Celtel and the Mobile Revolution in Africa
The case of Celtel and its enormous success across the African continent is one of the most illustrative examples of the power of Market Creating Innovations in creating prosperity.
Celtel was started in 1998 by Mo Ibrahim, who was earlier an executive at Vodafone.
At the time, Africa had very little in terms of telecommunications infrastructure. The world relied mostly on landline telephones and Africa lagged behind the rest of the world in this department. The African landscape was almost devoid of landline connections and wires.
People faced enormous difficulties in communicating over long distances. If someone left his/ her village to go work somewhere else, they had to travel back physically if they needed to talk to their family.
The pitiable road network in Africa made this even more unpleasant and cumbersome.
Telecom companies didn’t want to invest in connecting Africa with landline networks because of the lack of a supportive business ecosystem. Corruption was rampant, good roads were non-existent, the supply chain was undeveloped, power supply was erratic at best and law & order was dismal.
Most African countries were also mired in poverty and had some of the lowest per-capita incomes in the world.
There was enormous non-consumption that could be tapped into but the enormous investment that would be required and the systemic uncertainties deterred firms.
Mo Ibrahim, a Sudanese native, decided to make the plunge anyway.
He saw the opportunity in leveraging mobile telecommunications to connect Africa. Mobile was pretty much new at the time. The rest of the world was starting to switch over, but due to the legacy investments in landline connections, this transformation process wasn’t taking place as quickly as it could.
Africa on the other didn’t have any such legacy of investments and infrastructure.
Mo Ibrahim realised that instead of laying down thousands upon thousands of miles of landline wires across Africa, he could instead build mobile towers to enable people to communicate over distances.
Mobile was the solution to the telecommunications non-consumption in Africa.
But this was easier said than done.
Most African countries didn’t have proper roads or regular electricity supply.
Mo Ibrahim and his team had to build roads himself. If roads couldn’t be built, they utilized helicopters to transport equipment. Where there was no power supply, they relied on generators.
Celtel hardly got loans from banks either. Therefore, they relied on equity financing, which was unheard of at the time, for a telecom firm of Celtel’s size and scope.
They also provided training and healthcare for the workers.
This vertical integration is a common feature for businesses trying to target non-consumption in regions where proper infrastructure is non-existent.
Africa had very little in terms of infrastructure, hence Celtel had to build it.
But slowly and steadily, this work began bearing fruit.
As mobile towers were constructed across various African countries, there was still the problem of people in Africa being able to afford using mobile phones to communicate.
The business model used by telecom firms in more developed countries couldn’t be used in Africa.
Therefore, Mo Ibrahim had to come up with an innovative business model, specifically targeting the African public, with their specific economic requirements.
At the time, most telecom firms presented a bill to their customers at the end of the month (what we know as post-paid).
Celtel instead introduced prepaid plans. People bought minutes of talktime, using scratch cards. This allowed the customers to buy what they could afford, according to what they required.
For the company, this also eliminated the problem of unpaid telephone bills.
Instead of building a distribution network from scratch, Celtel leveraged small, informal retail shops that were already present all over Africa.
People could just go to their neighbourhood retail shops, buy talktime and talk to their family and friends using inexpensive feature phones.
Thus, the Affordability and Accessibility barriers to consumption were successfully addressed.
In just six years since the inception, Celtel acquired more than 5 million customers. In 2004, they earned over $600 million in revenues.
Celtel also created thousands of jobs.
Other telecom firms like Vodafone also saw the immense opportunity, and began investing in Africa.
Celtel itself was sold for $3.4 billion in 2004. For all his efforts, Mo Ibrahim himself acquired a personal fortune of $1.8 billion.
But what is even more remarkable is the value he and Celtel were able to create for the African people.
Mobile telecommunications industry in Africa today adds hundreds of billions of dollars in terms of economic value to African economies. It employs millions of people and generates billions of tax revenues for local Government.
Entrepreneurs have also been leveraging the mobile telecommunications platform in innovative ways in order to serve customers better.
Entire new industries also developed as a result of this mobile revolution. Companies like m-Pesa (fintech) and MicroEnsure (insurance) were created to fill voids that previously existed.
Celtel, literally transformed the entire continent of Africa for the better.
Such is the power of Market Creating Innovations.