MTN unveils its first OTT service and roadmap for digital fortunes

MTN has announced the acquisition of music streaming platform Simfy at AfricaCom and outlined the future of the telco, which doesn’t look very much like a telco anymore.

This is of course a slightly unfair statement, as the mission of connecting the unconnected millions across Africa will continue to be a top priority for the business, though CEO Rob Shuter highlighted the team have much bigger ambitions when it comes to maintaining relevance in the digital economy. The Simfy acquisition is just one step in the quest to morph MTN into a digital services business.

Speaking during the keynote sessions at AfricaCom, Shuter highlighted there are still major challenges when it comes to connectivity in Africa, though telcos need to look deeper into how these challenges can be solved. The most simple roadblock is a lack of connectivity across the continent, but when networks are being deployed, telcos need to understand how consumers are engaging with the connected world. A good place to look first and foremost is China.

“Our mission is not just about connecting people, but understanding what the users want to use the internet for, so we can build networks properly,” said Shuter. “When we look at China today, that will be Africa in the next two to three years.”

Looking at how consumers use connectivity in China starts to paint a picture. Media takes up 17% of time of devices, while communications and social media takes up 33%. Shopping and payments account for 16%, and gaming takes up 11%. For MTN to be relevant in the future, Shuter has ambitions to create a presence in each of these segments.

To capitalise on payments and shopping, the mobile money offering will be revamped and launched in South Africa during Q1 2019. Nigeria has also just changed its regulatory regime when it comes to mobile money, and Shuter said the team would be applying for a payments service license over the next month, with plans to launch a mobile money offering in Q2 2019. This is a big moment for MTN, as while the mobile money offering has been present for some time, this is the first venture into its two largest markets.

For Shuter, creating a digital services company has two components. Using connectivity as a platform, a comprehensive partnerships programme has been launched in four main verticals (communications, rich media services, mobile financial services and eCommerce) with the team working with various established players in the ecosystem, but MTN also have to push itself further up the value chain and offer its own competitive products. This is where Simfy fits in.

As a music subscription product, customers will be able to merge both connectivity and music payments onto the same bill, but Simfy will not be incorporated into the greater MTN business from an operational perspective. Simfy will continue to operate a separate entity, allowing it to maintain the OTT environment. Shuter highlighted he would not want the corporate and operational structure of a telco, completely unsuited to the OTT landscape, to impact Simfy’s operations.

On the financial services side, the team will make use of MTN’s scale to establish a more prominent footprint. With a user base of 24 million already, this number seems to be doubling every 18 months. The significantly larger mobile subscription base can be used to springboard the mobile money business north, as Shuter highlighted the distribution network is key. When customers come to top-up their airtime or data allowance, they can also deposit cash into digital wallets. It is convergence at its finest, though leaning on Orange’s ambitions to diversify out of the traditional telco playground.

There are still huge challenges from a connectivity perspective across the African continent, but MTN seems to recognise there is more to be excited about than simply collecting subscriptions. If the Simfy acquisition is to be taken as evidence of MTN’s future roadmap, this looks like it could be a case of convergence done right, not allowing the cumbersome, archaic telco machine to muddy the OTT waters.

Telco competitors aren’t other telcos anymore

It might seem like an unusual statement to make, but if the fortunes of the fourth industrial revolution are going to be realised, telcos need to stop bickering between themselves.

The new competitive landscape seems like a very counter-intuitive one. The status quo for years has been to capture as many subscriptions as possible, building profits on top of connectivity, though the digital economy is so much more. This might seem like a very obvious statement to make, though the dangers are seemingly more apparent on the African continent, with the OTTs and cloud players a larger threat to a telco than other telcos.

This was a fear which emerged during the opening panel sessions at the AfricaCom 2018 show in Cape Town. Connectivity is not enough, especially on a continent where ARPU can be as low as $4 a month. There is of course demand for more data connectivity, but where is the value when you actually deploy data networks? According to Hind Elbashir, Group Chief Strategy Officer at Sudetal, not in the connectivity business.

“The OTTs have spread their wings, while we are continuing to compete in a very small place,” said Elbashir.

While the telcos are laying the foundations for the digital economy in Africa, they are continuing to focus efforts on traditional business models focused around connectivity and subscriptions. This is a limited section of the value chain, becoming increasingly crowded, and built on the race to the bottom. Value will become increasingly difficult to find and profitability will erode as the telcos fight for customers on pricing. However, the fourth industrial revolution is creating value elsewhere in the ecosystem.

Nic Rudnick, CEO of Liquid Telecom, echoed Elbashir’s point. While the African telcos are building the networks and spending all their time on securing more subscriptions, foreign players in Silicon Valley or China are swooping in to collect the more lucrative rewards at the top of the digital value chain. The OTTs are capitalising on the vast expenditures outlaid by the telcos and stealing the new value which is being created through enhanced connectivity.

But why is this more of a risk in Africa than anywhere else? That is a very simple question to answer; Africa does not have anywhere near the same scale or penetration of connectivity infrastructure as in the developed markets, while ARPUs are significantly lower, adding more pressure to the bottom line. With African telcos having to spend more CAPEX to deploy infrastructure to realise the digital economy than European or North American counterparts, while simultaneously collecting smaller tariffs off customers, it cannot afford to lose the added value created in other areas of the ecosystem.

This is a change in the industry’s landscape which has been coming for years, but the telcos seem to be struggling to capitalise on. The rules are shifting with the cloud and OTT players securing the lion’s share of newly created revenues without assuming the risk and vast expenditure of network deployment. Not only will the telcos have to transform culture and operations to reverse this trend, but also create new relationships with competitors.

Elbashir pointed to joint investments in infrastructure to reduce financial exposure and allow telcos to spread CAPEX further. Multiple joint ventures would allow for quicker expansion of network infrastructure, increasing the connectivity footprint of the telcos, but also allow talent to focus on creating strategies and products to capitalise on the created value in the digital ecosystem.

Collaboration is a key word, though we all know how difficult it can be to create. However, telcos should recognise the greatest threat is not from other telcos who are fighting for subscriptions, but the OTTs and cloud players who so easily secure revenues in segments of the ecosystem the telcos are struggling to exploit. The threat from the OTTs is a simple one, but if it is not addressed, growth is going to be impossible.

This is a new market dynamic, and while the OTTs might be a threat to all telcos around the world, it seems to be more pronounced in Africa.