Business Day (Johannesburg)
May 30, 2002
Posted to the web May 30, 2002
By Lesley Stones
SA operator's venture may lure more companies to invest in this war-torn country
WHEN a devastatingly poor country ripped apart by war wins its first major foreign investment in 20 years, you can image the size of the party.
The bulk of the Democratic Republic of Congo's estimated 60-million citizens may struggle to afford a beer or two, but the champagne flowed and salmon was consumed in abundance when Vodacom Congo officially launched its network last weekend.
"This is the first time in two decades our country has benefited from such a contribution from private investment capital," said Vodacom Congo CEO Alioune Dieng.
The ball gowns were an incongruous sight as cars navigated through Kinshasa roads pitted with craters. But hopes are high that this imported wealth will rapidly trickle down to the masses.
Vodacom's investment has already sparked instant business for the hotels, car hire companies, and craft markets as well as the 1400 firms selling its airtime and its own 113 local staff. Also, hundreds of contractors were called in to restore the ramshackle People's Palace to its former opulence at Vodacom's expense just for a one night party.
If other investors follow in Vodacom's wake, such economic activities will continue to thrive.
At the same time, new wealth should bubble up from the grass roots, as entrepreneurs find a cell phone makes their wheeling and dealing easier. The ability to communicate is widely recognized as an essential driver of economic growth, as everyone from the shabbiest street vendor to a multinational conglomerate can testify.
"Telecommunications is a great enabler," said Vodacom Congo chairman Andrew Mthembu. "The service will boost the economy of the Congo. It will give many the opportunities to create wealth for themselves and for others."
The sad part is that the Congolese seem unable to drive an economic recovery for themselves. Vodacom entered the country by taking over Congolese Wireless Networks, which bought a license in 1999 but has been unable to make it a success. How could it, asked its CEO Alieu Conteh, when local financial institutions will not back entrepreneurs, and few foreign firms have the guts to back businesses in a war zone?
Two questions now arise: is Vodacom likely to enjoy sufficiently high returns to applaud its high-risk venture, and could the move mark a turning point for the Congo's fortunes? Vodacom, of course, is not investing from altruism. Successful foreign expansion is vital to sustain huge revenue growth of 37% a year, as its SA market nears saturation.
Yet set-up costs in the Congo are proving to be hefty, with a lack of roads forcing equipment to be flown in, and erratic power supplies obliging it to install and guard a generator at every base station.
The projected costs over five years will hit $1bn, and to compensate it is charging $0,24 a minute to call another Vodacom phone, $0,50 to dial a rival network and $1 a minute for international calls. The Congolese will be digging deep to get connected. Yet the country is one of Africa's poorest, with a gross domestic product of just $100 a head, says Pyramid Research.
That is erroneous and irrelevant, said Mthembu. Since Congo's financial institutions are almost nonexistent, statistics nowhere near reflect the true total of hard currency changing hands. Besides, Vodacom is not aiming to put a phone in every pocket, but just in the hands of the most affluent 3-million.
"Because of the lack of telecoms in this country we anticipate an average revenue per user of $25 to $30 a month, which compares favorably to SA where prepaid user revenue is about $8 a month," he said. "After about 12 months we expect an operating profit, and a positive cash flow within 24 months."
The venture would "absolutely be profitable", agreed Jay Naidoo, SA's former communications minister who now chairs the Development Bank of Southern Africa. The speed and degree of the profit would be determined partly by the peace process, as the current turmoil is giving the government more pressing concerns than economic growth. If the war ceased, foreign firms reliant on telecommunications for their business would set up shop, he said.
But political instability does not prevent people from needing to communicate. "In spite of the war there is money and the requirement for telecommunications. Vodacom will make money," said Naidoo.
Pyramid Research is less optimistic. "Congo will not be a cinch," said manager Guy Engon Zibi, as the low average income made Vodacom's projections unrealistic.
The wild card is the informal sector, which accounts for almost half of Kinshasa's economic activity. Even with that factored in, disposable incomes are so low that cell phone penetration might reach only 1% by 2006, he warned.
These hostile trading conditions mean few SA companies have ventured into this vast nation. Bytes Technology chairman David Redshaw doubts many firms will follow Vodacom's lead. Business risks are so high that most prefer to operate through suppliers rather than establish a direct presence, he said.
SA's trade and industry department is aware of just a handful of SA firms operating there, including Ericsson SA, which is supplying equipment to another operator, Telecel. One pioneer in Congo was Eskom, which trades electricity with power utility Snel, while Kumba Resources has negotiated marketing and management control of a copper mine.
"Congo is an incredibly rich country in terms of mineral wealth, so people do want to go in," said the DBSA's Naidoo. "We are very keen to see SA companies invest as we have an amount we can invest there and are quite keen to do so. Seeing companies like Vodacom going in helps to verify our risk."
Stones is Business Day's Information Technology Editor.
Vodacom Launches in War-Torn Congo
May 30, 2002
Posted to the web May 30, 2002
By David Shapshak, Contributor
Despite civil war and logistical problems in the Democratic Republic of Congo, Vodacom took just three months to set up and launch its new cellular operator there - which it is confident will contribute 30% of the Vodacom Group's revenue by 2006.
Vodacom Congo says it took just three months for supplier Alcatel to roll-out the infrastructure in the war-ravaged country. It was officially launched last weekend.
Vodacom's 88 base stations, which include generators for each because of the often-inconsistent electricity supply, service the country's three major centers - capital Kinshasa, second city Lubumbashi and the diamond mining area of Mbuji Mayi. Calls between the three - which are 900km apart - are routed via satellite.
Vodacom Congo chairman Andrew Mthembu says the operator will achieve an operational profit in the first year, reap profits in two years and contribute 30% of the Vodacom Group's revenue by 2006. The Vodacom Group owns 51% of the Congo operation, the South African network operator as well as operations in Lesotho and Tanzania.
Vodacom invested $94 million in the new operator, which took over 12 000 subscribers from the existing Congolese Wireless Network (CWN) that has a 49% stake. CWN also contributed infrastructure and the remaining 18 years of its 20-year cellular license.
Vodacom Congo has already captured over 50 000 subscribers in three weeks of operation. These subscribers are expected to spend an average of $25 to $30 per month, compared to $8 to $9 in SA.
"Whatever domestic product figures are published about the DRC are far from the truth about the economy. There is far more liquidity in this economy, in hard currency," Mthembu said.
But "financial infrastructure is non-existent to say the least" and expansion into the country's war-torn hinterland will be driven by market potential and peace.
"We believe that the total market stands at 10% of the 60 million inhabitants of this country," says Mthembu.
Vodacom Congo's targets are to capture 50% of this market in the next 10 years.
Subscribers can call another Vodacom user for $0.24 a minute in any of the three centers, make international calls for $1 a minute, and calls to other Congolese networks or Vodacom SA for $0.50.
Earlier this year MTN said its Nigeria subsidiary had achieved 300 000 subscribers since it paid $285 million for a cellular license last year. It is the market leader after capturing 50% of the Nigerian market.
The number of cell phone users in Africa grew to 30 million in 2001 from just two million in 1997, according to the UN's International Telecommunication Union.
Vodacom expects triple returns
from DRC subscribers
Kinshasa - Vodacom, the newest cellular operator in the
Democratic Republic of Congo (DRC), reckons it can generate three times more
sales a subscriber in that country than in South Africa.
Vodacom Enters Cell phone Market in Congo
Business Day (Johannesburg)
May 27, 2002
KINSHASA Civil war, a lack of electricity and one of the lowest levels of individual income in Africa would not stop Vodacom reaping 30% of its revenue from the Democratic Republic of Congo by 2006, the company said on Saturday.
Vodacom took a $139m risk by building a cellular network in the country, but expected to make an operating profit in 12 months and a pocketable profit within two years, said Andrew Mthembu, chairman of Vodacom Congo.
On Saturday, the SA company officially launched its network, which already had about 50000 users.
So far, the network has 88 base stations augmented by satellite links to connect Kinshasa to the other main areas of Lubumbashi and Mbuji-Mayi. How far and how quickly it expanded across the rest of the enormous nation depended on the presence of customers able to afford cell phone services and the arrival of peace in each region, said Mthembu.
Vodacom has entered Congo relatively cheaply by taking over the operations of Congolese Wireless Networks. Although the deal was billed as a joint venture, Vodacom contributed all the cash, while Congolese Wireless proffered its 20-year license, its customer base of 12000 subscribers, and some fixed assets.
Vodacom put in $39m for a 51% stake in the joint venture, of which 12m immediately went to help Congolese Wireless to get its finances in order. However, the move has given Vodacom the remaining 18 years of the license and a base on which to build.
Congolese Wireless CEO Alieu Conteh said his company was unable to make a success of the GSM licence bought in 1999, as neither foreign investors nor local financial institutions would risk backing ventures in Congo.
"This is a country where the financial institutions are not up to date, and that is one of the biggest challenges. We also have the war and investment companies backed off."
Despite that, entrepreneurs within Congolese Wireless pumped in their own money in the belief that one day there would be peace and the nation could flourish, he said.
Phase one of the network is costing $55m, financed by a 24-month credit facility from Alcatel, which is supplying the infrastructure equipment. Mthembu said Vodacom had underwritten that exposure, but was confident that the operation would generate enough to begin paying the loan back within months.
Expansion, which starts next month, will cost another $45m. That will be covered by a mixture of vendor financing and loans from foreign banks, again with Vodacom guaranteeing the repayments.
Mthembu dismissed concern that the average Congolese does not earn enough to justify his prediction that 10% of the 60-million population will become cell phone users. Vodacom ambitiously expects to corner half that market, despite the presence of several rival operators.
Even more ambitious is its hope of enjoying a monthly revenue of $25 to $30 from each user, far higher than the $8 monthly average in SA.
"Gross domestic product figures published for (Congo) are far from the truth in terms of the actual economic activity," he said.
"Our experience in the little time we have been here is that there is far more liquidity in the market in hard currency than seen in the public financial institutions.
Independent research house Pyramid warned though that Vodacom was taking on a significant challenge.
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