Zain / Celtel - Foundation

Terry Rhodes - Co-Founder of Celtel (Zain) on AFRICAN BUSINESS http://www.africasia.com/africanbusiness

On March 31, 2005 Celtel International announced that it had accepted a takeover offer from MTC, one of the Middle East's leading telecom companies with operations in Kuwait, Jordan, Lebanon, Iraq, and Bahrain.

With six million subscribers across 13 countries, Celtel has the largest geographical footprint of any telecoms operator in Africa. Stephen Williams talked to Terry Rhodes, a co-founder and the company's chief strategic officer, about Celtel's remarkable history leading up to the takeover.

Afican Business: The $3.4bn takeover of Celtel International by Kuwait's MTC telecoms group took many industry watchers by surprise--most thought you intended to float on the Johannesburg or London stock exchanges. What do you think made Celtel so attractive to the Kuwaiti company?

Terry Rhodes: I think I can best refer you to the MTC's vice-chairman and managing director, Dr Saad Al Barrak. When we signed the takeover agreement in London last March he said that together, MTC and Celtel will leverage the strong synergies, shared cultural values and heritage which exist between the Arab world and sub-Saharan Africa. We at Celtel look forward to working with MTC to drive this vision forward.

AB: One of Celtel's most innovative strategies in recent years has been in working towards interconnectivity across African national borders. What kind of progress have you made?

TR: In the past it has been very difficult to call from one African country to another African country because call routes went through Europe and back to Africa again following the old colonial administrative pattern. That does not seem to make any sense to us because surely Africa wants to keep its own telecom revenues. So part of what we are trying to do is establish gateways to allow us to carry call traffic in and out of the countries where we operate. We have established these gateways in most of the countries where we operate.
Beyond that, if we happen to have cell phone networks in adjoining countries that we can connect directly, then we can say this is a neighbouring country call, why should it be subject to international call charges?

AB: Have you started this neighbouring country service?

TR: Yes, it took some two years of negotiations, but we now have a direct link across the River Congo, between the DR Congo and Congo Brazzaville. And what happened when we made the connection? The volume of calls increased substantially as the charges tumbled. And we want to do the same in East Africa where we are the only operator to have a presence in all three EAC countries. We want to make it much easier for our customers to move between Celtel networks, for example allowing a visiting subscriber to be able to buy a pre-paid top-up scratch card in a neighbouring country to top up their credit. That's not all. We hope to introduce a service so that you can transfer top-up credit to another phone within the network. Say you live in the city, and there's someone you want to call in your village, but there's no money in the village or the top-up scratch card distributor has run out of cards. Well, you can buy credit on your phone in the city and send that to the phone in the village. Now there is no excuse for not phoning your Mum on a Sunday!

AB: Just to return to this cross border neighbouring country roaming service. What are the constraints to introducing this service. Are you getting this message across?

TR: We do not have regional harmonisation yet, to put it briefly, and there are still examples of protectionism around and consequently higher costs and poorer reliability for calls that may just be a few tens of kilometres in distance but that just happen to cross national borders. But increasingly people are seeing that this is what customers want. For example, we advised President Levy Mwanawasa of Zambia that if he allows us cross-border roaming, the price of international calls will halve and the quality of the service will double. Of course it is up to the authorities to decide how long they wish to delay cross-border roaming services, but they know as well as we do that potential investors in Zambia are concerned over the country's high cost of international telecommunications.

AB: How did Celtel get started?

Terry Rhodes: The original company, called MSI, was founded in 1989, as a software consultancy house in Europe. We acquired a number of small stakes--in India, China and Hong Kong, and then the one that became the most relevant, in Uganda, where we invited a big operator to be the major partner. The one that chose to come and join us was Vodafone.

AB: What led you to decide that Africa had sufficient potential, and has Africa met or exceeded your original expectations?

TR: We saw real potential if we could raise some money and develop some opportunities. Of course, ever since our initial minority investment into Uganda we had been looking at other opportunities. Did this match the original vision of what we saw as Africa's potential? Yes! This was exactly what we had decided to do.

AB: What have been the key factors that have allowed you to grow at such a rapid pace?

TR: One key factor was timing. In 1998, with an industry track record and a business plan, you could get backers. But after the internet bust and the telecom industry problems of financing and so on in 2000/2001, nobody would have given you the time of day. So 1998 was a good time to start from the industry perspective, and it was a good time to do it from the African perspective because Africa was starting to liberalise and wanted competitive patrons, wanted FDI. Another key factor was the development of pre-paid technology - pre-paid matches Africa's cash economy. Pre-paid says 'I don't need to know anything about you, all I need to know is that you want to be a customer. Welcome to the network!' More than 98% of Celtel's customers are pre-paid including corporate customers, and that's typical for all telecom operators working in Africa.

AB: Is there anything that distinguishes mobile telephony from any other business operating in Africa?

TR: This is a capital-intensive business, a long term business--with 10, 15, 20 and 25 year licences, and we are cementing our assets into the ground. This is long term infrastructure that means we have to be part of the local community, part of the local economy, part of the local society.

AB: How did you first raise capital to grow Celtel's business?

TR: One of the first shareholders to back us were what was then the Commonwealth Development Corporation (now Actis-CDC Capital Partners), the British government owned development finance arm. Then we won the backing of the Dutch and German equivalents--plus the IFC, the investment arm of the World Bank.

Celtel proved that the twin aspects of a profitable business and a development agenda can work and later we attracted private sector shareholders--such as venture capital groups out of the US like Bessemer Venture Partners and General Atlantic Partners, plus major private funds like Citigroup and Capital Group.

AB: In October of 2004, Celtel won the International Finance Corporation's (IFC's) inaugural Client Leadership Award for sustainable development. Out of the many hundreds of companies considered for the prize, why do you think Celtel was so honoured?

TR: The IFC was looking to award a successful company that not only made a profit but also made a positive impact on the economies and the development of the countries they worked in.
I think they recognised the positive impact the expansion of telephony makes on enabling other businesses to develop.

Let me give you the specific example of one of our customers, a banana trader who grows his fruit on the slopes of Mt Kilimanjaro and trades them out of Dar es Salaam, some 250km away.
Before our network covered his plantation he had no way of knowing what quantity of produce he had ready on what day and how long it would take to get it to Dar es Salaam. He was obliged to travel back and forth to check the price of bananas in Dar es Salaam. Now he can do it all with a phone call. You have to see the individual examples to realise the effect that becoming part of the connective world in the market economy can make on trading and exporting.

This is not just about the 6,000 or so jobs that we have directly created in Africa, or about the possible 60,000 jobs through the distribution of cards and phones and so on, it is about what those six million Celtel subscribers can do with a phone that they could not do before. It is the developmental impact on the communities we serve that the IFC recognised.

We want to be a flagship company not only in terms of the technology but also in the social standing we have in all the countries we operate in. About 1% of our revenues are spent on community projects, primarily on education and health, and often at really low-level integration--for example providing supplies to maternity hospitals in Zambia or building a new school in rural Sierra Leone. Telephones are important, but we recognise they are not everything!

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