Increased competition, poor legislation and the challenge of economies of scale have forced smaller African telecom companies to merge, while larger companies have consolidated.
MTN, Safaricom, Vodacom, Wananchi Group and AccessKenya are some of the companies that have acquired companies and consolidated their market positions. For some, acquisition has been inspired by the quest for more spectrum while in others the mergers and acquisitions have been motivated by market share or infrastructure already in place.
"Telecommunications is a network business with economies of scale playing a big role; firms cannot compete effectively if they cannot reach a competitive scale and secure enough subscribers to reap the benefits of scale," said Christie Christelis, president of Technology Strategies International.
In some cases, mergers and acquisitions have benefited the markets by lowering costs of connectivity in Internet markets and costs of calls in the voice markets, but there are concerns that too much consolidation will affect competition.
"Consolidation might be beneficial in allowing firms to achieve scale and networks effects that would not be possible in a fragmented market, but if there is too much consolidation then the industry tends to become highly concentrated and this can lead to lack of competition between players," Christelis said.
One of the major challenges for small telcos is the lack of infrastructure-sharing policies and the high capital expenditure for rolling out infrastructure capable of competing with bigger telcos with bigger capital budgets.
"In many countries, there is no technology in place -- companies have to spend a lot of money on infrastructure then focus on the market," said Tinyiko Valoyi, CEO of Mavoni Telecoms, an investment vehicle that is focused on acquiring spectrum in African countries to deploy fourth-generation networks. "For a smaller company it can be a challenge, but the market is maturing in moving away from infrastructure to services."
Lack of legacy systems has been cited as an advantage because operators can move directly to new-generation networks and as a disadvantage for operators because of the high capital expenditure required.
In sub-Saharan Africa, regulators have had to develop competition policies, but some rules on competition and allocation of national resources are not clear. In other cases, companies are allocated spectrum without meeting the requirements while in some instances the frequencies have been taken back because of non-utilization.
Access to capital has also been a challenge. Many local companies are not exposed to international investors and in other cases international investors only know the bigger companies, which are not in dire need of financing.
"International investors are not aware of other local opportunities and local companies are unaware of where and how to look for financing. In some cases, smaller players who could benefit from financing are not well-structured and don't meet the international requirements like being listed in the stock exchange, having audited accounts and clear corporate governance processes," Valoyi said.
Valoyi feels there is a need for local companies to be aware of international financing requirements and best practices and to align their priorities if they are to grow. He also identifies rural and underserved areas and niche markets as some of the investments that smaller companies can make in order to grow.
(C) Computerworld Kenya
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