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The Call of Africa Grows Louder

The Call of Africa Grows Louder

Does the much-heralded "End of Distance" necessarily mean the end of geography? Many leading wireless analysts think not.

In many ways, geography is coming to mean more, not less. Stagnation in one part of the wireless world can well be matched by remarkable growth in another. Cultural factors play a role, as do the usual interactions of politics, economics, and technology.

In this month's "Industry Insight," WBT looks at two very different regions that seem for some reason to be bucking the trend of a general technology downturn: Africa and Canada.

In his early 20s, Dr. Mohamed Ibrahim became fascinated by mobile phones during a cab ride in Geneva, and they gradually became his passion. After studying in the UK, he soon established himself as one of the top engineers in the industry. He now heads up one of the most influential wireless carriers in the world's most marginalized continent.

When Mohamed Ibrahim, the Sudanese-born chairman of MSI Cellular, first contemplated setting up a mobile phone company focused on Africa, he was at least partly driven by a desire to give something back to the land that had nurtured him.

But his other reason was far less sentimental. He was, and remains, convinced that the world's most marginalized continent offers one of the best business opportunities around.

For more than three years, Dr. Ibrahim has backed that belief with a frenzy of activity. When it launched in 1998, MSI Cellular had only one network - Uganda's Celtel. Today it has operations in 11 countries, with another three in preparation, ranging from Egypt to the Democratic Republic of Congo, and (astonishingly, the most profitable) Sierra Leone. From 41,000 GSM customers at the start of 2000, it had 400,000 by mid-2001, as well as 150,000 on fixed lines.

MSI is the largest carrier in two-thirds of its markets. Such bold growth in a poor, insecure, and disease-fraught continent, where political connections often outweigh technical merit and currencies are soft, may raise some eyebrows among skeptics. But Dr. Ibrahim, the son of a modest Nubian cotton official who grew up in Nasser's Egypt, is convinced that the risks are overstated and the rewards underplayed. His instincts have served him well in the past.

By the 1980s, after his Swiss cab ride had triggered his fascination, Ibrahim had become technical director of Cellnet, the mobile arm (at that time) of British Telecommunications. But, frustrated by BT's "stifling" environment, he left in 1989 to set up MSI, a telecoms consultancy house that became a leading player in the newly burgeoning industry.

Surfing the tidal wave of mobile telephony, MSI grew rapidly, creating Planet, an industry-standard software suite, and advising some of the biggest names across Europe, the Americas, and Asia. Last year, Marconi bought MSI for close to $1 billion, and today Ibrahim is directing his top-level expertise to operations in a continent that, while still lagging severely behind in the information revolution, is seeing growth that Europe can only dream about.

Unlike in the developed world, mobile networks in Africa are often the only means of electronic communication, and demand is immense. Last year, the African market grew by 50%, with penetration reaching 10% in some richer countries such as Gabon.

While economies are smaller, the percentage spent on communications is bigger. Dobek Pater of South Africa's BMI-TechKnowledge says that in Africa companies spend 5-15% of their budgets on telecoms compared with 1% in, say, Europe.

MSI's turnover in 2000 was $58 million and it predicts revenue growth of $20 million a month by the end of 2001 - bolstered by Africa's high usage rates ($25-$50 a customer per month) and the expansion of prepaid services (now 90% of the business, and an important development in a market where revenue collection is otherwise difficult).

Some analysts are wary of the capital-intensive nature of the business. "Fourteen children all need feeding to make them grow (a particular concern in the current telecoms climate)," says Adrian Robinson of CDC Capital Partners. But Ibrahim is unfazed.

"There's money willing to go to Africa," he asserts, "as long as it is backed by creditable people. African telecoms is no place for opportunists or amateurs," he told a recent conference. "To survive requires a very experienced management team, a successful record, and the ability to attract finance."

Some investors clearly agree. MSI intends shortly to announce a $100-million equity financing deal, adding to $300 million already raised (and invested) through shareholders such as CDC and IFC, the World Bank financing arm, but also more hard-nosed investors such as Citigroup and AIG. "MSI has outperformed our expectations," adds CDC's Robinson, who sees a good future for smaller companies in second- and third-tier African markets.

MSI's chairman boasts that his networks reach operational profit within six months and real profitability within two years. Return on capital is in excess of 30% per annum. "By any yardstick these projects are more rewarding than in Europe or North America," he says.

MSI's belief in Africa's potential, which is shared by some other companies such as MTN and Vodacom of South Africa, and France Telecom, but is unusual in its singular focus, is also shared by Miles Morland of Blakeney Management, a specialist African fund manager. "Africa is both the most profitable place in the world for wireless carriers and the fastest growing. This year, Africa became the first continent on Earth where mobile phones outnumber fixed lines," says Morland.

"Sub-Saharan Africa is also the least competitive place," Morland continues. "A small handful of first-world carriers have African operations as a tiny sideline but most stay well clear of the continent. This has left the coast clear for some extraordinary African entrepreneurs. Mohamed Ibrahim is in some ways the most extraordinary. In MSI he has built a company with the best management in African telecoms, the classiest list of first-world investors, the strongest board, and the highest standards of governance. If you had to pick the certain survivor in African telecoms it would be Mo [Mohamed] and MSI."

But the next few years could pose some interesting challenges. Although some attractive new licenses are coming up such as Mozambique, analysts say that the initial "land-grab" phase is coming to an end and that a new phase is approaching, one in which the wireless players try to deepen markets.

At the moment, often only the two or three most-populated cities of each country are targeted. Whether the sector can grow at the same pace further afield remains to be seen.

MSI says that it's also looking into value-added services, and is running a wireless Internet pilot in Congo-Brazzaville. The hope is that while Europeans have shrugged their shoulders at football scores on their handsets, in Africa it may be that mobile phones are the only way to get hold of the latest commodity prices, banking services, or health care information, making the service intrinsically more valuable. But that could take a while to happen, say more skeptical observers.

Nevertheless, given the widespread doubts surrounding Africa, at a difficult time for telecoms worldwide, MSI's rise is highly encouraging. "We have all suffered from sentiment about telecoms," says Mohamed Ibrahim. "But it can be positive in another way: forcing people to look for the first time at the business case for Africa."

More Stories By Mark Turner

Mark Turner writes for the London-based Financial Times.

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