Industry Trend Analysis - 4G, Fibre Investments Offer Little Upside Amidst Challenging Macro Outlook - MAY 2017

BMI View : Increased regulatory and investment focus on mobile and wireline broadband infrastructures would imp rove the attractiveness of the D RC's telecoms market for existing players. The challenging economic, soci al and consumer landscapes mean there will still be little to commend the market to potential new investors outside the services sector.

The Minister of Posts, Telecommunications and ICT has outlined an ambitious plan of action for 2017. We believe the most achievable of the ministry's goals is the licensing of 4G services and the expansion of the national fibre-optic backbone. Wider availability and improved quality of broadband access infrastructures will spur development of value-added and premium services, aiding operators' revenue diversification efforts. Of greater significance, however, is that cost savings will also be possible using these new infrastructures and this will appeal to prospective newcomer Smile.

Broadband Investments Welcomed
Congo (DRC) Mobile & Broadband Subscription Forecasts
e/f = BMI estimate/forecast. Source: BMI

South Africa-based Smile Communications plans to launch LTE services in Kinshasa later in 2017, returning the market to six providers after Orange acquired Tigo in 2016. Although we believe six players is excessive, extending infrastructures into underserved rural areas will improve the commercial viability of the market in the short to medium term. Smile's 4G concession allows use of digital dividend spectrum. The low signal latencies offered by these frequencies means that fewer base stations will be needed relative to 3G, allowing Smile to compete aggressively on pricing and still afford to invest in rural roll-out.

Work on the country's national fibre backbone had stalled due to a lack of investment by the state-owned incumbent. However, greater international connectivity is now provided through access to the West Africa Cable System and Sub-Saharan fibre backbone operator Liquid Telecom is keen to ramp up its presence in the country if additional capacity is available for it to utilise or to build upon with its own equipment in 2017. We believe the ministry should encourage greater investment in fibre by private sector players and this will seemingly be allowed under the new plan.

Smile's arrival is likely to provide additional impetus for infrastructure-sharing and/or tower sell-offs ( Helios Towers bought 950 towers from Airtel in 2016) as existing operators look to reduce operating costs. Independent ownership and management of passive infrastructure would benefit Smile as tower leasing costs would be lower, more transparent and scalable under third-party management, giving it further leverage to disrupt the market.

That said, and despite the potential for growth afforded by low penetration levels, the DRC telecoms market poses high investment risks for new and existing players alike. Although the security situation is improving, the weak macroeconomic growth outlook (GDP per capita will fall to just USD413 in 2017) and the cost of covering the country's vast and logistically challenging topography will continue mitigate improvements in regulatory and investment freedom.