A new report looking at Affordable Handsets from Informa Telecoms & Media recently hit the shelf in the AfricanTelecomsNews.com library. The last major developing telecoms market is Africa, and one of the problems with that market us that it consists of some very low income groups.
If there was every a long-game to be played, this is it. The International Telecommunications Union and the GSMA have variously shown that there is a direct correlation between mobile phone ownership and GDP. The more people who use mobile phones, the higher the GDP growth.
It therefore follows that supplying devices to a classic low ARPU market now will help prime a future high ARPU market of the future. One of the problems for vendors in Africa is the illusory mobile penetration, as many of the existing phone users have multiple SIM-cards. At the end of 1Q13 'Africa & Middle East Telecom-Week' put the mobile subscriptions per head of population at 69 percent, with the suggestion that the mobile subscriber per head of population is closer to 45 percent.
Ericsson in its 'Mobility Report' for the first quarter noted that the regional differences are large. It reckons that in 2018 almost all handsets in Western Europe and North America will be smartphones, compared to 40-50 percent of handset subscriptions in the Middle East and Africa and Asia Pacific regions.
The report suggests that less mature regions are dominated by 2G technologies, like GSM/EDGE, while more mature regions like Western Europe are dominated by HSPA. LTE is growing very strongly, particularly in North America. In all regions, 2G networks (GSM/EDGE, CDMA 1X) remain as fallback networks for 3G and 4G subscriptions when coverage is missing.
Ericsson notes that in 2012 the Middle East and Africa were dominated by GSM/EDGE, and that by 2018 it will have the largest share of GSM/EDGE, driven by demand for low-cost phones. The region is hugely diverse, so there are, and will be, large differences between developed and less developed areas.
This suggests that there is still a huge potential market for affordable (or low-cost) phones, rather than smart phones.
The 'Affordable Handsets: From Imitation to Innovation' study defines three strategies for affordable phones, namely Mobile phone centric; Integrated; and Computing centric. The study defines three approaches, with Mediatek leading the Mobile phone centric sector; Qualcomm heading up the Integrated approach whilst Intel and Nvidia are driving Computing centric designs.
From an African perspective, Mediatek's mobile phone centric approach means that their phones can be targeted mainly at the low-cost segment with competitive pricing. Perhaps, crucially, there is a fast time to market which the study suggests could be 20 weeks or less. There is a downside, namely that there is late adoption of innovation, with design based on thin modems. Informa also notes that there's also a weak software-hardware integration with little flexibility for differentiation/local variations, and no 'go-to-market' support.
The Integrated approach offers greater opportunity for up-scaling, and is being led by Qualcomm. The advantage is that there's something for all segments from high-performance to low-cost, and design is based on fully-integrated media/communications processing. There's also deep software hardware integration. This results in flexibility for differentiation/ local variations coupled with strong 'go-to-market' support. And for a market like Africa, there's the bonus of strong ties with the developer community, but the phones are ecosystem-centric.
Finally, there is the Computing centric approach being progressed by Intel and Nvidia. They are currently targeting value high-performance segments, and there are longer time-to-market issues (typically 45 weeks plus). There's differentiation on performance, with early adoption of innovation, and design based primarily on media processing.
On balance, the mobile phone centric approach is the right one now for Africa as a whole, although there are the well-known Asia smartphone heavyweights sizing up the high net-worth individuals located in markets such Nigeria and Kenya, where submarine cables are already glowing, and 3G and 4G networks are deployed or planned.