Mobile Operators and Blue Gum Trees

CC - Courtesy Slack12

Blue Gum Tree - Knysna

I see in the press yesterday that Safaricom have won an innovation award for their MPesa service from a UN agency.

“The Habitat Business Award for sustainable urbanization, which is organized by the United Nations Human Settlements Programme (UN-HABITAT), aims to recognize and publicize outstanding achievements contributing to sustainable urbanization through responsible corporate practices.”

In reading this article, something pushed my buttons. If you happen to be a reader of this blog and have read Nathan and the Mobile Operators or We Need The Eggs or my rant about SMS charges, you may have already decided that I have African mobile operator “issues”.   Perhaps I do.   Certainly I have an issue with the apparent myopia, especially from development agencies, regarding any possible downside to the rapid growth of mobile infrastructure in Africa.  Everyone is happy to celebrate their achievements without paying much attention to the effective monopolies/oligopolies that they have become.  I am at a loss to explain why, with few exceptions, there is not more public comment on what mobile operators are doing to the general communications (and by extension, innovation) ecosystem in African countries.

Let me preface my rant by once again acknowledging the miracle that mobile phones are. There can’t be many people who still doubt the direct value that mobile phones provide to people.  I’ll go further and say that the best is yet to come.  There seems little doubt that there is a coming revolution in mobile-enabled banking and transactions. Yet all is not sweetness and light and that is because the wealth that is being generated by mobile operators in Africa is not being distributed evenly.  Here are a couple of examples:

  • In South Africa, Sameer Dave, Chief Technology Officer for MTN, recently acknowledged that MTN were subsidising their 3G data traffic with revenue from their voice and SMS business.  This means, when it comes to communication, that the poor in South Africa are effectively subsidising the wealthy.
  • Or consider the microeconomics of the edge cases of mobile access.  Let’s pick a remote village served by a single cell tower.  We know a couple of things about mobile access in Africa.  One, the majority of calls are local.  Two, people are spending substantial amounts of their disposable income on access.  So, in a remote village if 50% of the phone calls are local and people are spending 50% of their disposable income on mobile access, that means that 25% of their disposable income is being siphoned out of that village.

Can’t we acknowledge the achievements of mobile phones on the continent while at the same time look at the larger ecosystem?   Ecosystem…. the word set me thinking.  Then suddenly it came to me… the Blue Gum tree.  The Blue Gum tree is an excellent metaphor for understanding mobile operators on the continent.  If you have spent time in Africa, you will have likely have noticed the Blue Gum trees especially in Southern and Eastern Africa, and the Horn of Africa.  The Blue Gum tree (Eucalyptus) is not native to Africa but was imported to the continent in the late 19th century because it is fast growing and suitable for both timber and fuel.

However, in recent years the Blue Gum tree has gone from panacea to parasite.  Not only does the Blue Gum consume 80 to 200 litres of water per day but it also attempts to kill off surrounding plant life by releasing a chemical into the soil.  From South Africa to Kenya the effect of the Blue Gum tree on water scarcity is being recognised.  So while no one doubts the utility of Blue Gum trees, the impact on the water table as well as the killing off of indigenous competitors needs to be taken into account.

I don’t want to get rid of Blue Gum trees or mobile operators but I would like them to stop retarding the competition and for there to be a more balanced telecoms ecosystem.  The telecoms sector in Africa needs a thriving understorey that can develop new technologies and innovations that can ultimately grow up to challenge the “old growth”.  Without it we all remain thirsty for innovation on the continent.

A final note.  When giving out Mpesa awards, just once I would like to see Simon Batchelor of Gamos Consulting mentioned.  Simon has been a tireless champion of mobile money since I have known him and I know how hard he lobbied Safaricom to take up the idea.

  • dapxin

    interesting argument brother.

  • http://subsaharska.maneno.org/ Miquel

    I think with all this cable lighting up along East Africa from now through the next year or so, we’re going to see a giant shift. Obviously, the large telecoms are trying to buy in to providing the connections to the masses right away because once VOIP becomes truly possible there is going to be a tremendous change in how people talk on the phone. Who is to say which way that will go, but it is going to change a lot in the next year.

    I would just like to add that this isn’t an Africa-only problem. In Europe at large, for the past decade, every privatization from a former government-owned entity was heralded as a great success. I curse this “success” every time I have to deal with Telefonica in Spain as they are, the devil, yet the Blue Gum tree of Iberian telecommunications. There are countless examples in other countries though.

  • Geoff Crichton

    I am an investor in African telecoms and it seems to me that there is a myopia on the part of those who see mobile telecoms as hostile to the ecosystem even to the extent of “syphoning” disposable income.

    It is true that if all mobile calls were purely to chat, then there might be case for this to be wasted cash. But that is not the case.

    In the remotest village mobile let alone the city, mobile calls are the only enabling factor for both commercial activity as well as any sort of social or community cohesion, both having in my view a value in excess of the cost of calls.

    This can be seen in the incremental business gained by taxis being called by customer for pick-up to farmers getting better prices by having the market knowledge previously guarded by middlemen.

    In other words in a continent where friction is prevalent in any human – to human contact, the mobile phone is only cost effective solution.

    Future services such as banking and voting or health advice require the mobile operators to show an economic return.

    My company has invested and will continue to do so in mobile infrastructure that can earn a profit, increase the number of users and can add services that in many countries far exceeds the capability of the governments.

    Whereas extractive commodities, oil and banking are the other main sectors of commercial activity, they are truly predatory in the rents they extract, and the power and cash delivered to a minority oligarchy.

    Mobile telecoms on the contrary produce skilled engineers, a thriving ‘street’ supply and trade jobs, and in the future will play a role in enabling the population to have a better chance to organize themselves for their own benefit and not as dictated to be an avaricious & remote government.

    I assure you I am not an idealist, and you only have to experience a city like Lagos for example, to see what I mean in action. The mobile phone is the only tool of life for Nigerians and the only tool preventing a failed state from really resulting.

  • Steve Song

    Hi Geoff. I agree with you in large part. I think telecoms are not as bad as the mining and oil industries in Africa. But frankly that is setting the bar pretty low. And if thousands of journalists and bloggers were busy reviling the telecoms companies in Africa, I would agree with you even more. But they aren’t. From my perspective there is a lack of public critical thought about the role and importance of telecoms in Africa. No question that mobile infrastructure is transforming the continent. I just think it could be so much better. In stead of treating telecoms as a cash cow, why don’t governments see it as essential enabling infrastructure. Telecoms is making a tiny, tiny minority of people on the continent extremely wealthy. I think a more open and competitive environment would help to spread that wealth around.

  • Geoff Crichton

    Thanks Steve.

    Your point on the role of governments is well-made and the crux of the problem.

    Right now most countries in Africa have multiple operators stemming from the liberalization of the markets on the last few years. World wide few countries except the very largest can sustain more than 4 operators, so the operator competitive situation in Africa is actually pretty good. Coverage competition is another matter, but the nature of dispersed populations and large land mass means this is never going to easy to fix.

    For an investor point of view, governments in Africa are at best ineffective. Ministers are all too often ignorant of technology and ignorant of implications such as levying taxes, as many do, on mobile services.

    To invest the sort of sums of money needed to roll out a nationwide network or new service eg data, and operator needs to show to the investor how to get a return on the money with some sort of security over time that rules won’t change.

    Every change of government, minister or tax policy creates a cost for us in terms of risk management.

    But equally distorting is where governments try to “promote” an industry ie seeing telecoms as an enabling infrastructure and then using governmental power whether subsidies, rules or legislation to force the pace along. All too often this actually results in certain companies being favoured, even to the point of unanticipated monopoly.

    In the absence of good policy, we would all prefer the governments to set policy and then allow the market to proceed under the national commission supervision.

    Where we can discuss good policy with government, they quickly realise your point that telecoms IS an enabling infrastructure.

    For your information my company is planning a major investment in a country where we are able to link up with various ministries such as towns, power, water and roads. An effective policy here we are promoting is to obtain multiple benefits from the investment. So the machinery needed to dig fibre routes will be used at very marginal added cost to dig power lines and building foundations. The equipment that follows to build the repeater stations or cellular towers will, when finished, then build the village school and clinic – again at marginal cost for the authorities.

    It has taken a very patient three years for our team to arrive at this point. As soon as contracts are signed I will let you know our website and track progress.

  • http://www.developing-telecoms.blogspot.com Joe Willcox

    Steve – I’m really glad I found your blog and this article. It’s been useful to read views which challenge the assumptions I’ve made about how successfully mobile operators balance their profit/shareholder value motives with stated intentions to have a positive impact on the lives of poor people in developing countries. In my own blog I’ve tended to be a cheerleader for much of what you challenge here, often arguing, for example, for a consolidation of mobile markets across developing countries – i.e. a smaller number of more powerful and profitable cellcos. In my most recent blog entry, I describe how your writing challenges these assumptions:

    http://developing-telecoms.blogspot.com/2009/08/balancing-with-profit-motive-with.html

    Thanks!

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