Mobile operators in emerging markets have enjoyed high rates of profitable revenue growth but future EBITDA growth is more uncertain. Their focus should be moving towards revenue optimisation, selective rural network expansion and opex reduction programmes.
Over the last five years, Analysys Mason has reviewed hundreds of telecom business plans, including in Africa, the Middle East and Asia Pacific countries. Mobile operators with the best commercial and operational practice typically manage to yield EBITDA margins at between 40% and 65% of revenues, depending on their market share (see Figure 1). Achieving high EBITDA margins depends on commercial strategy, network management and operational excellence.
.jpg "Figure 1: MNO's EBITDA margins in emerging markets (Source: Analysys Mason)")
Figure 1: MNO's EBITDA margins in emerging markets (Source: Analysys Mason)
Many emerging markets have ongoing growth in population and GDP per capita. This provides interesting business opportunities for mobile operators. However, much of the population growth will come from younger, more rural and poorer populations. In the relatively richer urban areas, some countries are experiencing signs of market saturation as stronger competition and aggressive commercial campaigns drive greater requirements for network capacity and higher costs.
Analysys Mason’s proprietary affordability analysis shows that, in USD terms, ARPU tends to decline as mobile penetration increases, and historical ARPU trends confirm this. Typically, ARPU decreases from about 10-15% of people’s average disposable income at 20% mobile penetration, to around 4-7% of disposable income at 60% penetration. This puts operators’ EBITDA margins under significant pressure, as economies of scale may not bring similar cost savings.
In order to continue to grow profitably, mobile operators need to focus on optimising revenues from existing customers. This includes:
- basic tariff optimisation and detailed segmentation work
- launching new services (such as mobile money in unbanked markets)
- carefully managing promotions and market positioning
- reducing unnecessary free value offered with SIMs
- reviewing customer loyalty schemes
- looking into how to profit from mobile number portability.
Coverage of population has typically been limited to the densest areas for obvious economic reasons. Extending this coverage does not usually require a licence and is a source of subscriber and revenue growth for mobile operators. The business case for network extension must be carefully designed, taking into account traffic and revenue expectations, recent low-cost radio access technologies, transmission systems, and power and fuel autonomy solutions. A typical timeframe for return for investment of a radio base station in a rural area should be around 24 months.
Finally, EBITDA management should include a comprehensive programme for cost reductions. Many operators have left large cost items unchecked and quick wins can provide rapid improvements in margins and the bottom line. Attention should be given first to interconnection and roaming agreements, distributors’ commission levels, network maintenance contracts, equipment and service procurement, human resources and organisation, as well as IT costs (see Figure 2).
.jpg "Figure 2: Areas of attention for cost reductions (Source: Analysys Mason)")
Figure 2: Areas of attention for cost reductions (Source: Analysys Mason)
Mobile operators in emerging markets should continue to see revenue growth but need to optimise existing revenue sources, expand their coverage into profitable areas and strive to reduce costs.
Analysys Mason has reviewed hundreds of mobile operations and found that most operators do not achieve best-in-class EBITDA margins. Our proprietary, revenue-optimisation and cost-reduction programmes help mobile operators across the world to increase margins and their bottom line.