Enterprise focus will be key to African 5G success

By Rafiq Raji

Introduction

There is a lot of enthusiasm surrounding the arrival of 5G mobile connectivity in Africa. At least 14 African states are at various stages of rolling out 5G mobile networks.^[1] There is a solid economic case to be made here. According to the GSM Association (GSMA), a global body that represents mobile network operators’ interests, 5G could boost African economies by as much US$26bn in the next seven years.^[2] Swedish mobile technology leader Ericsson expects 5G subscriptions in Africa to cross 150m by 2028. That would mean almost 14% of all mobile connections would be 5G in the next five years.^[3] But for now 5G compatible devices are expensive and remain out of reach for most Africans.  It could take years for 5G to reach the scale needed to yield positive payoffs. Telecom operators investing in 5G infrastructure upgrades are therefore banking on future growth. To be profitable, 5G mobile subscribers must meet a volume threshold to allow economies of scale.^[4]

So, what is the current state of play of 5G on the African continent? Will Chinese original equipment manufacturers (OEMs) continue to be the bedrock of telecom infrastructure as 5G networks are rolled out in Africa? Or will they face competition from the West? And what are the prospects of an initial focus on enterprise 5G ahead of mass retail adoption? These are the questions I answer in the article.  

The 5G landscape in Africa

The African 5G ecosystem currently consists of 4 main players viz. (1) Mobile operators, (2) Tower operators, (3) Network equipment manufacturers, and (4) Cloud services providers. According to a survey conducted by GSMA, nearly 50% of African telecom operators will continue to provide 2G and 3G services beyond 2030, although 41% could shut down their old networks by then.^[5] As of now, 4G networks already cover about 76% of Africa. Even so, 5G could make up at least a fifth of connections on the continent by 2030. A troubling internet usage gap will persist because even as 3G and 4G connections have grown at an average annual rate of 30.2% between 2016 and 2022, the number of unique mobile internet subscribers has grown much more slowly - at a 10.3% annual rate over the same period.”^[6] In other words, there are actually more Africans living within range of a mobile broadband network who do not use high-speed internet at all. This is the a so-called ‘usage gap’, which can be blamed largely on poverty and digital illiteracy.^[7] In fact, on average, unique mobile internet subscribers represent only 22% of sub-Saharan Africa’s population, with 34 countries having fewer than 25 unique mobile internet subscribers per 100 inhabitants in 2021 (Begazo et al. 2023). Many African countries, including its richest, South Africa, continue to suffer from basic infrastructural constraints.^[8]

Compared with the expected 36% 5G adoption in India by 2030, Africa’s outlook does not look particularly inspiring. Some of the current constraining factors, such as expensive 5G-enabled smartphones, lack of adequate digital content, and legacy networks (2G, 3G and 4G), may very well dissipate much quicker than expected if original equipment manufacturers (OEMs) find cost-efficient ways to leverage the technology much more effectively. 5G-enabled smartphones are already becoming cheaper thanks to Chinese innovation. Auctions of mid-band frequency spectrum might improve the business case of 5G for African markets, provided it is accompanied with liberal tax concessions and lighter regulations.

According to GSMA, the greatest economic impacts of 5G in Africa are expected in the retail (richer digital experience in e-commerce and improved supply chain efficiencies), manufacturing (automation and associated cost efficiencies), and agriculture (increased productivity from smart farming) sectors. Thus, there is a strong business case for providing 5G services to the middle and wealthy classes, as well as businesses. But that is probably where it ends, as without scale economies, 5G will not be very profitable. 3G-4G services meet the still modest data needs of most African mobile users. The total cost of ownership (capital and operating expenses) of 5G services will outweigh the network benefits for much longer than operators can afford without a breakeven number of African customers willing to pay for the upgrade early on. As shown in Table 2, more than a third of African consumers will not adopt 5G owing to still relatively expensive devices and higher tariffs, with limited network coverage and still few economically viable use cases and applications the main barriers to consumer adoption about half of the time. Unsurprisingly, South Africa is leading 5G adoption in Africa.^[9] But 4G appears to have much room to run and will eclipse 5G for a little bit longer, as current legacy networks, which have been easily adaptable for 4G, require significant changes and additions for 5G services.^[10] In fact, African telcos are continuing to beef up their 3G and 4G networks, even as they progressively invest in 5G.^[11]

Chinese dominance of 5G services in Africa

Infrastructure investment is necessary for 5G rollout. According to Xalam Analytics, Africa will need to add another 300,000 km to the existing 600,000 km fiberoptic network.^[12] Western technology providers have been outmatched by the likes of Huawei.^{[13], [14]}  70% of Africa’s 4G network is now built on the Chinese technology platform. ^[15] So it is Huawei that is best positioned to upgrade it. Chinese 5G equipment is not only at least 20% cheaper than that of Cisco or Ericsson, but it is arguably of better quality as well.^[16] In Africa, China may have acquired such an unassailable lead in technology that it may be very difficult for others to compete.^{[17], [18]}

Chinese  phone manufacturers have driven down the prices of smartphones across Africa. Smartphones priced below US$100 accounted for about 42% of all smartphone shipments to Africa in the fourth quarter of 2022 (see Table 4). Chinese brands like Tecno, Itel, Infinix, and Xiaomi accounted for more than half of all smartphones imported into Africa in the same period, with Samsung coming second at 29% (International Data Corporation, 2022).

There are potential future complications for African countries relying on Chinese OEMs, especially Huawei, to build their information and communication technology (ICT) infrastructure. The United States and European Union are pushing back against Huawei-built 5G networks on their continents and those of their allied countries, for instance.^[21],[22] The security concerns about Chinese-made equipment in the west will not be assuaged if they can still be connected to supposedly secure western ones. While eventually, some international harmonisation and integration will be agreed, the bickering during the intervening period could be costly for African countries in a hurry to develop their digital economies.  

Enterprise focus will be optimal for initial 5G rollout

The key to 5G success on the African continent could be enterprise, as it may take a while for African consumers, whose internet needs are already well-served with cheaper 4G services, to make the upgrade to the significantly more expensive but faster 5G connections.^[23] 5G network infrastructure, whether non standalone (which piggyback on existing 4G equipment) or standalone (which are built from scratch and do not rely on older network infrastructure), are hugely capital-intensive, up to 3 times the outlays for older generation networks in fact.^[24] And they cost far more for a largely cash-strapped African consumer market. Operators have to install relatively denser infrastructure for 5G services, which even for non standalone networks, will require new installations, as older generation network components (telecommunication masts and towers, for example) are distanced too far apart to meet the concentrated equipment requirements of 5G services. Businesses, on the other hand, have urgent needs to digitalize their operations, with 5G fixed wireless access services an almost perfect fit for their quality and cost considerations. Besides, African firms, big ones especially, already subscribe in one form or another to enterprise offerings (fixed broadband, fixed voice, network services, IP VPN, enterprise mobility, cloud and hosting, security, applications, managed mobility, unified communications and professional services) of telecom operators, according to GSMA research, which finds that more than half of South African firms, for instance, already do or plan to procure technology solutions from telecom operators.^[25] Private wireless networks (PWN) currently on 4G LTE frequency bands, which have underwhelmed the expectations of businesses, and are now in greater demand since the Covid-19 pandemic, have better prospects with fixed wireless access services on 5G spectrum. Thus, mobile operators looking to have positive returns on their 5G investments in the absence of consumer scale economies should focus initially on African businesses instead.

There is clearly strong demand for broadband by small and big businesses, which are being forced to digitalize their operations due to exigent business realities. The Covid-19 pandemic made writ large the risk management benefits of cloud services and potentially huge profit rewards of app-enabled business offerings to African businesses. 5G fixed wireless access (FWA) offerings are ideal solutions for businesses hitherto constrained by still limited and suboptimal broadband offerings, which even when available, are largely limited to cities and semi-urban areas. With 5G FWA, businesses can digitalize their factories and warehouses in rural areas and cost-effectively plug into the increasingly thriving app economy on the continent. Besides, enterprise 5G services will allow operators to have end-to-end ownership of their business customers, as the offering extends beyond just fast-speed connectivity to services related to internet of things (IoT), digital security, information technology planning and consulting, spectrum management and cloud services (see Table 5).

That said, the business case for retail 5G will evolve over time. So, it is not entirely dead-end. More Africans are taking up video streaming, for instance, thus relying more on their mobile smartphones rather than their television sets to watch short video clips, or even heavier video content streamed via platforms such as Netflix, Prime Video and so on.^[27] Faster internet speeds and cheaper smartphones are key factors why. But as 4G services meet the need for end users there is not a convincing business case as yet for 5G investments to cater just for this customer segment. Internet of Things (IoT) services via 5G, however, have huge potential for both consumer and enterprise segments of the African market. In fact, there could be as much as 332m IoT connections by 2025, according to GSMA, albeit the enterprise segment will account for much of that at 202m (61%) IoT connections (GSMA, 2019).

Global 5G networks have not been particularly great performers thus far though. Simply put, the faster internet speeds have underwhelmed expectations. 5G networks are faster than the predecessors but come with a costlier tradeoff between bandwidth and coverage. Besides, African 5G internet speeds have been stepping up, with incremental 5G investments by mobile operators on the continent expected to accelerate the pace over the medium term.^[29] Even so, 5G speeds have been tapering since inception. In fact, the best 5G networks in the world today struggle to achieve download times of 1 gigabit per second (Gb/s), a very far cry from about 20 Gb/s that the International Telecommunication Union (ITU) suggests to be ideal.^[30] Cheaper non-standalone 5G networks are partly why, as most operators have thus far preferred to build on their existing 4G networks instead of building new standalone 5G networks from scratch.

As at end-March 2023, 524 operators were investing in 5G networks in 156 countries, according to the Global mobile Suppliers Association (GSA), out of which only 41 have either deployed or launched standalone 5G public networks.^[31] Some African operators like MTN are giving 5G standalone networks an early try regardless, although it is understandably still at a small pilot level.^[32] Another constraint is that the high frequency bands spectrum that are ideal for the highest quality 5G services have less reach than those used for 3G and 4G, whose signals can reach wider areas (see Table 6). Consequently, 5G networks operating in high frequency bands are ideal for cities, but not remote rural areas. Understandably, only a few global mobile operators are investing in high bands for their 5G networks, with more opting for mid-band spectrum frequencies (ideally 3.2 to 4.2 GHz) instead, which according to the Global mobile Suppliers Association (GSA), which tracks the assignment and deployment of 5G spectrum, offer “a particularly optimal balance between coverage and capacity.”

Are there alternatives to high-speed 5G though? Yes. Underground fibre optic cables can provide similar 5G speeds, as well as satellites.^[33] But underground fibre optic cables are not  particularly well-suited to Africa’s peculiarities, as the case with the continent’s electricity infrastructure shows. The Starlink satellite service by SpaceX is already competing with 5G as an alternative. 5G networks potentially pose a threat to Starlink, however, if planned regulatory changes in America to open up the 12GHz frequency band, which its satellites use, to terrestrial 5G operators go through, as this will block or dim the ability of their satellites to transport data through space to earth.^[34] Regardless, Starlink has similar utility for the African internet market as 5G, with launches on the continent thus far being met with good reviews. In January 2023, SpaceX’s Starlink launched its first African service in Nigeria, with more planned for other parts of the continent.^[35] Barring any regulatory hiccups, mobile 5G will face huge competition from satellite services like Starlink in African countries where they are allowed to beam into.

Concluding insights

With at least 14 African countries already at various stages of rolling out 5G mobile networks, the expectation that African 5G subscriptions will account for about 20% of connections by 2030, according to GSMA, may turn out to be conservative. Yes, widespread poverty will probably remain a key impediment to the adoption of still relatively expensive 5G services at scale on the African continent. But there is a sizeable market potential for enterprise 5G, as small and big businesses on the continent digitalize their operations and product offerings over the medium to long term. Small and medium-sized businesses, which currently lag big ones in digitalization in many African countries, are a relatively untapped opportunity for the enterprise 5G offering. An initial focus on businesses will thus be an optimal stopgap for mobile telecommunication operators currently investing in 5G networks in key African countries, with retail market scale economies only coming about much later. Also, despite western pushback, China will remain a key enabler of 5G on the African continent. In addition to being the key OEM building Africa’s 5G networks, Chinese firms are also leading the production of cheaper smartphones, thus dominating the continent’s 5G value chain almost end-to-end. Initial complications of compatibility and connectivity of mostly Chinese African 5G infrastructure with western ones while the geopolitical divisions ensue, which will be resolved over time, will not be significant enough to obviate the attractiveness of the Chinese 5G offering for African businesses and retail customers in due course.