Rural coverage: The next frontier for mobile operators

Can technology and business innovation enable mobile operators to reach rural Africa, asks Pier Francesco Lion Stoppato, principal consultant, Mott MacDonald

Rural coverage: The next frontier for mobile operators

With ARPUs declining, increased competition and shareholders’ pressure to deliver higher revenues and profits, the key challenge for mobile operators is to grow revenues and profits. Two possible ways to achieve this are to widen the adoption of data services and to increase the subscriber base.

Higher penetration of data services requires availability of 3G or 4G networks, as well as affordable smartphones and data plans. Increasing the subscriber base can be achieved by competing for customers in urban and other-well served areas, but also by extending network coverage to unserved or poorly served areas, and hence reaching new subscribers. The main challenge in rolling out networks in rural parts of Africa is to extend coverage in a cost-effective way.

Africa offers a good opportunity for growth
With 1.16 billion people, Africa is the continent with the second largest population, but remains the continent with the lowest mobile penetration. At the end of 3Q 2015, mobile penetration was just 42.6% for unique subscribers, or 77.5% considering the total number of active subscriptions (Source: GSMA). Nevertheless, it has the highest annual growth of mobile connections with an annual growth of unique connections at 9.4%.

In the period 2015-2030, the percentage of population living in urban areas is expected to increase from 41% to 52%, while the population in rural areas, despite the decline in percentage, is expected to rise by 168 million to 817 million by 2030.

Living standards are also expected to improve in rural areas, and with the emergence of a larger, younger and more affluent population across the continent, conditions are going to be more favourable for mobile expansion.

While 2G is still the dominant technology, 3G and 4G are undergoing sustained growth and have reached 257million connections; i.e. 28.2% of the total active connections.

At the end of 3Q 2015, 3G coverage reached 49.9% of the African population up from 47.8% one year before. The rollout of 4G has progressed significantly, doubling the coverage in the past year, becoming available to 12.6% of the population.

In urban areas, a higher penetration of data services is dependent on affordability of smartphones and data packages. The declining prices of smartphones, due to the competition among large manufacturers and the emergence of white label manufacturers, support their widespread adoption.

Smartphone numbers have reached 209.3 million, or 23% of the total active connections with an increase of 48.4% in the last year. Accordingly, mobile data traffic carried continues to grow at a rapid pace with an annual increase of 72% in 2014. It is expected that the trend in the consumption of data services will continue in the coming years, with a forecasted 63% CAGR at least until 2019.

In rural areas revenues per user are likely to be low; therefore the key challenge is to lower the cost to deliver the service by reducing both the capital and operating expenses of remote base stations.

From a strategic perspective the migration of current customers to data services is less expensive than the acquisition of new customers. Furthermore, mobile operators have an imperative to defend their existing customer base and position in the market place from competitors.

Growing the subscriber base in more rural and unserved areas requires getting the right balance between new revenues and the cost of provision of adopting a longer-term investment approach.

Reaching unserved rural areas
The main challenge in rolling out networks in rural parts of Africa is reaching these areas in a cost-effective way. The key problem to overcome is a reduction in both the capital and operating expenses, including the cost to connect these more remote base stations to the core network.

Although fibre deployments have been progressing, it will still be many years before fibre can support backhaul for many rural African areas, and some more remote areas will probably never be reached.

This opens an opportunity for alternative solutions. These can range from traditional methods such as point-to-point microwave through to novel methods such as high-altitude platforms: Google’s Project Loon uses stratospheric balloons and will undergo a more extensive piloting with three mobile operators (Telkomsel, XL Axiata and Indosat in Indonesia) in Asia.

A well-tried solution is to use satellite links for mobile backhaul. Satellite cellular backhaul is used by mobile operators to backhaul several base stations, but as a last resort because it is perceived as expensive and also requires specific expertise.

Nevertheless, two technological developments, the convergence towards IP networks and the introduction of high-throughput satellites, make satellite a viable and competitive solution to backhaul remote base stations. IP convergence facilitates and simplifies the integration of satellite into terrestrial networks, while high-throughput satellites dramatically reduce the cost per unit of data transferred.

To address the rural mobile market, some alternative manufacturers (Vanu, Ranberry, STM Wireless acquired by EMC Satcom Technologies, Altobridge acquired by iDirect) to the main equipment vendors (Alcatel-Lucent, Ericsson, Huawei, Nokia and ZTE) have developed low-power consumption base stations dimensioned for a limited number of subscribers at a fraction of the cost of those normally used in urban areas. These rural base stations can be powered off-grid by solar panels, whose price has declined significantly over the past year, making them far more affordable.

If technology, product availability and cost open the opportunity for the provision of rural mobile through satellite, why is satellite not more widely adopted for this application? Furthermore, what can satellite operators do to foster adoption?

Relative to other players in the telecommunications industry, satellite operators are small organisations that normally sell raw bandwidth to broadcasters, telecom operators and service providers.

An alternative way for satellite operators to sell capacity to mobile operators, and win new customers among them, is to be more innovative by providing a managed service to extend
current mobile networks, as mobile equipment vendors have been doing for several years for non-rural areas.

From a technical perspective, this involves the provision of a turn-key solution that can be easily integrated into the existing networks. Dynamic allocation of satellite capacity allows a more efficient use of payload resources to connect several base stations of different mobile networks.

From a business perspective this entails a closer collaboration with mobile operators undertaking business analyses based on their expected traffic patterns to evaluate the return on the investment for each additional base station.

This arrangement is beneficial both for mobile and satellite operators. Mobile operators will be able to extend their networks in rural areas cost effectively and hence gain new customers.

Satellite operators, selling airtime minutes on a wholesale model, can bill mobile operators for the actual usage charging a higher price per MHz than selling airtime minutes raw bandwidth. Finally, a user and regulatory authority perspective, it will be possible to reduce the digital divide between urban and rural areas.

Rural Africa represents an interesting commercial opportunity for mobile operators to reach millions of new subscribers. Its aspiration to serve them by extending network coverage is achievable today with the support of satellite operators adopting technology innovation on the ground and in space, as well as a more innovative business model, which makes it more cost-effective and easier to backhaul remote base stations.

About the author: Pier F Lion Stoppato is a management consultant specialising in advising operators and financial institutions on project development and management. His experience encompasses the strategic, technical and economic assessment of fixed, mobile and satellite communications projects. He is principal consultant and based in the London office of Mott MacDonald, the global engineering and consulting firm.

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