Overcoming obstacles in the lucrative African telecoms market

The further north you venture into Africa, the more interesting it gets. That`s the experience of the growing number of South African telecom companies crossing the equator to explore new business prospects.

These companies talk about massive, untapped markets and vast revenue generating potential. Yet they`re also encountering conditions and obstacles unlike anything they`ve experienced in the more familiar turf of the southern African region.

You can`t imagine until you get there what it feels like not to be able to communicate.

Shaun Liebenberg, MD, Plessey

Nigeria, where cellular network operator MTN is rolling out a GSM network from scratch, has a population of 122 million, 36 states and 300 different ethnic groupings, making it one of the most complex countries in Africa to do business. Here, says MTN Nigeria`s Chief Executive Officer Karel Pienaar, strong local partnerships, a permanent in-country presence and a firm commitment to skills-transfer are the crucial keys to entering the market.

In Gambia or the Congo, largely virgin territory for South Africans until now, finely honed project management skills are a necessity. If you leave a piece of equipment back at home in South Africa, for example, the only option is to charter a plane to fly it up or make it yourself on the spot, says Siemens` Chief Operating Officer Pete da Silva. And it`d be wise to take a long-term view of any project, whether way up north or anywhere else in Africa for that matter. African markets don`t appreciate the hit-and-run approach and, as Telkom can tell you after almost six years of laying the groundwork for Africa`s biggest undersea cable project to date, complex infrastructure projects don`t happen overnight.

Landing in Lagos, Nigeria, the temperature is a scorching 34 degrees, humidity a sweaty 85%. Outside the airport the roar of traffic is relentless as drivers veer and swerve around potholes in the city`s clogged and robot-less roads.

It is wise to take a long-term view of any project in Africa.

Pete da Silva, COO, Siemens

For many Nigerians, acquiring a car is a good deal easier than getting a telephone line. So seldom do telephones ring, even at big businesses, that when one does, everyone in the room will jump up to answer it. It`s common practice to drive for up to three chaotic hours across Lagos just to set up a business meeting, or to place an order for office stationery, or to take a customer`s order.

"You can`t imagine until you get there what it feels like not to be able to communicate," says Plessey MD Shaun Liebenberg. "This is a country with 122 million people but fewer than 500 000 fixed lines, half of which aren`t working most of the time.

"There`s so little telecoms infrastructure here, yet everything has to run off it: all communication between banks, businesses, universities, government... It`s a massive, very hungry market that is desperate for modern communications."

Racing to fill that gap is MTN Nigeria, which, supported by contractors Plessey and Ericsson, has spent the past six months rolling out a GSM network at breakneck speed.

It`s been a steep learning curve. Although MTN has already built GSM networks in four other African countries, including war-torn Rwanda, conditions in Nigeria are different from anything the company has encountered previously, says MTN Nigeria`s Pienaar. "Extremely high customs duties are imposed on all forms of imports, and excessive local and federal government taxes on all forms of services, be they delivered or not. There`s also a complete absence of credit in any form and leases here are concluded through an upfront payment of two years rental in cash."

Then, says Pienaar, there`s the ever-present "419" - local-speak for fraud. "Syndicates tap every form of communication and use the information to either sell property that doesn`t belong to them, or to scam some kind of deal that has no chance of ever realising. Other than the wasted time through investigation, these deals tend to hamper progress daily."

So too do volatile weather conditions with intermittent rain showers turning into seven-day-long storms, bogging down construction and transportation.

On the technical side, there`s little to no infrastructural backbone in Nigeria, making the provision of transmission links "relatively challenging and extremely costly". Also, the power supply is "erratic and unreliable at best, completely absent at worst", necessitating the use of generators, which are in turn hamstrung by constant fuel shortages.

Even so, by as soon as 1 August this year, MTN Nigeria will be ready to offer its first commercial services in three Nigerian provinces, including the capital city of Lagos, the third most densely populated city in the world.

The logistical challenges of working in a country like Nigeria would be insurmountable if attempted remotely, meaning masterminded from South Africa. "You can`t just fly in and out; you have to have a base right there - and that applies just as much to any other African country," says Plessey`s Liebenberg. "It`s impossible to do Africa out of a briefcase. You have to be seen as part of the local community, sharing your resources with the local people and not just there to take money out."

The ever-present fraud syndicates tap every form of communication and sell the information.

Karel Pienaar, CEO, MTN Nigeria

Thus, both MTN and Plessey have set up fully-fledged, autonomous local companies in Nigeria, headed up by in-country CEOs, while actively using local content and manpower wherever possible.

"The benefits of supporting the communities that consume our product speak for themselves, says Pienaar. "By not recruiting, training and developing local skills and talent, companies run the risk of alienating the very communities that they are trying to convince to use their products," he says, pointing out that certain communities have been known to boycott companies who ignore social investment obligations.

After only six months, says Pienaar, MTN Nigeria`s local recruitment process has reached the stage where some of the initial South African team can hand over to Nigerian replacements and return home. "In the long term, our aim is to have a well-trained, highly skilled local workforce - something that is eminently achievable since Nigeria boasts the highest literacy rate in Africa and is also a very technically orientated country."

Siemens` Pete da Silva agrees that a strong local presence and long-term relationships are a necessity for any company doing telecom business successfully in Africa.

"We believe in the farming approach as opposed to hunting. When you hunt, you aim for an opportunity, shoot and leave. When you farm, you prepare the soil, fertilise it, plant the seeds, water the shoots, harvest, replant and continue the cycle. This is why we either establish a full legal entity or a very strong agency in most countries we go to. We won`t do anything in a country without the local partners knowing what we are there for."

Having built up a presence in close to 34 African countries (with a corresponding increase in revenue from R14 million in 1992 to over R600 million today), Siemens has also established a highly precise modus operandi for moving into new markets. An example is Gambia, where Siemens has just been appointed the supplier of choice to cellular operator Lintel.

Staff must be self starters, independent and with boss-like thinking

Pete da Silva, COO, Siemens

Typically, the process would start with a preliminary site visit to the new country. A second team would be put in place to prepare for the bid, then, once short listed or awarded a contract, the company would send in a third team of scouts to analyse the country in detail.

"In Africa, it`s vital to make sure your logistics are in place," says da Silva. "To define the team you need, you have to understand the cost of living, know where the nearest hospitals are, what languages are spoken, what evacuation process to follow if someone on your team has an accident or falls ill, how you`re going to house your staff, whether in hotels or even setting up camps."

He adds that another critical success factor is the people selected to work on African telecom projects. "They must be self-starters, independent, with boss-like thinking, because they can`t go to a supervisor every ten minutes," says da Silva.

Highly developed project management skills are also a must. "This isn`t like being in Gauteng where, if you forget to order a nut or bolt, it`s no problem," says da Silva. "In Africa, especially when you move up north, it`s horrendously expensive and time-consuming to have to ship or fly equipment backwards and forwards."

After more than five years of painstaking preparation, Africa`s $630 million undersea optic-fibre cable system is now only eight months away from commercial switch-on.

Not that this timeframe is inordinately long for a cable project of this nature; other international projects have been dragging on for more than seven years without even reaching the contract-signing stage. In terms of complexity, however, this one is unusual.

For one, it involves two interlinked cables, one connecting Cape Town to Portugal and Spain, and the second stretching from Cape Town to Malaysia and India. Together, the two span a total distance of 28 000 kilometres, with landing points in at least 15 countries, including Gabon on the west African coast and Mauritius on the east.

For another, it has brought together a more diverse group of telecom operators - 35 altogether, from Africa, Asia, the Americas, Europe and Australia - than virtually any other cable project before it. Understandably, this diversity sometimes made decision-making "cumbersome and difficult", says Johan Meyer, one of the Telkom team members spearheading this project since 1996.

So far, though, there`s only been one issue that the players have been unable to agree on: a name-change. As a result, the project still rejoices in the name SAT-3/WASC/SAFE, which stands for South Africa Telecommunications Cable/West African Submarine Cable/South Africa Far East Cable. Quite a mouthful.

Telkom, which itself has committed more than $80 million to the project (almost an eighth of the full price tag), says establishing funding for the smaller African operators was a definite challenge, as was the task of persuading various global operators to participate.

"The project required future vision, to a time when demand for capacity will outstrip supply," says Telkom`s Meyer. "It took almost 18 months of repeated attempts to convince one of the major European operators of the future value of the project."

Finding a partner in Asia for the SAFE cable was also a challenge, he adds. "After getting the cold shoulder from many others, we were pleased with Telekom Malaysia`s eagerness and very positive attitude to co-drive the project with Telkom. Although it took "considerable time" to bring enough Indian Ocean operators on board, all the key operators here are firmly supporting the system, which will have a lifespan of about 25 years. Now, with the laying of the two cables already well under way, the full system is on track to be ready for service early next year, says Meyer.

Telkom estimates that, once operational, the new system could save the continent more than $300 million a year, since African countries would no longer depend on foreign operators to route their international traffic. Indications are that traffic to and from Africa could grow 60 times over the next five years.