Log in
Your Local Ericsson site
  1. 2007 /
  2. January-March 07 /

News Archive

Finding profits in high-growth markets

There are still big profits to be made in mobile telephony, as operators in high-growth - or emerging - markets are discovering. But in order to build a thriving business in Africa, the Middle East and other developing regions, operators must think outside the box.

February 7, 2007

When it launched operations in 1994, South African operator MTN had to appease skeptical investors who questioned the company's aggressive plan to connect Africa. Today, MTN's balance sheet and footprint bear testimony to the fact that any market, anywhere, is viable with the right business model.

Low-denomination vouchers such as the MTN Supa Booster in Nigeria, pre-paid top-ups and discounted tariffs for off-peak periods, among other initiatives, have helped MTN grow its customer base to more than 35 million in 21 countries. Today, the company has healthy, double-digit revenue increases and profits on a year-to-year basis.

Santie Botha, MTN's group chief marketing officer, attributes the company's success to tenacity, innovation and a tolerance of risk.

In Nigeria, for example, the company has already invested USD 2 billion to build a mobile customer base. The work includes the construction of a 7000km microwave transmission backbone, and an extensive grid of power generators that together produce 28MW of electricity annually - in addition to the GSM network.

"While this demand exponentially increased funding requirements, the upside of rolling out greenfield projects is that operators don't have to contend with incompatible or dated legacy systems or cellular infrastructure," Botha notes.

Peter Bladin, director of the Grameen Foundation's technology center in the US, says shared access programs can also help boost usage and aggregate customers in regions where individuals cannot afford their own phones.

The center works with Grameen's microfinance program to advance information and communications technology in developing markets. Among Grameen's programs is the acclaimed Village Phone model, which was pioneered by Grameen Phone in Bangladesh and replicated by the Grameen Foundation in Africa. Village Phone is turning profits for its operators such as Grameenphone and its business partner, Telenor, in Bangladesh.

The phones are owned by village women who use them as mobile pay phones.

"Often, village phones have an ARPU (average revenue per user) five-times or more than that of an average user, thus generating good revenue for all involved," Bladin says. "It's a win-win for everybody, except, perhaps, the phone manufacturer."

Operators also experiment with new tariff models to boost usage. Celtel, the Netherlands-based mobile operator, is leveraging its footprint, which today spans 15 African countries.

The company offers a program called One Network, which provides roaming-free coverage across three countries - Kenya, Tanzania and Uganda. Subscribers can add minutes in different currencies and use the time they buy in all three countries.

To counter the low ARPU that comes with developing markets, operators are investing aggressively in new-generation base stations, radio systems and scalable networks that can reduce their capital and operational expenditures by a quarter or more.

Indeed, operators in emerging markets today manage to deliver services at costs that are at one-10th the price of what their peers in mature markets fork out, according to a recent study by Pyramid Research, the US-based telecom consultancy firm.

"Emerging-market operators begin at the other end of the equation," says Jane Buenaventura, one of the analysts behind the Pyramid study. "If they face an ARPU of just USD 7 per subscriber, they can lower costs by using technology that lets them have many more subscribers per base station."