Change is on the horizon for the Ghanaian telecoms industry. Consolidation in a fragmented market could improve the competitive environment and help strengthen operator margins. It could also provide a boost to a sector which, like many in sub-Saharan Africa, is looking beyond the saturated voice market to raising data penetration and usage through new infrastructure and competitive service plans.
Ghana was one of the first countries in Africa to liberalise and deregulate its telecoms sector. Oversight is provided by the National Communications Authority (NCA). The government’s policy towards the sector is guided by the overarching National Telecommunications Policy, which aims to make telephone and internet connectivity available and affordable to all Ghanaians.
The sector is well established, with a high mobile penetration rate and low growth in traditional services. As of April 2017 there were 35.98m mobile subscriptions, representing a penetration rate of 127%. This segment dominates the market, with penetration of fixed-line voice services at just 0.9% in December 2016. Mobile voice services have a telecoms market share of 99.35%.
In 2017 MTN Ghana – the local subsidiary of the South African mobile operator, and the market leader – redefined what constitutes a subscriber, removing 3.4m inactive lines from its network in the first quarter of the year. However, in the same quarter the company gained more than 800,000 new active customers. The net effect was a drop of 2.5m in its subscriber base, leaving it with 16.9m voice subscribers, according to the NCA.
This led to a drop in the overall mobile penetration rate in Ghana. It fell from 139% in February 2017 to 127% at the end of April. However, the country has actually seen a slight increase in the number of customers. In 2016 monthly mobile subscription growth ranged from 0.22% to 1.51%, and in March 2017 the segment was growing at a rate of 0.57%. The sluggishness is a result of the fact that the voice segment is saturated, but there is still room for expansion and building revenues in data services.
By the end of April 2017 there were 21.58m mobile data subscriptions in Ghana, representing a penetration rate of 76.2%. This is already a strong showing, and well ahead of other regional markets. The rate of increase in mobile data subscriptions is also impressive, although it has been slowing. In 2014 the segment grew at a rate of 48.8%, and subsequently slowed to 14.1% in 2015 and 8% in 2016.
However, there is still an opportunity for growth in the data market, given that almost a quarter of the population does not use such services. Research firm GlobalData forecasts that mobile data services will see a compound annual growth rate of 16.3% between 2016 and 2021, well above that of the broader telecoms industry, which is expected to grow at an annual rate of 5.4% over the same period.
The churn rate in the market is also relatively low. While the volume of mobile numbers ported – switched to another network – increased by 20.8% in the last quarter of 2016, this activity remained only a small fraction of the overall subscriber base. Indeed, just 0.42% of subscriptions were ported during the final three months of 2016.
The country’s six mobile operators and three broadband wireless firms are hoping to protect and build revenues through high-value data services. Intense competition has already ensured that Ghana has the lowest voice call rates in Africa, meaning that the potential to build operator revenue in this segment is limited, although in the fourth quarter of 2016 the average voice and data tariffs across the market both increased slightly.
MTN Ghana holds the largest market share. As of April 2017 it had a 56.1% share of mobile data services and 46.9% of voice. It also held 59.7% of broadband wireless access through its 4G services. The firm saw revenue growth of 19.8% in 2016 on the back of its strong performance in the data segment. According to the company’s financial results, data revenue increased by 66% and accounted for 42% of total revenue in 2016 on the back of the launch of a 4G network. The company’s smartphone sales rose by 64% to 5.3m over the year and there was rapid growth in its mobile money service, with the number of subscribers increasing by 79% to 5.7m. Mobile money now accounts for 13% of MTN’s total revenues in Ghana (see analysis).
The second-largest player in the market is Vodafone Ghana, which has a 23.99% share of the voice segment. A subsidiary of the British telecoms company, the operator is also the second-largest player in the data segment, accounting for 16.94% of mobile data subscriptions. Vodafone dominates the small fixed-voice market, accounting for 97.14% of customers at the end of 2016.
While the parent group has not released specific data for the Ghanaian market, the company noted strong service revenue growth in the country. For the 2016 financial year, service revenue grew by 10.5% in the Africa, Middle East and Asia Pacific region, of which Ghana is a part.
Stronger competition is expected following the announcement in March 2017 that Bharti Airtel and Millicom International, which operates the Tigo brand, would merge their Ghanaian subsidiaries. Airtel Ghana and Tigo Ghana had market shares in the mobile voice segment of 12.58% and 14.25%, respectively, at the end of March 2017.
The merger, which will give both companies an equal stake, will see the new operator become the second-largest player in the market with almost 10m customers, of which 5.6m are data subscribers. The combined entity has revenues approaching $300m, around half those of market leader MTN Ghana.
Mohamed Dabbour, executive vice-president of Millicom Africa, told local press at the announcement, “The combination of Tigo and Airtel will create an operator that will be able to offer Ghanaian consumers and businesses a state-of-the-art network with high-speed mobile data coverage, and provides the opportunity to develop nationwide digital infrastructure and services in Ghana.”
The industry has been primed for a merger or acquisition for some time. Kwaku Addo Sakyi-Addo, then CEO of the Ghana Chamber of Telecommunications, told OBG in February 2017, “Ghana’s telecoms market is not very big and consolidation is the step forward. A shake-up in the market would be interesting for investment. I will be surprised if some major actions are not taken in the short term.”
Completion of the merger agreement was announced in October 2017, following its approval by the NCA. The new entity will hold a valid 3G licence until January 2024 and a 2G licence until October 2021. In November 2017 it was announced the merged entity will operate under AirtelTigo.
In addition to the now three largest telecoms operators, other players include Nigeria’s Glo Mobile – which also offers services in Benin and Côte d’ Ivoire, and has a 2.15% share of the voice market – and Expresso of Sudan, which is present in five African markets, with 0.11% of voice in Ghana.
While margins for operators have been under pressure – as has been the case in emerging economies around the world – the relatively positive outlook for data should help reverse that, particularly following the rollout of 4G over the past two years.
MTN launched its 4G service in June 2016, following the $67.5m acquisition of the 800-MHz spectrum licence in December 2015. Upon launch, MTN offered long-term evolution (LTE) services in all 10 regions of Ghana and had deployed a network of 4G sites across the country. The company planned to invest a further $143m on network expansion over 2017, to include the deployment of 197 LTE sites, bringing the total number of 4G sites to 475. The company will also add a further 561 3G sites and 345 2G sites to its network.
As a condition of the 800-MHz spectrum award, and as a means of raising capital for expansion, MTN plans to sell shares in its local business to Ghanaians. MTN Ghana is obliged to offer a 35% stake in the company to local investors, and the operator is hoping to raise $500m through the offering.
In terms of broadband wireless access, MTN has a 59.7% market share, followed by Surfline (with 29.8%), Broadband Home (10.1%), and Blu (0.4%). Vodafone also provides fixed broadband services, and announced the launch of its fibre-to-the-home service in February 2017. The technology will offer speeds of 50 Mbps.
3G: Mobile data services are provided by the remainder of the mobile operators using 3G technology. There has been scepticism about jumping into 4G, given the high reserve price for the spectrum and the lack of compatible handsets in the market. In May 2017 Yolanda Cuba, CEO of Vodafone Ghana, told local media, “I think at some point in time we will roll out 4G; the question around is whether the price at which the available slot is being offered is actually market related and whether it is a fair price to pay at this point in time. We do not believe this is what the situation is because even when MTN paid for the slot they said it was not at a market-related price.”
The process and price of spectrum allocation has been a point of contention. The Alliance for Affordable Internet – a coalition of private, public and not-for-profit organisations that aims to reduce the cost of internet access around the world – has noted that, “Ghana will need to update its spectrum policy and regulations to promote greater pricing transparency, competition, and rapid expansion of internet services to rural areas.”
The high cost of data is a challenge, though Ghana has a competitive pricing regime compared to other countries in the region. For example, MTN Ghana has an average revenue per subscriber of $10.60 for data services, compared to $11.80 for MTN Nigeria and $29.60 for MTN South Africa.
While this is partly determined by volume, price and cost are also factors. According to Research ICT Africa, the lowest-priced 1 GB available in Ghana costs $3.90, ranking it fifth in Africa. However, it remains a long way behind regional leader Tanzania, where 1 GB costs as little as $0.89. Egypt ($2.80), Mozambique ($2.90) and Uganda ($3.60) were the other countries surveyed where costs were lower.
Relative to average income, internet access remains expensive in Ghana. According to the International Telecommunication Union, the country ranked 126th out of 178 economies for the price of mobile prepaid broadband as a percentage of gross national income per capita, at 3.96% in 2015. In a survey by the Alliance for Affordable Internet in Ghana, over 50% of respondents said they did not use the internet because of the expense.
“There needs to be some kind of data inclusion. If people find data too expensive, you’ll only get some of the market using it,” Daniel Abunu, co-founder of mobile data company Viotech, told OBG. “It is important that mobile operators open up new markets.” Indeed, operators will need to expand their targetable customer base if they are to build revenues and volumes on data as they have on voice services. This could boost data usage. Abunu estimates that currently only 24% of data subscribers are active users of data services. Despite this, mobile data traffic is on the rise. In the fourth quarter of 2016 it increased by 14% across all networks, while voice traffic grew by just 3%, according to the NCA. Furthermore, for the full year in 2016, data usage per subscription rose by 80% to 400 MB.
Nevertheless, usage remains relatively low compared to developed markets, meaning the high cost limits the impact of value-added services. “If Africa is going to have its digital revolution, it’s not going to happen when data costs are higher than the rest of the world,” Abunu told OBG.
That has not wholly stopped mobile operators from rolling out new data offerings, however. Mobile money, for example, is a fast-growing segment that has become an increasingly important source of revenue (see analysis). While it is largely focused on microfinance for the unbanked population, the variety of mobile banking services offered in Ghana continues to multiply, and ranges from simple money transfers to lending to insurance. For example, in May 2017 local insurance provider Ayo partnered with MTN Ghana to offer insurance on mobile money transfers. The “Send with Care” service also allows subscribers to pay small premiums that cover the customer in a number of situations.
Improving service has been a particular focus of the government in recent years. In March 2017 the NCA ordered mobile operators to improve the quality of service on their networks, in response to persistent problems with slow internet connections, call disconnection and voice quality. This is not the first time that the regulator has sought to improve quality of service. Between 2011 and 2015 it levied a total of over GHS2m ($479,000) in fines on mobile operators in response to low service quality. Furthermore, in 2013 the regulator barred MTN Ghana from selling new SIM cards and registering new subscribers because of the worsening quality of service provided by the operator.
However, this issue is not universal across all technologies and segments. “Networks are less congested and work at faster speeds than in the UK. You can get super-fast connectivity if you can afford to pay,” Abunu told OBG.
The service quality issues in the sector are in part a reflection of the high operational costs associated with infrastructure maintenance in Ghana, and in West Africa more generally, as well as constraints to network expansion (see analysis). This is a result of not only difficulties in accessing land, but also the need to provide backup power supply with expensive diesel generators – a pricey requirement given the frequency of blackouts in the region.
However, Ghana is pushing forward in terms of geographic coverage and network expansion. For the operators, there will be opportunities for the widening of networks in the new suburbs emerging in the country, particularly in the Greater Accra area. Indeed, on a commercial basis, population and income growth – rather than geographic expansion – is likely to drive network growth.
The Ghanaian telecoms sector has become an important component of the economy. The industry has achieved high penetration rates in voice and data services, bringing a range of content to consumers and steady growth.
The market’s stability provides both an endorsement of a maturing industry and a warning of the potential for future challenges. The industry faces the prospect of stalling on a plateau of low growth, unless operators can bring in new services, plans to raise higher revenues, and improvement in terms of infrastructure deployment and price competition. As such, the merger of Airtel and Tigo could provide a much-needed shake-up. It could offer opportunities for greater competition in terms of price and service, driving the sector towards the adoption of next-generation technologies and increased data usage.