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The Growth of Mobile Phone Monopolies in Africa – Is it Good or Bad?

22 July, 2014

Source: ICT Africa

Kihara Kimachia:

The story of mobile phone monopolies in Africa is somewhat analogous with the how many leading companies in history have ended up in monopolistic positions. Monopolies come up as a result of smart business decisions, competitor mistakes, and shady tactics. In Africa, government favoritism of incumbents is also often a factor.

Buyouts are taking place across the continent and Africa's telecom market appears ripe for consolidation. Just to cite a few examples, Orange in Uganda is looking for a buyer for its business as a result of a small market share that continues to contract. In 2013, Warid, another Ugandan telecom player was bought out by Airtel. Essar's YU in Kenya is being split between Safaricom and Airtel, the country's leading providers. In South Africa, Vodacom is in the process of buying out Neotel.

The result of all these mergers and buyouts is that most markets are beginning to look like monopolies and oligopolies where one or two companies control over 80% of market share and the rest have to contend with the scraps.

Given that most telecom markets in Africa are overcrowded, further consolidations appear inevitable. But, while this is the trend for now, what regulators seem to forget are the long-established disadvantages of monopolies in any industry.

Fears of Monopolistic Power
The fact is, as a company grows and builds market share, it realizes its success. The bottom line swells, investors are happy and everyone wants more. When a company has over 70 percent market share, there is usually no serious competition to fear. Company executives inevitably get to the point where they ask the all-important questions, "How do we get more customers?", "How do we further increase our profits?" Since the potential for new customers has peaked, they need to examine other ways to grow revenue. This means looking outside their current service portfolio to see what else they can market, create, buy or control. Monopolies typically use excess capital to branch out into other areas where they can control inputs. This may be good or bad, for example, Safaricom in Kenya used its supernormal profits to launch M-Pesa, the hugely popular mobile money service. On the downside, Safaricom has in the past been accused of abusing its monopolistic position by locking-in M-Pesa agents with an exclusivity clause, a clear attempt at monopolistic control.
A monopoly could also raise prices and offer low quality service. Some of the leading telecoms in Africa are known to have poor network quality where calls are sometimes dropped or voice quality is choppy.

Also, a study of monopolies throughout history reveals that more often than not, they stagnate when they get to the top, reduce innovation or are slow to innovate, become inefficient and leave consumers with the same product/service that they had years ago. Monopolies create fear because even in today's capitalistic societies, people do not get the best services for their money. They also end up buying other companies when their product/service is not the leader, and increase prices to make more profit.

The Way Forward
Even though the Telecoms industry in Africa is still a nascent and developing market, industry regulators should keep in mind the dangers of allowing monopolies to thrive even as they allow consolidation and buyouts as a way to ensure stability.


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