With growing competition and diminishing voice revenues, Rwanda’s telecom firms are increasingly turning to the data market segment to stay competitive and profitable. The situation (low voice earnings) is compounded by the declining (active) subscriber numbers and the increasing popularity of messaging services such as WhatsApp, Messenger or Viber, industry insiders say, adding that the market is ‘overcrowded’ and stagnated.

"We have seen sms usage drop drastically over the last four years, and it is just because consumers are deriving more affinity to instant messages using mainly Facebook and WhatsApp services. Certainly this has reduced the revenue stream but we have seen an opportunity in data,” Michael Adjei, the Airtel managing director, told Business Times yesterday.

"What we are doing is to design special data packages as we cannot be able to change the trend in terms of what consumers are driving toward, but leverage on it. Voice calls may be relevant for the next few years, but looking at the level at which technology revolution is happening, it’s easy to say that traditional voice calls may not be relevant in five years.”

Mobile revenue growth has been declining in sub-Saharan Africa, including Rwanda, since 2013 and the downward trend is expected to continue until the end of the decade, despite a fast-growing subscriber base, according to the Mobile Economy report by GSMA. The GSMA represents the interests of mobile operators worldwide.

The report attributes it to the growing popularity of over-the-top (OTT) messaging services like WhatsApp and Facebook Messenger. With more subscribers showing a preference to chat and make voice calls via these platforms, which is eroding the market share and revenues of traditional voice and messaging revenues, it added.

Unlike in more advanced markets, phone operators in sub-Saharan Africa are still investing in initiatives aimed at attracting more voice users which, along with SMS text messages, drives the majority of revenue.

The region is expected to add another 100 million subscribers in the next three years. This is all happening as smartphone penetration and mobile-data networks also grow, and with more users embracing apps like WhatsApp, Messenger and Skype, the GSMA survey indicated.

The challenge is that these services are not taxed and providers don’t build infrastructure, or even set up offices, sector experts say.

They say this poses a huge challenge to telecom operators who mainly get their revenues from voice and SMS services.

Adjei said voice calls may play a significant role only in the next two to three years.

Rapid transition

An industry expert said users are embracing messaging services in big numbers because they are affordable compared to the traditional telephone calls and text messages. The expert projected that the use of telephone calls and text messages may drastically drop in the next few years as people are shifting to new methods of communication.

He added that studies have shown that revenues from telephone calls are being reduced almost 20 per cent every year, especially in developing countries. "This tells us that the strategic direction has to move from calls to another kind of way of making money. As more and more people are using messaging services, not just to chat, but also for calling, and as smartphones become more affordable, telecoms ought to move away from calls and texts to being data providers. This is where investment spending should be focused in the next five years,” the industry insider added.

"Some people say this transition may take longer because of poverty in sub-Saharan African countries like Rwanda. However, recent efforts by the government in extending 4G internet and lowering taxes on handsets mean that it will happen sooner. Telecoms will fully become ISPs or content creators just like Netflix,” the expert said.

Focus on innovation

However, Victor Nkindi, a sector expert, challenges telecoms to introduce innovative solutions for voice and data users, noting that one can never go wrong with such approaches.

"The messaging services should be seen as contributors to revenue growth as more people are using them.

"Besides, revenues are still growing on voice since telecoms have introduced creative and friendly text, voice and data packages. WhatsApp and Facebook actually help increase telecom revenues,” he said.

Nkindi’s view is echoed by a top official at Tigo Rwanda, saying that over-the-top messaging services have challenged telecom companies to innovate, adding that the development is good for the sector.

According to the latest Rwanda Utilities and Regulatory Authority (RURA) figures, active mobile telephone subscriptions are 8.35 million as at May 2017. During the first quarter of the year, internet subscribers were recorded at over 4.5 million people. Close to 40 per cent of Rwandans access Internet, an increase from 7 per cent in 2011. Fixed telephone subscriptions are at 12,810. RURA figures indicate that MTN’s market dominance continue to be eroded by rivals Tigo and Airtel, with the telecom having a 42 per cent mobile market share, and Tigo making big inroads at 39 per cent, and 17 per cent for third entrants Airtel.

Nkindi, also the CEO of Hooza, said more players will make the industry competitive and improve service delivery. "Small markets like Gabon or Burundi have four or more operators, why not Rwanda. Therefore, attracting other players will push operators to ensure quality services. It could also lead to tariff cuts, which benefits the end users,” he said.

"We have embraced this challenge... Besides, an increasing number of subscribers are using 3G and 4G LTE (Long-Term Evolution) data provided by telecoms to access the over-the-top messaging services such as Viber, Whatsapp and Skype. This has led to revenue growth in our data business,” noted Chantal Umutoni Kagame, the deputy CEO of Tigo Rwanda.

Kagame believes that as the telecom industry evolves, players that will keep pace with the market advances and give the customers what they want will thrive.

"There are still many Rwandans that have no access to telephone services. In addition, the population of over 11.8 million people shows that there’s still room for growth. What we need to do as telecoms is to satisfy all market segments and bring more on board,” she said.

"There is definitely healthy competition in the Rwandan telecom market, and this is very good for the industry as competition sparks and drives innovation. We are always looking for innovative ways and products that suit customer needs. The more we are able to do this, the more competitive we shall become.”

Market crowded

MTN CEO Bart Hofker said that research indicates that countries with huge population figures like Egypt (over 95 million people) and the DR Congo (82 million people), need about three players. Rwanda’s population is over 11.8 million people. Of this, about five million is below 14 years, leaving an addressable population of about over six million people.

Analysis on the Minimum Efficiency of Scale (MES) has been carried out in a number of African countries and the results show that the ideal number of players for a market like the DR Congo and Egypt should be three telecoms, the telecom firm said in an interview.

"Indeed, given the addressable market in Rwanda, three players are too many for the market. This is a disincentive to increase investments as recouping returns on investment takes long and high mobile penetration rates especially as this is largely a multi-sim market.

"Also, in enterprise business space, we have got internet service providers springing up and are currently 20 of them, making investment acceleration a challenge,” Hofker added.

Telecom infrastructure is capital intensive and, despite having divested from passive infrastructures (towers), we are still running about 20 per cent capital intensity. When you make such level of investment, you need to consider when the investment will start bringing returns. In addition to capital investments, there are other huge costs of running telecoms services. It is thus important to consider minimum efficiency of scale for a market like Rwanda which is not one of the biggest.

Sector players say out of a population of 11.8 million people, the addressable population (people who can pay telecom service more often) are very few.

In fact, Rwanda has one of the lowest levels of use of services in the region at $2 (Rwf1,700) compared to about $5 (Rwf4,250) in other EAC countries, they added. They say having a big addressable population enables operators in these countries to generate more revenue.

Data market segment

According to Adjei, the next growth area is data usage. "As operators we are trying to find ways of deepening this area. People should be able to get access to devices but there’s also a task of investing in education, especially when it comes to showing people what they can do with data. He, however, added that there is still low levels of smartphone penetration in Rwanda, with many people still using feature phones.

The data market segment has close to 4.6 million people, representing the penetration rate of 39.7 per cent, according Rwanda Utilities and Regulatory Authority (RURA) figures for first quarter. This compares to 3.784 million registered in the first quarter 2016 or an internet penetration rate of 33 per cent.

The growth of the data market segment helped mobile network operators to generate revenues worth Rwf36.9 billion, while internet service providers (ISPs), 4G retailers and Liquid Telecom revenues totalled Rwf5.8 billion as at March 2017. Over 11.9 billion has been invested in the area.

MTN’s Hofker said 4G internet is central in the advancement of data services, adding that it is important that 4G internet is affordable.

"Proliferation of 4G internet improves users experience with high quality and throughput which will enable users to better stream videos, play games and other data-enabled visual activities seamlessly. Video on demand, Video play, digital TV and related services are already well established in Western World, but it is our objective to gradually build digital capability enabled by data services, especially 4G, in Rwanda.

More challenges

Hofker said unlike in other markets, telecom firms in Rwanda do not directly provide 4G internet services, but rather buy on wholesale and resell to customers.

"This has invariably created a pricing problem where the end users have to pay higher than normal rates for the high speed internet.”

KT Rwanda Networks is the sole 4G LTE provider in the country.

Access to affordable smart devices is a key catalyst to driving internet penetration, according to the MTN official. The telecom leads in the mobile data market, RURA figures for the first half of the year indicate.