Going wireless in the heart of Africa

Cell phones are booming, but U.S. companies aren’t biting
Tuesday, January 13, 2004 | 12:00 a.m. CST; updated 5:49 a.m. CDT, Saturday, July 19, 2008

In the trading center of Makindye, a 10-minute drive south of downtown Kampala, Uganda, Godfrey Mukasa is doing business. The 22-year-old civil engineering student sells prepaid phone cards and used cell phones from a sidewalk kiosk. His small timber shack is painted yellow and blue, the colors of MTN Uganda, the country’s leading wireless operator.

On a good night, Mukasa returns to his parents’ house at 10:30 p.m. with a profit of 15,000 Uganda shillings — roughly $7.50. The average citizen earns less than $1 a day, according to World Bank statistics.

Makindye’s trading center houses a handful of businesses similar to Mukasa’s. And in downtown Kampala, almost every shop sells telecommunications equipment these days, said Salim Semujju, a local administrator for Canadian Television News.

“Every Ugandan today without a mobile phone is taken to be backwards, because he or she is not online, not moving with modernity,” Semijju said. “At most universities here, if you want to seduce a girl, you should own a mobile phone first and (be) able to buy her one if she doesn’t have (one).”

Cell phones have arrived in Uganda with a vengeance. Going wireless is cheaper and more convenient than waiting up to six months for a fixed line. Cell phones provide Africans with a sense of security and flexibility. They connect city people with their relatives in the country.

Nine out of 10 handsets sold in Africa today are cell phones. Most countries have more wireless phone connections than landlines. At more than 30 percent, the annual subscription rate grows more than twice as fast as in the U.S.

About 50 million Africans subscribe to a wireless service, up from less than 8 million in 1999, estimates Pyramid Research. The Boston-based research house expects this figure to double within five years. Revenue for the entire industry is expected to rise from the current $9.6 million to around $14.8 million.

“It’s an extremely promising market, but it’s not a safe haven,” Pyramid Research analyst Guy Zibi said. “Investments are definitely higher and riskier, but in the long term, they’re promising to be as profitable as in Western Europe.”

Some analysts have predicted that the developing world will soon have more mobile subscribers than developed countries. Africa is often painted as the most dynamic market.

Examples of successful launches are plenty. MTN, headquartered in South Africa, invested as little as $2.9 million for a 30 percent interest in MTN Swaziland, and almost $280 million for its equity in MTN Nigeria. MTN operations in Swaziland, Rwanda and Uganda have all been profitable within 18 months of their launch in 1998. Subscriber rates in Nigeria are doubling each year, making it the biggest growth market on the continent.

“The market has been exploding so much that operators have trouble keeping up with demand. They have to stop selling service,” Zibi said.

Still, U.S. companies have been reluctant to invest.

“American companies have ignored African markets. They have typically been more attracted to Latin America. They have this image of Africa and poor markets where people are not going to be able to afford services,” Zibi said. “They generally stay out, consider it unstable.”

Reasons for this disregard of a booming market are manifold. U.S. companies already face too much competition at home to make the investment in emerging markets a viable option, said David Hoover, an analyst with Washington, D.C.-based Precursor Investment Research Firm.

“There’s definitely a market there, to a degree. But wireless in developing countries is cost-intensive,” he said. “We already got six to nine competitors per local market here; it’s cutthroat. Basically, wireless companies are working to pare down debt. It’s not a wireless opportunity for them” to invest in Africa.

Instead of setting up new operations in Africa, many U.S. companies, such as AT&T Wireless, cut roaming agreements with African firms.

“It’s much more cost-saving, and we still give our customers the ability to call from all over the world,” AT&T spokesman Ritch Blasi said. “There’s going to be someone who’s investing in those areas (like Africa), and they’re probably going to be from that area. We, basically, focus on our domestic market.”

While some equipment providers, such as Motorola, have discovered Africa as a viable market, few U.S. wireless operators have ventured abroad.

Western Wireless International and small Newport Beach, Calif.-based African Wireless Inc. are the only U.S. companies to provide services in Africa: Western Wireless operates through sister companies in Ghana and Ivory Coast, while African Wireless provides services in the Democratic Republic of Congo.

While Africa is “still some years away from saturation,” Pyramid Research analyst Zibi said, it is showing the first signs of maturing: In many countries, the number of citizens with subscriptions is starting to reach a crucial 6 percent threshold. At this point, Zibi said, companies should begin worrying about new ways to add customers while continuing to make money.

Also, Zibi said, the number of company launches has dropped. Two years ago, more than 30 network operators began offering services. This year it was only 10. Still, he added, “wireless technology is the biggest motor of African economies.”

While the industry is booming, Ugandan businessman Mukasa enjoys his new financial freedoms. He buys clothes four times a month, he said, and goes to clubs during the week and takes his girlfriend on weekend trips.

How do his friends like his lifestyle?

“They’re proud of me,” Mukasa said.

With his first savings, Mukasa fulfilled one of his dreams; he bought a motorcycle. He has already thought about his next business: To recover the cycle’s cost of about $700, he rents it out — for $4 a day.

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