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Regional Mobile Network Operators Brace For Major Revenue Hit Following New Data Roaming Cap In East Africa

BY Steve Biko · October 19, 2024 06:10 pm

KEY POINTS

Looking at the broader economic impact, the cap could enhance the competitiveness of East African businesses by lowering their communication costs and allowing them to expand their regional footprint. Cross-border trade could see a boost as lower communication costs reduce barriers to market entry, especially for small and medium-sized enterprises (SMEs)

KEY TAKEAWAYS

Technologically, the reduced cost of data roaming could spur innovation in mobile applications and services that leverage cross-border functionality. Startups in sectors like logistics, agriculture, and telemedicine could capitalize on the ability to seamlessly operate across multiple EAC countries without the burden of high connectivity costs.

The proposal by the East African Community (EAC) technical committee to cap data roaming charges within the One Network Area (ONA) at $0.005 (KSh0.65) per megabyte is set to disrupt the revenue streams of regional telecom operators. This move, which is expected to be approved by mid-2024, has sent shockwaves through the telecom sector, as operators currently charge significantly higher rates, with some charging more than ten times the proposed cap. For many, the shift marks a new era in regional data pricing, forcing them to rethink their pricing models and revenue expectations.

Mobile network operators (MNOs) have long enjoyed healthy margins on roaming data, leveraging the lack of regulatory oversight on cross-border data usage. With the ONA already regulating voice tariffs since 2014, data has been a critical revenue buffer for MNOs in the region. By capping data roaming charges, the new proposal directly impacts one of the last bastions of premium service charges for these operators. Based on current estimates, regional operators could see their data roaming revenues shrink by as much as 70% in certain markets.

The cap of $0.005 per megabyte is aimed at promoting regional integration and enhancing the ease of doing business across the East African Community (EAC) states. For consumers, this presents an opportunity for lower costs when traveling across borders. Businesses that rely on high data consumption, such as fintech and e-commerce platforms, stand to benefit significantly, reducing operational costs and potentially passing these savings on to consumers. For example, a typical business traveler consuming 500MB of roaming data could see their bill drop from $50 (KSh6,500) to just $2.50 (KSh325), a staggering reduction that will drive more consistent mobile data use across borders.

From a financial perspective, the decision to cap roaming charges reflects a broader trend towards reducing the cost of connectivity across the continent. It mirrors similar efforts in other regions, such as the European Union’s push to eliminate roaming charges entirely within its borders. However, unlike the EU, East Africa’s mobile market is still developing, and operators are heavily reliant on premium services like data roaming to support infrastructure investments. With an estimated 40 million people traveling within the ONA annually, the loss of roaming revenue could represent a hit of over $120 million in the first year alone, factoring in current average data charges.

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Despite the anticipated loss in roaming revenues, there are potential upsides to the proposal for operators. Lower data roaming costs could lead to increased data usage as consumers become more comfortable using their devices abroad without fear of exorbitant charges. This may offset some of the revenue loss, as higher data consumption rates could drive volumes up, even at the capped price. Operators that successfully pivot to volume-based strategies could maintain competitive revenue streams by fostering cross-border connectivity.

Increased data usage will also provide an opportunity for MNOs to invest in ancillary services such as mobile financial services, digital content, and cloud-based offerings, which are likely to gain more traction with enhanced regional connectivity. MNOs already offering mobile banking, for instance, could see a rise in transaction volumes as businesses and individuals make use of lower roaming charges to engage in real-time financial transactions.

Technologically, the reduced cost of data roaming could spur innovation in mobile applications and services that leverage cross-border functionality. Startups in sectors like logistics, agriculture, and telemedicine could capitalize on the ability to seamlessly operate across multiple EAC countries without the burden of high connectivity costs. Moreover, the proposal aligns with ongoing efforts to modernize infrastructure in the region, including the expansion of 4G and 5G networks, which will further drive demand for affordable data.

However, the implementation of the new cap comes with risks. Operators may face reduced investment incentives in rural and underserved areas if the high-margin revenues that have traditionally supported such ventures are cut. Balancing infrastructure investment with the reduced roaming revenues will be a challenge, especially for smaller MNOs that lack the financial muscle of larger regional or global players. This could lead to a consolidation of the market, as smaller players struggle to adapt to the new pricing regime.

Additionally, regulatory compliance will be key to ensuring that operators adhere to the new caps without introducing hidden charges or fees to compensate for lost revenue. The EAC must establish a robust monitoring framework to track operator performance and ensure that the benefits of lower roaming charges are passed on to consumers without distortion. Transparency will be essential in building consumer trust and ensuring the long-term success of the initiative.

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As operators prepare for the cap, they may also look to renegotiate inter-operator agreements to maintain profitability. By improving operational efficiency, MNOs can mitigate some of the impacts of the price cap. Strategic partnerships with global operators, investment in data-driven solutions, and better management of operational costs will be crucial for the survival of regional telecom companies.

Looking at the broader economic impact, the cap could enhance the competitiveness of East African businesses by lowering their communication costs and allowing them to expand their regional footprint. Cross-border trade could see a boost as lower communication costs reduce barriers to market entry, especially for small and medium-sized enterprises (SMEs). Improved connectivity could also attract foreign direct investment (FDI) into the region, as global businesses seek to capitalize on the improved communication infrastructure.

In essence, while the cap on data roaming charges poses a significant challenge to mobile network operators in East Africa, it also offers opportunities for growth and innovation. Operators that successfully adapt to the new pricing landscape and leverage the resulting increase in data usage could thrive in the long term. The challenge will be balancing short-term revenue losses with long-term strategic investments that position operators to lead in a more connected and integrated East African economy.

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