The Idea: Frustrated by Western ignorance about Africa, Ibrahim decided to take advantage of the continentâ€™s enormous telecom opportunity himself. Among the challenges he faced was creating an infrastructure from scratch.
As a native of Sudan who has spent most of my adult life in the West, Iâ€™ve always been aware of just how ignorant Westerners can be about Africa. But every so often someone says something that manages to surprise me. One such conversation took place in 1998. I was running MSI, a software and consulting company in the UK, and I regularly worked with the worldâ€™s biggest telecom companies. To me it was obvious that huge opportunities existed for those companies to develop mobile communications in Africa, a continent that had been largely ignored by the telecom industry. I began asking all my clients, â€œWhy arenâ€™t you going to Africa? Youâ€™re paying millions of dollars to get licenses in other countries that you could get free in some African countries.â€ One day I pulled aside a senior telecom executive and urged him to apply for a license in Uganda, which was seeking assistance. He said, â€œMo, I thought you were smarter than that! You want me to go to my board and say I want to start a business in a country run by this crazy guy Idi Amin?â€ I was stunned. I said, â€œIdi Amin left Uganda years ago!â€
At the time, I didnâ€™t consider myself an expert at sizing up business opportunities. Iâ€™d spent my adult life first as an academic, then as the technical director for British Telecomâ€™s early foray into cellular communications, and ultimately running my own consulting company. I was a techie engineer. My hero was Albert Einstein. I never dreamed of being a regular businessman.
But even I could see that developing mobile communications in sub-Saharan Africaâ€”where most people had never used a phone, let alone owned oneâ€”was an opportunity too big to pass up. I realized that in many Westernersâ€™ minds, Africa connoted uprisings, dictators, deserts, AIDS, and povertyâ€”and it still does, even now. But the story is far more complex. The African continent includes more than 50 countries and has a total population of about one billion spread over 11.7 million square miles. Africa ranges from the bazaars of Morocco to the big business complexes of Johannesburg. In the late 1990s it was also the most underserved telecommunications market in the world. In all of the Democratic Republic of Congo (DRC), for instance, which had a population of roughly 55 million, there were only 3,000 phones in 1998. The possibilities were enormous.
The huge gap between supply and demand wasnâ€™t the only attractive aspect of taking mobile phones to Africa. Unlike the developed world, Africa had no fixed-line phone networks, so mobile phones would face no competition. In the West people are used to having many communication channelsâ€”letters, e-mail, social mediaâ€”and as vital as mobile phones have become, theyâ€™re still just one more way to be in touch with other people. Africa is a different world. If you live far away from the village where your mother lives and you want to talk to her, you might have to make a seven-day journey. If you could just pick up a device and speak to her instantly, what would be the value of that? How much money would you save? How much time? To me it was obvious that cell phones would be a huge success.
My clients refused to see it that way: Africa was too unknown and too risky. So I decided I had to do it myself. Despite the size of the opportunity, I would face huge challenges. I had no support from established telecom players. I had no experience building this kind of company on my own. I knew Iâ€™d face hurdlesâ€”but I had no idea how significant they would be.
In 1998, when I decided to launch a project to explore setting up mobile communications in Africa (which later became the company Celtel), the consulting firm I was running had 800 employees. We had few problems. We billed our clients, and revenue came in. Celtel started out with just five employees. Although the consulting firm provided our initial investment, I spent a significant amount of time raising capital: $16 million in the first year, to acquire licenses and begin building infrastructure, and ultimately more than $415 million during our first five years. With funding established, we had to design, build, and operate phone systems in countries with antiquated or nonexistent infrastructure.
The first challenge was to establish our credibility. We had great technical people and a good track record in network design, but we had not run our own network before. So we had to build our competence and convince the regulators and telecom ministries that we could deliver. Fortunately, we had virtually no competitors, and I had managed to recruit an experienced board, which included Sir Gerry Whent, Vodafoneâ€™s first CEO; Sir Alan Rudge, a former deputy chief executive of British Telecom; and Salim Ahmed Salim, a former prime minister of Tanzania. Our board members not only gave us credibility but also helped us recruit the talent we needed to grow.
One reason major telecom players were afraid of Africa was its reputation for corruption. From the beginning we needed a plan to deal with that. We insisted on accepting only licenses we had won in an open bidding process; we would never accept them if they were offered under the table or after dining out with some prime minister. (We declined to pursue opportunities in Guinea and Angola for related reasons.) To make sure that no one in the company tried to take matters into his own hands, we instituted a rule that the full board had to sign off on any expense over $30,000. It wasnâ€™t easy to hold this line, but in the end it was very helpful, because it enabled us to build a company that was completely transparent. Board members helped prevent corruption, too. For example, Salim, the secretary general of the Organization of African Unity (now the African Union) for 12 years, is so well respected across the continent that if an official hinted at a bribe, he could call the right government person and frame the situation as an embarrassment to Africa. That was usually enough to stop it. Our directorsâ€™ connections created a protective layer around our company.
We focused first on a handful of countries that had inexpensive or free network licenses available, including Uganda, Malawi, the two Congos, Gabon, and Sierra Leone. The pent-up demand was almost overwhelming; we couldnâ€™t move fast enough. When we set up operations in Gabon, for example, customers actually knocked down the door of one of our offices trying to get in. Thatâ€™s how badly people wanted to make phone calls.
1998: Begins operations as MSI Cellular Investments; acquires licenses in Malawi, Zambia, Sierra Leone, and Congo
1999: Acquires licenses in Gabon, Chad, and the Democratic Republic of Congo
2000: Purchases interests in Burkina Faso, Niger, and Sudan
2001: Acquires an interest in Tanzania; revenue reaches $194M
2002: Revenue of $314M
2003: Revenue of $446M
2004: Revenue of $614M
2005: MTC (later Zain) acquires Celtel for $3.4B; at the time, Celtel has more than 5M mobile-phone subscribers in 13 African countries
2006: Celtel launches One Network, the worldâ€™s first borderless network
2010: Bharti Airtel buys Zainâ€™s Africa operations
Sources: HBS Case Study â€œCeltel International B.V.,â€ by Felda Hardymon and Ann Leamon; NYU Case Study â€œThe Acquisition of Celtel,â€ by Ian Giddy; World Markets Research Centre; Dow Jones
In the West, mobile phones started out as products for the affluent, and a decade passed before they were widely available to the middle class. In Africa we needed to make them available right away to very poor consumers. Our customers wouldnâ€™t have access to the kind of money that Westerners paid for monthly mobile contracts. So we created better options for each market, such as prepaid cards (or â€œscratchâ€ cards) that for just a few dollarsâ€™ worth of the local currency could be used to buy cellular service. That eliminated the prospect of unpaid bills and ensured that our cash flow in each country would be smooth.
At first Celtel was a sideline for MSI. But it quickly became apparent that the challenge and excitement of building such an ambitious operation was enough to merit my focused attention. So in 2000 I sold MSI to Marconi for more than $900 million, and over the next few years I put all my energy into building a cellular communications company that would defy the naysayers about Africa.
Building the Network
Each country where we set up operations offered unique challenges. Doing business in a place like the DRC was a nightmare, because it had no good roadsâ€”and sometimes not even any bad roads. We had to use helicopters to move our base stations and take heavy equipment up a hill or into the middle of nowhere. We also had to figure out how to get power to those spots. Building anything in sub-Saharan Africa is a really tough task. We had to supply our own electricity and our own water. We had to refill our generators and replenish our batteries every day. Building a mobile company in Europe requires doing deals with existing telecom companies, filling out forms, and making calls. In Africa we had to literally build the network, tower by tower.
And there were political challenges. The capitals of the two Congos, for example, are near each other, separated by a river. When we first set up in those countries, a wireless call across the border had to be routed via satellite through Europe, at a cost of more than $3 a minuteâ€”a prohibitive expense for local customers. The Congos were so protective of their borders that they didnâ€™t like such transmissions anyway. They were fine with our creating traffic within one country, and they were fine with residentsâ€™ calling other parts of the world, such as Europe. But telecom traffic across government boundaries in Africa? We had to negotiate with both governments for two years before we were allowed to invest in a microwave link across the border, which eventually enabled us to charge just 28 cents a minute. Traffic between the two countries rose 700% the first week we offered that rate.
In Sierra Leone, of course, we were in a region at war. We had to make it crystal clear that we were a neutral company with no allegiances. When the capital fell to rebels, we had to pull our staff members out of the country. They returned later with UK members of the UN peacekeeping mission, whom we provided with phones and service. Because both sides in the war needed to communicate, no one sabotaged our towers. We quickly became the market leader in that country.
Cultural challenges were actually less of a problem than I had anticipated. When you start to meet with people at the village level, you find that Africans are very easygoing and hospitable. We always had great relationships with local communities. Because we didnâ€™t deal in bribes, we looked for other ways to help the impoverished areas in which we were setting up operations. We built schools and clinics where we could. We looked after our local employees. We instituted management training and technical trainingâ€”providing people whoâ€™d been denied an education with completely new skills. That training was always a big item in our budget, but it was a great investment in our companyâ€™s future. It helped attract back to Africa some highly qualified people who had sought (as I had) a career in Europe because they lacked exciting options at home. Not only did we pay them the same salaries they would have commanded outside Africa, but they could feel they were giving something back to the homeland.
We also extended health insurance to the families of our workers, which is a really big deal in Africa. Some companies provide no coverage at all, never mind to extended families. In the United States, when you think about providing an employee with health insurance, you assume youâ€™ll be covering four or five people at most. In Africa that number can be much, much higher. This benefit helped us become a truly African company. By 2004â€”six years after weâ€™d launchedâ€”99% of our 5,000 employees were native Africans.
Finding the Money
That year we had 5.2 million managed customers and operations in 13 countries, with revenue of $614 million and a $147 million net profit. Celtel was a strong, rapidly growing business. But raising money may have been my biggest challenge. We had to do round after round of fundraising, usually for short-term funds, just to keep the business afloat. It got frustrating. Financial institutions simply didnâ€™t see Africa the way they saw, for example, India and other emerging market economies. They thought Africa was riskier as a market; they all but discounted the consumer populations as simply too poor to be good customers; and they didnâ€™t trust local governments to support honest business growth.
Around that time we sought a loan. The banks required us to offer the assets of the whole company as securityâ€”to obtain just a few million dollars at draconian rates and terms. We eventually accepted the terms because we needed the loan, but clearly we had to find a better long-term source of capital. So we decided to do an IPO on a reputable stock exchange, such as Londonâ€™s. When word got out that we were considering an IPO, we received unsolicited offers to buy the whole company. Ultimately, we agreed to one of those offers and sold Celtel for $3.4 billion to the Kuwait-based Mobile Telecommunications Company (now Zain). Ironically, the same banks that had insisted on our entire assets as collateral a few months before now agreed to finance that enormous transaction for MTC secured onlyâ€”surprise, surpriseâ€”by those very assets. Despite all we had built, they considered an African company less valuable than a company in almost any other part of the world.
Do I ever feel sad that such an exciting adventure ended so quickly for me? Well, I look at what we left behind, and itâ€™s very good. We created a large company, but we created an even larger economy that grew up to support the business, from the subcontractors who built the network to the people who supplied diesel fuel for our generators to the retailers who sold the scratch cards that gave consumers their airtime. You cannot believe how many workers in Africa benefited from one companyâ€™s setting up shop there. At the time of the sale, Celtel was operating in 13 African countries under licenses that covered more than a third of the continentâ€™s population. Weâ€™d invested more than $750 million in Africa and helped to bring the benefits of mobile communications to millions of its people. Every now and then I think, â€œWow, it was wonderful, and now itâ€™s over.â€ But Iâ€™m OK with that.