2 - POTTER’S FIVE FORCES MODELThe most attractive industry is one in which barriers are low which means that few can hardly enter in the market and non-performing firms can exit easily.

Threat of new entrants: LOW. At first glance, it might look like the more profitable the industry is, the more attractive it will be to new competitors; although the attractiveness of the industry is depend on other factors:

The capital required to set up this kind of industry in Africa, where the infrastructure is obsolete , is very high. The access to distribution is also another big barrier taking in consideration that getting telecom licenses is not

easy. Customer loyalty in this kind of industry is quite high so, that is a factor that could motivate strong-branded

companies to establish themselves in Africa. Many African governments provide subsidies to home-companies, which made even harder playing in this

industry.

Threat of substitute products or services: LOW / MODERATE. Recently it has come out the threat of new substitutes: the voice over IP (VoIP), which is a way to transmit voice conversations over a data network using IP, and the Internet telephony (or “peer-to-peer” telephony), which allows voice calls to be made between PCs over the public Internet using IP. However, at the moment, this threat is reasonable moderate.

The quality of the sound is not as better as it could be with a regular call. Although some people that usually call over long distances can instead of picking up a phone go to a computer

and call through that but it is not because it is more convenient, it is because just the high price of a long-distance call.

The low costs of computer calling could potentially take over most long distance calling. The more local calls and business calls would be more secure for the mobile market, although cell phones with

the ability to use the internet to make calls are being made available and will soon take a considerable market share of calls made.

Bargaining power of consumers: LOW.The threat of buyers in this industry can be considered fairly low. The individual buyer has no impact on the price of the products offered.

Africa market size is huge. While in United Stated and Europe the market has achieved their maximum and they are sutured, in Africa the market is experimented the fastest growing at the moment and it is expected to continuously increasing.

Telephone and data services do not vary much, regardless of which companies are selling them. For the most part, basic services are treated as a commodity.

Buyers are not usually tough, however, customers seeking low prices from companies that offer reliable service. The telecom industry is expected to always increase. The technology could be improved, change to new system

that force companies to be constantly undated but it is not expected to be abandoned.

Bargaining power of suppliers: HIGH.The suppliers in this industry are those who provide the broadband switching equipment, fiber-optic cables, mobile handsets and billing software, but also, managers and engineers. We can say that supplier’s power in some aspects of this industry is high.

There are few dominant suppliers taking in consideration the limited pool of talented managers and engineers, especially those well versed in the latest technologies that place companies in a weak position in terms of hiring and salaries.

The brand of the supplier is very strong. You can think in the case of a highly-demanded fashionable phone (ex. I-phone) that is only offered by a company that have sign a contract of exclusivity with Apple. Just for that exclusive right to be the i-phone provider, the company will increased the number of customers who want to have an i-phone.

Their role in the quality of the service is also very strong.  If a Company have a signal service that does not provide a good reception in a certain area, the customers who live there will switch for another company who provide better reception.

As we saw before, in the case, for example, the phones supplier, is very easy to find a new customer, above all, when the product or service provide for the supplier is so demanded.

Competitive rivalry within an Industry: HIGHIn the telecom industry, technological advances are crucial to have a competitive advantage in the market. Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits, until competitors imitate them.

Rivalry will be more intense if there are equally size competitors, but in almost all African countries we find a clear market leader firm which dominated the market share. There are a few numbers of large firms worldwide that competes for the market share; this lowers the threat of rivalry. The firms that are in the business, however, fight to increase their market share and that increase the threat.

The Industries that have a high fixed cost encourages competitor to manufacture at full capacity by cutting prices if needed. In this field, companies apply the vertical integration which is a strategy to reduce a business' own cost and thereby intensify pressure on its rival.

Is not very hard to switch to another company, the rivalry among companies here is also high. Due to all companies which play in this industry play with huge amount of capital and pursue

aggressive growth strategies, the barriers to leaving the industry are very high and competitors tend to exhibit greater rivalry.

 Accordingly, we can affirm that the telecom industry in Africa is very attractive.

APPENDIX 3