Celtel and the mobile revolution in Africa – Le Sangai Express

03-Jul-2022

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Anand Laishram
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 launched in 1998 by Mo Ibrahim, who was previously an executive at Vodafone.
At the time, Africa had very little telecommunications infrastructure. The world was mainly dependent on landlines and Africa lagged behind the rest of the world in this department. The African landscape was almost devoid of fixed connections and cables.
People had great difficulty communicating over long distances. If someone left their village to work elsewhere, they had to physically return there if they needed to talk to their family.
The pitiful road network in Africa made it even more unpleasant and cumbersome.
Telecom companies were unwilling to invest in connecting Africa to fixed networks due to the lack of a supportive business ecosystem. Corruption was rampant, good roads were non-existent, the supply chain was underdeveloped, the power supply was erratic at best, and law and 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 huge non-consumption that could be exploited, but the huge investment that would be required and the systemic uncertainties deterred business.
Mo Ibrahim, originally from Sudan, decided to take the plunge anyway.
He saw the opportunity to leverage mobile telecommunications to connect Africa. Mobile was pretty much new back then. The rest of the world was beginning to shift, but due to legacy investments in fixed connections, this transformative process was not happening as quickly as it could.
Africa, on the other hand, did not have such a legacy of investment and infrastructure.
Mo Ibrahim realized that instead of laying thousands and thousands of miles of landline telephone cables across Africa, he could instead build mobile towers to allow people to communicate over long distances.
The mobile was the solution to the non-consumption of telecommunications in Africa.
But that was easier said than done.
Most African countries did not have adequate roads or regular electricity supply.
Mo Ibrahim and his team had to build roads themselves. If the roads couldn’t be built, they used helicopters to transport the equipment. Where there was no power supply, they relied on generators.
Celtel also did not obtain loans from banks. Therefore, they relied on equity financing, which was unheard of at the time, for a telecommunications company of the size and scope of Celtel.
They also provided training and health care to workers.
This vertical integration is a common feature for companies trying to target non-consumption in regions where the proper infrastructure does not exist.
Africa had very little infrastructure, which is why Celtel had to build it.
But slowly and surely that work began to pay off.
As mobile towers were built in various African countries, there remained the problem of the ability of Africans to afford to use cell phones to communicate.
The business model used by telecommunications companies in more developed countries could not be used in Africa.
Therefore, Mo Ibrahim had to come up with an innovative business model, specifically targeting the African audience, with their specific economic requirements.
At the time, most telecommunications companies presented a bill to their customers at the end of the month (what we call post-paid).
Celtel has instead introduced prepaid plans. People were buying talktime using scratch cards. This allowed customers to buy what they could afford, depending on their needs.
For the company, it also eliminated the problem of unpaid phone bills.
Instead of building a distribution network from scratch, Celtel operated small, informal retail stores that were already present across Africa.
People could simply go to their neighborhood retail stores, buy talk time, and talk to family and friends using inexpensive feature phones.
Thus, consumption barriers related to affordability and accessibility have been successfully addressed.
In just six years since its inception, Celtel has acquired over 5 million customers. In 2004, they made over $600 million in revenue.
Celtel has also created thousands of jobs.
Other telecom companies like Vodafone also saw the huge opportunity and started 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 have been able to create for the people of Africa.
The mobile telecommunications industry in Africa today adds hundreds of billions of dollars in economic value to African economies. It employs millions of people and generates billions in tax revenue for local government.
Entrepreneurs have also leveraged the mobile telecommunications platform in innovative ways to better serve customers.
Whole new industries have also developed as a result of this mobile revolution. Companies like m-Pesa (fintech) and MicroEnsure (insurance) were created to fill gaps that previously existed.
Celtel literally transformed the entire African continent for the better.
Such is the power of market-creating innovations.