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Mon 6 Mar 2006 04:00 AM

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Adding up

While adding the next billion mobile subscribers globally is a theme that has gained market momentum, the operators and equipment suppliers at the forefront of this development face a delicate balance between expanding usage and maintaining profitability.

|~|Zander200a.jpg|~|Motorola CEO Ed Zander is one senior telecoms executive who believes mobile communications will help people overcome poverty in developing economies.|~|Connecting the “unconnected”, as this mobile-free world is becoming known, was a main theme at the 3GSM 2006 conference in Barcelona. Among all the talk of IMS, DVB-H and a host of other forward-looking technologies and applications, the relatively basic activity of providing simple mobile solutions to the millions who may never have seen a handset in their life was one of the burning issues for some of the biggest names in the industry.

“Every time you have ten more phones per 100 people, you have an increase in GDP of 0.6%,” claims Motorola CEO Ed Zander. “Mobile communications will help people overcome poverty and realise their potential.” It could be argued that Motorola's and other equipment suppliers' economic development line is simply a ploy to pick up contracts in developing markets, though the link between communications and economic development is also becoming accepted by governments and analysts alike.

While China and India have been heavily talked about in recent years, the explosion in mobile growth from these two countries - China thought to be adding in the region of five million mobile subscribers a month - have moved them off the 'emerging' radar. Instead it is Africa that is seen as the next big thing, where millions of rural communities live without even a landline service.

Tarek Kamel, Egypt's minister for commerce and IT, is another firm believer in the importance of mobile communications, and claims that using such technology to spread news, medical information, education and emergency services to people in poor, rural areas is a “real revolution”.

Celtel International, the pan-African operator now spanning 14 countries, can be seen as right at the centre of this focus, an example of a mobile provider with the reach and potential to be at the forefront of this debate. Now boosted by Middle East funding following the 2005 purchase by MTC Group, a company with aggressive expansion plans for the African continent, Celtel has a real opportunity to move into new markets, and really connect vast populations who are currently without mobile communications.

“It's interesting to see that there is an increasing interest in the emerging side of the business,” says Celtel International CEO Marten Pieters. “Coming from that side it's nice to see that the world has changed in the last two to three years.”

The challenge for Pieters is to find cost effective ways of increasing penetration into the more rural areas. “And of course, more rural in Africa is much different to more rural in Europe, Japan or the US. So that means we're looking for very efficient technologies, probably bigger cell sites, so we don't have to build so many.”

Pieters describes the move from the cities to the rural areas as a Catch-22 situation, costing much more to increase penetration, but in return getting much lower purchasing power from subscribers and hence lower ARPU.

“What we often see when we open a new rural area, we look at the total traffic, and 80% goes there from the city, and 20% comes back. So you could have a look at the 20% and say it's not that much. But the reality is that people from the city are calling to family, friends, business partners in rural areas, so if you don't have the connection there you don't have the revenue.”

MTC is now taking care of the financing of the whole Celtel group, which Pieters says makes it a lot easier for the operator to get its hands on money for expansion. “Africa has always been difficult for us from the banking side, there's not been much exposure from the international banks in Africa, and it's always difficult to get money. Channelling it through the Middle East there is far more available, and it is cheaper.”||**|||~|Pieters200.jpg|~|Celtel International CEO Marten Pieters is pleased that interest has turned to the emerging markets.|~|With Celtel branching out in new rural areas - Pieters claims that it could cover 80% of each country it has operations in within a few years - and with MTC's money helping it move into further territories, the most recent being Madagascar and Sudan, suppliers are eager to get a piece of the pie and are tailoring their technology accordingly. Although not a current vendor of Celtel, Motorola is keen to use its years-old relationship with MTC to leverage some of the African action for itself.

“Motorola is strategic partner to MTC, and has been a supplier to it for many years now,” says Ali Amer, Motorola's director of network sales Middle East North Africa and Pakistan. “Things could change,” he says with regard to getting Celtel's business. But with the Celtel management team kept in place by its new Middle East owners, it is essentially a decision for the African operator which suppliers to use, rather than a Kuwaiti one. Even Khaled Al Hajeri, MTC Group's CTO admits that it is “up to Celtel”. Pieters says that he is currently looking at the US-based vendor.

But it is not just the initial cost of infrastructure that is the main spend for operators. “Most of the cost to operators in emerging markets is not just the capex, but how much it costs to run the network,” says Laith Sadiq, Motorola's wireless broadband business development director EMEA, who adds that a major factor for focus is in the backhaul. “Motorola is investing a great deal in backhaul technologies, in the unlicensed spectrum, as well as the licensed spectrum, such as WiMax. What you can enable operators to do is use these wireless technologies to have their own backhaul.” Such a move would rule out the need for expensive satellite services, previously used across Africa.

Outside of the technology realm, governments can play a major part in mobile growth, with many industry figures pushing for the scrapping of taxes imposed on handsets, and further deregulation to drive competition. Egypt recently repealed taxes on handsets from other countries. “The more we deregulate, the more we re-regulate in the right direction, we get growth,” says Kamel.

Across in the Middle East, there continues to be room for growth. Jordan, listed by consultants Arab Advisors as the region's most liberal market, still has a relatively low penetration rate, less than 50%, though the demand for mobile services is clear. Umniah, which launched its mobile operations in June 2005 as the country's fourth mobile operator, experienced a growth in subscribers far beyond its initial expectations.

“We were planning to have something like 100,000 subscribers by the end of 2005,” says Ihab Hinnawi, Umniah's director of operations. “But we were shocked, because after five days we had 50,000 subscribers. We reached our year-end target of 100,000 customers within two weeks.” Many believe that a similar level of pent up demand is available for the taking in Africa, should the operators provide the communities with the possibility for mobile services.

In the four years of liberalised communications in Jordan, the number of employees in the mobile sector increased by 42%, according to recent research by Zawya. The report looks towards markets in Africa, finding that in Egypt, if the ICT investment doubled, 1.3 million new jobs would be created, and the rate of GDP growth would rise from 4% to 8% and beyond.

The recent emergence of the sub-US$100 laptop is believed to be a major driver for growth and education in poorer parts of the world, but mobile communications is also considered an extremely important factor, especially for areas such as business, enabling farmers to easily find the going market rate of produce, for example.

Mohamed Ibrahim, chairman and founder of Celtel and celebrated 'connector' of Africa’s unconnected, is confident of the growth, indicating that last year the continent added more new mobile customers than Europe or the US. “There were two million people using phones in Africa in 1998. Now there are 120 million.”

Significant challenges still exist. Up to 30% more people (25 million) in sub-Saharan Africa would have mobile phones if it weren't for the unpredictable and short-term approach to regulation in many countries in the region, according to a study published by the GSM Association (GSMA).

A study by PriceWaterhouse Coopers concluded that consistent and transparent regulation could significantly reduce mobile operators' investment risks, allowing them to expand the coverage and capacity of their networks, while reducing the total cost of ownership for mobile phone in Africa. PWC estimates that the resulting increase in coverage and fall in retail prices could boost the number of mobile phone users in sub-Saharan Africa to 108 million from 83 million today.||**||

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