BMI View: The Tanzanian mobile rebounded in 2014, as its 2013 performance was impacted by SIM registration and the removal of inactive accounts. Penetration remains low so there is still room for growth, especially in rural areas which account for the majority of the population. Viettel's market entry, and its focus on rural areas, will drive further competition as the current operators will need to match the new entrant, and they will look to differentiate themselves with new services. MFS (mobile financial services) will be one, as Tanzania becomes the first fully interoperable country. Mobile data will continue to grow through the development of 3G and 4G networks, and this will impact the fixed market, especially on the voice side. The fixed broadband market will see some growth but will continue to remain a minor player compared to mobile access.
The mobile sector grew 16.1% in 2014, compared to growth of 0.8% in 2013 following the discounting of inactive subscriptions and a 1.1% growth in Q313.
Despite increased usage, both in terms of voice and data, ARPU continues to decline through strong competition, which will be exacerbated by Viettel's market entry
MFS users have continued to rise Tanzania has become the first country to offer interoperability across all MFS platforms
The fixed-line market continues to contract, declining by 8.3% year-on-year (y-o-y) because of a lack of investment and fixed-to-mobile substitution
Tanzania ranked 16th with a score of 39.9, above the regional average of 39, on the BMI telecoms Risk/Reward Index (RRI) for Sub-Saharan Africa in Q315, out of 40 countries. It moved up two places in this quarter's update, thanks to an improvement in its country risks score, with all other metrics remaining unchanged. This improvement is due to Tanzania being a net oil importer, and it benefits from the lower price of the commodity, with potential savings boosting private consumption across many sectors, including telecoms. Despite a low penetration rate and stronger growth in 2014, its industry rewards score remains low, because of the continuous decline of ARPU despite increased usage.
Key Trends And Developments
In January 2015, Airtel finally divested its 35% stake in TTCL allowing for a renationalisation of TTCL. Furthermore, TTCL and Huawei Technologies agreed upon a USD182mn contract to expand TTCL mobile and fixed telecommunications network infrastructure.
UCSAF contracts will continue to dominate TTCL priorities and connect 400 villages with more than 500,000 inhabitants in the years to come.
Vodacom is expanding beyond its core telecommunications services by offering mobile health insurance options in conjunction with its popular M-PESA services. Furthermore, in January 2015, Vodacom is in the process of acquiring Emirati Zantel.
In October 2014, Vietnam-based Viettel won a concession to build and operate a 3G network in Tanzania. Viettel will start building its national network on November 1 and is expected to launch commercial mobile services in July 2015, according to Tanzania's deputy communication, science and technology minister, January Makamba.
Viettel initially entered the Tanzanian mobile market with the acquisition of mobile licensee Epocha and Golden Ocean Tanzanie Ltd (Egotel) for USD18mn in October 2012. We suspect Viettel's 3G concession is a follow-up to that deal, which also included plans to invest around USD337.7mn to deploy its network infrastructure.
In BMI's view, Viettel possesses the right expertise, experience and sufficient resources to challenge the established players in Tanzania's mobile market. The operator has recorded huge successes in other frontier markets it operates in across Africa and South America. The most notable example is Mozambique, where it has reported phenomenal subscriptions and revenue growth since launching commercial services in May 2012.
In view of the potential risks Viettel faces in Tanzania, including the fierce competition in the mobile market and the presence of multiple major operators, we believe the operator must get its network deployment, marketing and pricing strategies right in order to make an immediate impact on the mobile market. We believe the company's decision to focus on rural coverage will pay off, but caution that mobile tariffs are already relatively low on the back of fierce price competition, limiting the scope for further reduction.