Although the African telecommunications industry has enjoyed significant growth in the past decade, with operators that capitalised on it generally mostly healthy returns on their investments, there is still the opportunity for far more growth, particularly for those who know where to look.

This is according to Mark Jennings, investment principal of the Investec Africa Frontier Private Equity Fund.

Citing research conducted by management consultancy firm AT Kearney, Jennings says there were 17m mobile connections in Africa in 2000, for a penetration rate of around 2% of the population. By last year, this had grown to 642m connections, or a penetration rate of 65%.

“This presented investors with opportunities to get exposure to many of the high-growth mobile network operators who expanded their operations across Africa,” Jennings says.

South Africa’s two largest operators, Vodacom and MTN, have both expanded into other African markets, with MTN enjoying enormous success outside of its home market. Other successful operators in the region include Bharti Airtel, Orange, Millicom and Orascom.

Although the initial, rampant growth has now slowed in many regions, Jennings says the telecoms sector continues to offer promising prospects. “Investors just need to look beyond the obvious.”

Investec believes one of the most exciting opportunities lies in the very fact that growth has slowed in voice services. After a decade of expansion, operators are reducing operating costs because of declining expenditure by customers.

“Capital expenditure is also under pressure and towers represent a significant capex item. With the increasing competition, companies are looking to focus on their core competencies, including development of new products and services, and to outsource areas to other companies where these can be done at lower cost and/or with better quality and speed,” he says.

The result has been an increase in outsourcing of activities relating to infrastructure. Where previously expansion plans saw each operator building its own infrastructure, the costs associated with this approach are substantial.

“For a new generation of companies willing to relieve operators of this function of their business — now considered by many as noncore — the management and operation of towers has proven to be a profitable enterprise, and the ownership of towers by independent tower companies is gaining momentum,” says Jennings.

Consequently, Investec’s private equity fund has invested in tower company IHS, which builds and manages mobile tower networks, or takes over existing ones, and leases space to operators.

Jennings says growing demand for data will create additional demand for towers and tower sharing will play an increasingly important role as operators seek to cut costs while remaining profitable.