As you might have noticed, I've been doing some research into GSM voice + mobile Internet in Africa lately. When comparing the results to prices in India, however, I was quite surprised.
Compared to the average price for a voice minute in Africa of around 10-15 Euro cents today, Indian carriers sell their voice minutes for around 2-3 Euro cents (taxes and recharge fees included, see an example of Airtel here and of BSNL here). Also, GPRS is much cheaper.
Assuming that the cost of running the networks in both regions is similar (just an assumption, please prove me wrong), I can't quite explain the difference. It's not missing competition, most African countries have 3 or 4 GSM networks today. It's not missing profitability either. EBITA of African and Indian wireless carriers are quite o.k. (see fore example the results of Airtel for 2008). Any ideas?
5 thoughts on “Prices for Voice Minutes and GPRS Very Different in Africa vs. India”
Hi Martin, the most common reason given by Nigerian GSM operators is the cost of power. Each base station is equipped with two diesel generators (one is backup), and in some scenario’s these generators may be run continuously for several days. These means that each operator spends a significant portion of their operating expenditure on powering their base stations. I believe they are simply passing on these costs to the consumer. This is the case in Nigeria, I cannot speak for other countries.
The costs of running mobile networks in Africa are significantly higher than in India
If we look at the LRAIC then both the the CapEx and OpEx elements are higher.
In CapEx terms Erlang / sqkm densities are an order of magnetude lower, so the ratio of passive infrastructure (towers/generators) costs to active infrastucture costs (GSM kit) is higher.
Lack of Erlang density also means that fibre is often uneconomic and large amounts of transmission is done by VSAT – meaning that probably all operators run some BTS at a loss in rural areas (and cutting prices/ increasing traffic would only increase bandwidth need & losses)
On the OpEx side the costs of keeping sites running are significantly higher due to the lack of power – 90% of African sites run on dual generators powered by diesel at a cost per site per month significantly higher than using grid power – with significant on-costs in terms of running a fleet of bowsers to refuel the site – using inadequate dirt roads that often do not exist in rainy periods – and paying for security to stop the fuel being stolen.
Independent studies in Kenya, Tanzania and other countries have put LRAIC at around 6 UScents per minute – giving a cost to the operators for a mobile -mobile call of around 12 cents.
So with the costs of taxes/dealer margins/ marketing the pricing is already fairly keen.
EBITDA margins only measure return on OPEX – you have to look at the Capital investment also.
Following factors also contribute to Less cost per call (LCPC) in India
1.Fierce competition among operators , for example if you consider Bangalore (Population : 6,200,000) , There are 13 wireless operators , here is the list
Datacom Solutions Pvt Ltd*
Idea Cellular Ltd*
Aska Project Ltd*
Swan Telecom Ltd*
Loop Telecom Pvt Ltd*
Shyam Telelink Ltd*
(though some of them are yet to launch)
So operators has no option other than reducing the price.
2.Also some of the operator are doing tower sharing and this reduces lot of money involved in building towers.
Because of competition, customers are enjoying the benefit , so – customer is the king 🙂
I love your gsm4d articles. Keep up the good work! Also, check out OpenBTS if you havent done so yet.
I agree with Jagdeesh. It is really about competition. I believe the “independent studies” mentioned by Rick must have been carried out by the same clever researchers who established that there is no link between smoking and cancer.
One only has to look at the remarkable profit margins of African mobile operators to see that this is not just about diesel generator backups.
You can find similar evidence about the cost of SMS in Africa versus India or the Philippines. Interestingly, I believe this strategy reduces the revenue they could be making on SMSes. See my back of the envelope calculation here – http://manypossibilities.net/2009/03/more-on-the-1-cent-sms/
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