Professional services firm Deloitte recently completed an in-depth analysis of the developing African Telecoms sector, identifying the market’s defining trends and key drivers. The company believes that there will be a consolidation in the telecommunications sector, leading to an inevitable increase in inbound investment as the market opens up and economic returns improve.

Mark Casey, Technology Media and Telecoms (TMT) industry leader at Deloitte, notes the interest from global advertising giants in Telco acquisitions has greatly increased in the race to secure access to the growing African middle class. Arun Babu, TMT Southern Africa leader, echoed this sentiment stating that “industry boundaries are dismantling, and owning the consumer experience space is the prize.”

Indigenous companies, foreign investors, and global players have all made significant investment into the continent or certainly parts of it. Even governments are waking up to the opportunity to regulate and to auction spectrum and licences.

While the future shape is still far from clear, Deloitte identified four potential scenarios:

• Winner takes all as the markets consolidate quicker than most operators can respond;

• Turf wars continue as new and existing operators battle it out for the profitable market and are joined by banks trying to protect their core business against mobile payments;

• New entrants come into the market from adjacent sectors with greater added value than the traditional carriers – foreign media and even advertising groups are viewing telcos as a ready-made channel to market; and

• Owning the hearts, minds, and wallets of consumers is the end goal. Will telcos, who have laid the foundation for connectivity and access, be the winners; or will it be global technology groups, the banks, media, advertisers or retailer giants?

According to Deloitte one thing that is apparent, is that having a strong brand is simply not enough. “The winners will be those companies who really understand consumers, consumer behaviour, and provide an experience that is memorable, relevant, and cost-effective. Whatever the outcome, none of these scenarios argue against investment once one understands the drivers for the market”.

Along with the possible future outcomes, Deloitte made the following key observations about the market opportunity:

• Operators need to quickly understand the true profitability of data before it consumes all of the available CAPEX;

• The growth of the middle classes is unstoppable; can operators keep up with it?

• The central role of telecoms in empowering people and economies puts additional obligations and duties onto operators that are hard to justify from a pure business case point of view. There is an African cost premium not seen in other markets which will have consequences for marginal telco operators;

• The battle is on for the very long tail, and it seems to be all about price;

• Price competition has not hit the bottom yet by a long way;

• The rural frontier is big, wide, and fraught with challenges;

• Governments need to step up and have a clear and well supported ICT strategy which may well have at its core the ownership of national backbones;

• There is a huge new wave of mergers and acquisitions as operators consolidate, rationalise, divest non-core, and acquire new core activities and skills.

It is clear that investors are approaching the African telecoms sector quite differently than in the past. This might well be a turning point that will see telcos redefine their roles in ways that will be relevant for any investor. It should be interesting to see how the improvement in connectedness between people and businesses can positively affect Africa in creating a stronger middle class.