M4D 2008

POLICY PRIORITIES TO CONNECT AFRICA

Adam DentonGSM AssociationGSM Association

© GSMA 2008

Connecting the WorldCo ect g t e o d

M th 3 5 billi l t d t bil t kMore than 3.5 billion people are connected to mobile networks

Voice and basic data service are near ubiquitous ~ 90% populationVoice and basic data service are near ubiquitous 90% population coverage

Sub-Saharan Africa in catch up mode (60% population coverage 2007)

Two key industry challenges:Finish the voice and basic data jobjInvest in, and deliver affordable mobile broadband services

Appropriate governments policy will be critical to success

© GSMA 2008

The Challengee C a e ge

Africa is hugeAfrica is huge

With less consumers .9bn v 3.5bn

Who are poorWho are poor

Sub-Saharan Africa Poverty

150m

200m < $2 per day

300< $1 d

© GSMA 2008

300m< $1 per day

God Sends MobilesGod Se ds ob es

M bil h l ti iMobile phones revolutionise people lives

$40 billion invested to date in Africa

GSMA announced $50 billion to be invested in next five year

A 10% increase in mobileA 10% increase in mobile penetration boosts annual GDP by 1.2%

© GSMA 2008

The dark continente da co t e t

Af i h l 4% fAfrica has only 4% of global electricity capacity

Sub-Saharan Africa has only 1%has only 1%

– 80% of that is in two countries

What hope for the other 41 countries?

© GSMA 2008

Infrastructure investment is laggingast uctu e est e t s agg g

© GSMA 2008

Africa’s fastest growing markets 2007ca s astest g o g a ets 00

<20% growth YoY

20-40% growth YoY

>40% growth YoY

© GSMA 2008 Source: Wireless intelligence

The Future?e utu e

”Most ne internet sers ill be in”Most new internet users will be indeveloping countries and will use mobile phones”

© GSMA 2008 Source: The Economist, September 6th, 2008

Policy Prioritieso cy o t es

Tax & Regulatory

Fees

P di t bilitPredictabilityof Regulatory

Policy

Spectrum Allocation

Affordable Access

International Gateway

USO Funding and

Level Playing Field

yLiberalisation Provision

Confidential 9

Taxation - The issuea at o e ssue

In 10 short years what was once anIn 10 short years, what was once an object of luxury and privilege, the mobile phone, has become a basic necessity in Africa.

A device that was a yuppie toy not so long ago has now become a potent force

– Paul Kagame, President of Rwanda, 2008

But in sub-Saharan Africa

for economic development in the world's poorest countries. But more can be done to exploit it Most

– 24 governments levy specific luxury taxes on mobile handsets

– 8 governments levy specific luxury taxes on mobile usage (air time)

done to exploit it. Most governments say they are in favour of economic growth and broader access

mobile usage (air time) – 25+ governments levy specific luxury taxes on

ICT equipment

to communications. By cutting back on mobile-specific taxes and tariffs, they can help to promote

Such taxes should be phased out because they make mobile services less affordable and limit the value creation potential of the

they can help to promote both of those things.

Confidential 10

pindustry

Source: Deloitte for the GSMA report “Global mobile tax review 2006-07” / GSMA analysis

Mobile: substantial generator of GDPob e substa t a ge e ato o G

Direct & indirect value-added and wider economic impact of the mobile industry as share of GDP - 2006

6%

c )

Wider economic impact Di t & i di t l dd d

5.3%

4%

5%

and

wid

er e

cono

mic

y as

sha

re o

f GD

P (%

) Direct & indirect value added

4.0% 4.0% 3.8%

3.5% 3.4%

4.1%4.3%

2%

3%

indi

rect

val

ue-a

dded

f t

he m

obile

indu

stry

2.9% 2.9%

2.2%2.0%2.0%

1.6% 1.6%

0%

1%Dire

ct &

iim

pact

of

1.3%

0%

Gha

na

Sou

th A

frica

Nig

er

Nig

eria

Rw

anda

Uga

nda

Tanz

ania

Ken

ya

Cam

eroo

n

Rep

Con

go

Bur

kina

Fas

o

Gab

on

Cha

d

Mad

agas

car

Zam

bia

Sw

azila

nd

© GSMA 2008

Note that as our estimate does not include an allowance for the wider productivity gains which could be attributed to mobile use and (as mentioned earlier) also excludes the value-added generated by mobile phone vendors, it will tend to understate the full effect.

Source: Frontier analysis based on operator data and IMF data

Mobile: leading contributor to government budgets

Every $ invested generates $0.72 - $0.83 in tax

Mobile operators' contribution to total government tax revenues - 2006 14%

s (%

)

O t ’ t ib ti11%

10%

9% 8% 8%

10%

12%

men

t tax

reve

nues Operators’ contribution

to total government tax revenues is on average

7%. 8% 8%8% 8%

7% 7%6% 6% 6% 5% 5%

5% 5%6%

8%

to to

tal g

over

nm

5% 5%

3%3%

1%2%

4%

ors'

con

trib

utio

n

1%

0%

Cha

d

ep C

ongo

Gab

on

Tanz

ania

amer

oon

DR

C

Uga

nda

Ken

ya

daga

scar

kina

Fas

o

Zam

bia

Gha

na

Nig

er

Sen

egal

Mal

i

Mal

awi

uth

Afri

ca

Rw

anda

waz

iland

Ope

rato

© GSMA 2008

Re T Ca

Mad

Bur

k

Sou S

w

Source: Operator data, IMF

What is the optimal tax structure?at s t e opt a ta st uctu e

Break-down of estimated total taxes paid across 15 countries in sample - 2006 (%)

Total import duties (incl. handsets)

All remaining taxes (Corporate and ( p

Employment taxes)

34%

20%

Net VAT (incl. 35% (handsets)

Other consumption taxes

11%

Confidential 13

taxes

Negative correlation between tax and penetration egat e co e at o bet ee ta a d pe et at o

Mobile penetration vs. average tax burden per connectionin sub Saharan Africa (2007)in sub Saharan Africa (2007)

90%

100%

%)

G b

South Africa

60%

70%

80%

ate

in 2

007

(% Gabon

40%

50%

enet

ratio

n ra

Tanzania

Kenya

Zambia

10%

20%

30%

Mob

ile p

e

Uganda

M d0%

10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30%

Tax share of total average mobile services cost in 2007 (%)

Madagascar

Confidential 14

Source: Wireless Intelligence, Frontier analysis

Tax hurdle to connect tablea u d e to co ect tab e Tax share of total cost of mobile ownership

35.0%

40.1%

46.7%

Cameroon

Malawi

Rep Congo

31 3%

33.6%

34.0%

34.7%

M d

Chad

Burkina Faso

Ghana

29.3%

29.7%

31.2%

31.3%

Zambia

Tanzania

Gabon

Madagascar

%

26.5%

26.8%

27.2%

29.3%

Kenya

Uganda

South Africa

Zambia

21.9%

25.2%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

Nigeria

DRC

Confidential 15

Removing all non-VAT taxes lowers mobile prices…e o g a o ta es o e s ob e p cesCross-country comparison of changes in average ownership costs (relative to the

Base Case) under TAX SCENARIO 4

-0.3%

-4.2%

-2.0%

-5.0%

0.0%

%)

-9.9%

-6.6%

-10.3%-10.0%

age

annu

al

2007

-201

2 (%

-14.2% -13.6%

-15.7%

-18.3%-20 0%

-15.0%

nge

in a

vera

hip

cost

- 2

-24.3%-25.1%

-21.6%

-25.0%

20.0%

Cha

now

ners

-30.0%

Nig

eria

Keny

a

Tanz

ania

amer

oon

Gha

na

Zam

bia

agas

car

DR

C

Gab

on

p C

ongo

Cha

d

na F

aso

Mal

awi

Confidential 16

T Ca

Mad Rep

Bur

ki

Our Hypothesis…Ou ypot es s

Illustrative impact of removing non-VAT mobile ownership taxes

12000

14000

s)

8000

10000

USD

mill

ions

4000

6000

8000

aym

ents

(U

2000

4000

Tax

p

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Base Case Remove all non-VAT taxes

Confidential 17

Base Case Remove all non VAT taxes

Policy Priorities - Spectrumo cy o t es Spect u

Confidential 18

Spectrum is fundamentalSpect u s u da e ta

UK spectrum use weighted by frequency & economic valuep g y q y

Spectrum squeezeSpectrum squeeze

= 50% of the economic benefits= 50% of the economic benefits 50% of the economic benefits 50% of the economic benefits

Confidential 19

Source: Ofcom UK

Note: This has been weighted such that a 1MHz allocation at 100MHz is given equal weighting to a 10MHz allocation at 1GHz.

Digital Dividend is critical:Relative Network Capex RequiredRelative Network Capex Required

x1212

14

x78

10

Multiple

X1 5

x3x5

4

6

Cape

x 

x1 X1.5

0

2

700 850 2100 2600 3500 5800MHz

UHF Band

700 850 2100 2600 3500 5800MHz

Confidential 20

UHF Band

Source BBC

Digital Dividendg ta de d

Access to large chunks of spectrum at low frequencies

TVb d ti GSM900Today TVb d ti GSM900Today

Access to large chunks of spectrum at low frequencies makes the business case for mobile broadband

Current UHF broadcast band

TV broadcasting GSM 900Today

Current UHF broadcast band

TV broadcasting GSM 900Today

Boundary can extend below 790MH ti l b iAfter digital

Gap between TV andPhonetransmissionsBoundary can extend below

790MH ti l b iAfter digitalGap between TV andPhonetransmissions790MHz on a national basis

Digital TV

After digitalswitchover

Phone transmissions increases Mobile

Broadband790MHz on a national basis

Digital TV

After digitalswitchover

Phone transmissions increases Mobile

Broadband

Digital TV

500 600 800700 900FreqMH

Digital TV

500 600 800700 900FreqMH

Confidential 21

500 600 800700 900 MHz500 600 800700 900 MHz

Policy Priorities – Universal Serviceo cy o t es U e sa Se ce

Confidential 22

Universal Access - SSAU e sa ccess SS

Weighted average network coverage - Sub Saharan Africa

90.0%100%

rage Coverage (by area)

60.3%60%

80%

wor

k co

ver

Coverage (by population)

This represents 434 million people

34.0%40%

60%

erag

e ne

tw

This represents 4.25 million square

kilometres17.5%

34.0%

10 1%20%

eigh

ted

av

2.9%10.1%

0%1999 2007 2012 E

We

Confidential 23The 2012 estimate of population coverage assumes that the Ethiopian market will open to at least one new entrant within the period. An equivalent estimate of geographical network coverage is not available.

1999 2007 2012 ESource: GSMA; Europa Technologies, World Bank WDI Database

USF Performance 2006US e o a ce 006

7,000

6,000

,

Mobile5,000

lions

Mobile34% The unused

US$4.5 billion could provide

3,000

4,000

US

$ M

ill

Fi d Mobile

could provide access to 450 million people in rural areas

2,000

Fixed34%

Mobile5%

u a a eas

-

1,000 Fixed95%

Confidential 24

Collected Disbursed

Policy Priorities: International Gatewayso cy o t es te at o a Gate ays

Confidential 25

International Gatewayste at o a Gate ays

Monopoly Liberalisedp y

Slow, expensive and can not meet demand

Fast, cheap and a requisite for broadband

Confidential 26

International Gateway Liberalisationte at o a Gate ay be a sat o

Vit l fVital for consumersPost liberalisation, international call prices fall steeply ~ 90%

Vital for businessIGW monopoly increase transaction costs

Vital for broadbandBroadband investments cut by IGW monopoliesy p

Vital for governments1% i i t l t f b t t b1% increase in telecom sector performance boosts exports by .37% and FDI by .75% (World Bank)Up to 60% of traffic under monopoly conditions is illegal

Confidential 27

p p y gVoIP, VSAT

Status of IGW liberalisation

20071996

Status o G be a sat o

20071996

Some governments are trying to reassert monopolies!

Central African Republic

Sierra Leone

Benin

Zi b bZimbabwe

Confidential 28

Policy Priorities: Predictable Regulationo cy o t es ed ctab e egu at o

Confidential 29

Lower risk, more investmento e s , o e est e t

C i t t f i l tiConsistent, fair regulation:– reduces risk premiums and

the cost of capital – increasing the number of

investments that will be made

In SSA, this could mean an additional $12 5 bn is

Reduction of hurdle rate

urdl

e ra

tes

additional $12.5 bn is invested in the next five years

Hu

25% more investmentInvestment projects

Confidential 30

ConclusionCo c us o“When talking about access toabout access to information, the future is definitely broadband communications. A d f thAnd one of the major challenges facing the globalfacing the global ICT community is bringing broadband to all of the world’s iti ”

Confidential 31

citizens.” Hamadoun Toure

Thank youa you

Confidential 32