Connecting Sudan

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Atwi says one of the problems facing i2 in Sudan is high import taxes.

With reward comes risk, and nowhere is this more evident than in African countries with low teledensity rates. The dichotomy between the potential and the problematic is starkly illustrated by the fortunes of Sudan.

Sudan has been beset by years of internal conflict that has divided the country - and its telecoms sector - in two. It is said that war is a catalyst for change, and if the rate of change is proportionate to the length and impact of war, then Sudan should be the subject of some major revisions.

International networks have invested in operations in what is geographically Africa's largest country, but overall penetration levels remain low with only 1.5 million internet users from a total population of some 40.2 million, and an estimated 23% mobile penetration rate.

Zain Sudan, the market leading mobile operator by subscribers, was formed after the Kuwait-based telco acquired Mobitel, Sudan's first operator, in February 2006 in a deal valued by Zain at US$1.3 billion. It has a 52% share of the market, according to the company's third quarter report for 2008. Government-backed CDMA network Sudani, the third operator to receive a mobile licence, in 2005, is placed second according to Zain's figures with a 28% market share.

General manager of i2's Sudan operation, Hussein Atwi, describes the market in Sudan as "very competitive" and he estimates mobile penetration in the country to be in the region of 20%.

Atwi says that technological advancements are being made in Sudan, and that it is ripe for further growth.

"If you compare Sudan to other countries, when 3G was launched in Sudan, a lot of neighboring countries were still working on 2G technology. Telecommunications in Sudan is growing rapidly if we compare it to our neighboring countries," he says.

I2 established a presence in Sudan in 2006, and since then it has set up two retail outlets and a distribution network for MTN - another key player in the Sudanese market - distributing top-up vouchers and Sim cards for the operator.

Atwi says that over the past three years operators have reduced the price of their Sim cards from a prohibitively expensive US$50 to $1.50, helping to increase the size of the addressable market which he estimates to be in the region of 50%.

Atwi says: "70% of the market is the entry level products such as Nokia 1200 or 1208. If you take for example KSA, 95% of the market is high end handsets. But if you go to Sudan, 80% of the market is low-end."

As befits price sensitive markets, the vast majority of mobile phone users in Sudan prefer to opt for prepay services rather than postpaid; 98% of Zain's customer are prepaid users, while Atwi says that a similar ratio of MTN subscribers - some 95% - are prepaid customers, but this is something which the networks are trying to readjust by drawing customers towards postpaid deals.

Falling ARPU

Encouraging customers to move to postpaid accounts would be one way for operators in Sudan to try and buck the trend of declining revenues per user; like many operators all over the world, networks in Sudan have suffered from a drop in average revenue per user (ARPU).

MTN's ARPU declined by US$5 at the start of last year due to what the operator described as lower minute usage by subscribers and lower effective tariffs, with all the players in the industry offering cheap on-net calls to ring fence their market shares.

Similarly, Zain's ARPU fell year-on-year, from $19 during the third quarter of 2007 to $16 during the same period this year.

Despite the drop, it still remains an important country for Zain's overall operation, accounting for 8% of its total subscriber base, behind only Nigeria and Iraq in terms of customers. It also accounts for 12% of Zain's total revenues.

MTN has found Sudan a particularly difficult market to operate in, with one episode in particular taking a huge chunk of subscribers away from its base.

In last year's third quarter results it revealed that it had 2.2 million subscribers, but that figure was drastically affected by a regulatory requirement that ordered networks to disconnect prepaid subscribers if they had no personal information about the customer on record.

This resulted in the loss of 1.1 million MTN subscribers during the beginning of the second quarter of 2008.

During a conference call with investors to discuss MTN's second quarter results, group CEO Phuthuma Nhleko struggled to hide his displeasure at the way other operators in Sudan reacted to the initiative.

"It is really a security issue where people had to register and so on. Notwithstanding a huge effort in obviously ensuring that people do register, unfortunately by the deadline quite a lot of people still hadn't registered. And as per the law we were obliged to disconnect those people. I'm not too sure that our competitors did exactly the same - I'm not saying they didn't, but I'm not sure they did," he said.

Sudani reported a 23% increase in customer numbers after it ran a campaign to sign up former customers of MTN Sudan, and it appears that Zain managed to snap up some of the customers as well.

Southern vacuum

There is a long history of conflict between the north, mainly Muslim Arab-led Khartoum government and the mainly ethnic, Animist and Christian Africans in the south that has stretched throughout the second half of last century and into the twenty first.

In early 2005, a peace agreement was signed, ending 22 years of war and creating a semi-autonomous region in the south.

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