Mobile Phone Industry in Africa Essay

Excerpt from Essay :

13.36% during 2007-2011, increasing the mobile subscriber base to 351.93 Million by the end of 2011.

The mobile penetration rate is forecasted to increase from 15.37% at the end of 2005 to almost 31% by the end of 2011.

The large number of potential African buyers reduces their negotiation power, which is convenient for companies as they don't have to deal with a lot of pressure from its customers.

Substitutes. The globalization and implicitly the technological advancement is likely to attract MNCs from the digital service industry, which can easily serve as substitutes for the mobile phone services. VoIP solutions are clearly a cheaper alternative to these services and since Africa is a poor continent, African customers are likely to be very price-sensitive.

ITU World Telecommunication/ICT Indicators, 2007

Suppliers. The number of companies that can supply mobile phone operators are still reduced in number, which is why they can have a strong negotiation power and therefore put pressure on mobile operators. On the other hand, the labor market in Africa offers plenty of properly skilled candidates, which is why staffing should be easy. The salaries are low and because the number of candidates exceeds by far the number of job offers, these shouldn't have the capacity to put pressure on companies.

Barriers to entry

Even though Africa is far from being a mature market in terms of both mobile and landline telephony, there are plenty of barries to enter this market, for both MNCs and local companies.

The poor technological infrastructure in Africa requires major investments that need to be done by governments, rather than investors. The improvement of the infrastructure is meant to attract large MNCs that should have a major positive impact on African economies and individual life standard in this area. The expansion of the telecom industry should foster further development, which in turn will improve the economy and individual life standard even more like a circle.

One other major barrier, which is mostly relevant for local companies is related to access to financial resources. The poverty in Africa enables reduced access to this kind of resources, which can be seen as a major handicap for small companies or local ones. Large MNCs shouldn't, however, find this barrier too big as they have access to the parent company large pockets. Also, local companies might find it difficult to compete against MNCs due to a lack of know-how.

Government regulations are also a barrier to entry in many markets. There is still a large number of African countries that are not ruled democratically, which puts MNCs at great risks. Seen from their perspective, the major risks include: revenue nationalization, corruption and the incapacity to be profitable.

In large markets, such as Nigeria or South Africa is very difficult to penetrate as the already established companies in these countries have a large market share, which generates economies of scale, which in turn generate competitive advantages that hinder other companies from competing with them. Furthermore, the long-term existence in these markets will make it difficult for the customers to switch to other service providers due to high switching costs.

The network effect can also be cited as a barrier to entry in large mature markets, such as Nigeria and South Africa. These markets are usually formed as oligopolies with already established players that had plenty of time to build customer networks. Potential entrants may find it difficult to enter such markets in which incumbents have already captured a significant customer base, which is not likely to switch to a new service provider because the people in its individual network would then be in a different network, which in turn would translate into higher costs for the user.

Appendix

MOBILE TELEPHONY PENETRATION RATES in AFRICA (%) - AUGUST 2004

Source: http://cellular.co.za/stats/stats-africa.htm

Reference List

African Cellular Statistics, Accessed March 2009. Statistics of Mobile Usage in Africa. http://cellular.co.za/africa-cellguide.htm

Brandt21 - Commission for Afica. 2004. Africa Factsheet. Centre for Global Negotiations. http://www.brandt21forum.info/DFIDcommissionFactsheet.pdf

ClickAfrique, Accessed March 2009. The Fastest Growing Mobile Phone Companies, http://www.clickafrique.com/Magazine/ST014/CP0000002565.aspx

ITU World Telecommunication/ICT Indicators. 2007. http://www.itu.int/ITU-D/ict/publications/world/world.html

McKemey, K.; Scott, N.; Souter, D.; Afullo, T.; Kibombo, R. And Sakyi-Dawson, O. 2003. Innovative Demand Models for Telecommunications Services. DFID. www.telafrica.org

Nair, S. 2007. African Mobile Market Forecast (2007-2011). Bharat Book Bureau, http://www.bharatbook.com/detail.asp?id=53005

Portio Research. 2006. Opportunities in the African Mobile Sector.

A www.portioresearch.com

Scott, N., Batchelor, S., Ridley, J. And Jorgensen, B. 2004. The Impact of Mobile Phones in Africa. Commission for Africa, Contract ref: CNTR 026.

UN - United Nations. 2006. World Population Prospects: The 2006 Revision. Department of Economic and Social Affairs, population division, http://esa.un.org/unpp/

MOBILE PHONE INDUSTRY in AFRICA

Substitutes

Digital services providers, such as those for the internet. Internet offers the posibility of VoIP telephony, the equivalent of landlines today. However, technological advancement is likely to increase the mobility of this type of telephony in the future.

Positive implications

Negative implications

Rivalry

The 8 fastest growing mobile phone providers on the continent (see competition details).

State-owned telefony companies that receive special treatment from their government and therefore likely to have more competitive advantages.

Buyers

Large number of households that don't have access to phones yet ? they are many and have negligible power.

Individuals with increasing income looking to improve their standard of living ? they are also many and have negligible power.

Suppliers

Cable and digital equipment providers - their number should be small and therefore they have a significant negotiation power.

Staff - since the companies are large, the staff have a small impact on the company. Plus, if a person leaves, it's easily replaceable as in Africa the demand for jobs exceeds the offer by far.

Entrants

Large telecom & digital MNCs that haven't entered the African market yet (e.g. Telefonica, with only a small participation in a Moroccan company)

The low fixed, mobile and broadband penetration rates represent real digital opportunity in Africa, both for those already in the region, and those that have not established their presence in the region yet. The figure on the left side compares the penetration rates on different continents. Bearing in mind that…

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