Over the past decade mobile phones have helped to transform African countries like Kenya, giving the financially excluded a cheap way to access credit through mobile banking. It has also been Africa’s most successful growth story: the mobile payment market is forecast to be worth $60bn by 2015. Today, information and communication technology (ICT) companies are building the infrastructure for what investors believe will be Africa’s next big growth story – PayTV.
On Monday Wananchi Group, a Kenyan media operator, announced that it raised $57.5m of growth capital to continue building fibre infrastructure for its triple-play service in Kenya.
Through its Zuku brand Wananchi plans to introduce the first triple-play package [which which offers broadband internet, calls and TV services in one bundle] to the Kenyan market in two weeks at a price of approximately $15 per month. This will also be a first on the African continent.
Investors included Liberty Global, one of the world’s largest cable companies, and Oppenheimer Funds, Sarona Asset Management, East Africa Capital Partners and Emerging Capital Partners.
“Pay TV to the African market will be what mobile phone was over the last ten years”, Richard Bell, Wananchi’s chief executive told beyondbrics.
Early movers in Kenya’s ICT market are doing incredibly well, one investor in the latest round of fundraising told beyondbrics , and the next thing to watch out for is PayTV, at a price that Kenyans can afford.
“We see a lot of the same similarities in PayTV and internet markets [to those in mobile phone market a decade ago] – low penetration but significant demand,” said Bryce Fort, managing director at Emerging Capital Partners. ECP, which invested $10m in this latest round of fundraising, was an early investor in Africa’s mobile phone sector, making four and half times its investment in Celtel, a pan-African mobile phone operator and Orascom (OTLD:LSE).
“The combination of TV and internet together over same pipe is a very compelling value proposition” he said.
For private equities, many African countries present the perfect opportunity to provide capital in countries where access to capital is limited. As Roelef Horne, a portfolio manager for Investec Asset Management recently explained, “the advantage to doing business [in Africa] is that competition is very low.”
Whether PayTV takes off in the same way that mobile phones did is not clear – especially since such a large percentage of African countries have very low GDP per capita. The prospects are tempting – mobile phone subscriptions in Africa have rocketed from 1 per cent of the continent’s population in 1998 to 32 per cent in 2008, and some of the first telecommunications companies that went into the market are now the biggest. The greater east Africa region has 14m TV households and Kenya alone has 3m, according to Fort. Only 100,000 households are currently subscribed to PayTV. A large barrier has been high subscription costs.
But mobile phone uptake was so rapid because not as much infrastructure is required to build mobile phone networks. By contrast, broadband internet and TV requires more significant infrastructure development, a major reason why PayTV has been so expensive. Proper connection to electricity in the long run is another concern.
Yet, as the number of households with discretionary income across the continent continues to grow – it is projected to jump by 50 per cent over the next decade to reach $128m, the next success story is likely to be related to retail. If those early investors who believe that next demand from the African consumer will be television and broadband internet turn out to be right then they may be looking at a tidy profit.
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