🚀 The Telco that Blitz-Scaled and Sold for $3.4B

Welcome to Sati - Sourcing Africa to Invest

👋🏾 I’m Marge… ethnically Ugandan 🇺🇬 raised in the US 🇺🇸 and a dreamer 💭 

I’m joined by Ona…also Ugandan 🇺🇬 studying in the UK 🇬🇧 and honestly, she’s a rockstar! This publication could not take place without her.

Here at Sati, we’re on a journey to uncover Africa’s history of tech and private investment to understand the present and predict the future.

Join me; let’s see where this ride takes us 🚌

If you’re new here, welcome!

If you’ve been with us before, glad to have you back!

What happened the last time we met?

3 weeks ago, we started a new series on market creation.

To open the series, we wrote about The Genesis of Telecom In Sub-Saharan Africa, a time of massive opportunity that has shaped the trajectory of Africa’s digital economy.

We focused on Celtel, the outlier that blitz-scaled to an eventual $3.4b exit and is still a market leader 20 years later.

If you missed Part 1, we covered:

• The lay of the land prior to mobile

• The impacts of mass adoption

• Mo Ibrahim’s background, what drove him to scale Celtel, and the challenges he faced along the way.

We closed with a promise to show you how Mo executed the expansion.

But after we hit publish…

We received a wave of feedback that stirred up conversations with the community.

A lot of it was positive.

But it quickly became clear that we had to expand our scope beyond Celtel.

So, to do Part 2 justice, we spoke to OGs. Folks that lived through and physically built Africa’s telecom infrastructure.

We’re so thankful that these individuals graced us with their time and knowledge.

Now we’ll pass on what we learned 🙌🏾

I know we said Celtel laid the foundation, but technically, we were wrong

Beyond Celtel, there were 4 major players.

All had intriguing back stories.

For example, in South Africa where MTN and Vodacom started, the monopoly provider was forced to split for several reasons.

One being that they served mostly white communities, and this was playing into the sanctions the country was facing due to its apartheid system.

We didn’t want to veer too far off course, so we created little blurbs for you to check out each one’s market of origin and how they acquired their first telecom license.

Now that you know who the players are…

Let’s refocus on Celtel and its formation in Uganda

“First mover” does not always imply an “advantage.” That was certainly the case for Celtel in Uganda (1993 - 1996)

Getting started wasn’t easy

In September 1993, a petition to liberalize the telecom sector was passed. Clovergem Celtel Ltd secured a mobile license and became the country’s first private network operator.

The license came with contingencies. They had to launch by 1995.

It took them 18 months to raise $16m from the International Finance Corporation (IFC), the Commonwealth Development Corporation (CDC), Vodafone, and Mo Ibrahim’s Mobile Services International (MSI).

With only 6 months left to launch, they hadn’t procured equipment or begun building the infrastructure.

Fortunately, they managed to fly in emergency equipment from South Africa to get the job done.

Progress was impossible

Celtel’s mobile-only license was very restrictive:

• All international calls had to go through the Uganda Posts and Telecommunications Corporation (UPTC).

• Additionally, interconnected calls were supposed to be paid for by the outgoing provider. However, the UPTC wasn’t paying Celtel, resulting in a $2m receivables balance.

In their first 3 years, Celtel was only able to obtain 5,000 subscribers.

The moment the government took action to reform the sector, an aggressive rival swooped in (1997 - 1998)

In 1997, the Uganda Communications Act established the Uganda Communication Commission (UCC) to regulate the sector.

The UCC’s objective was to make telecom services affordable and widely accessible.

Therefore, its first task was to unbundle the UPTC into Uganda Post Limited (UPL) and Uganda Telecommunications Limited (UTL).

UTL was privatized and offered full service, including fixed-line, mobile, and international gateway access.

To further liberalize the sector, the UCC opened up a bidding process for a second network operator to offer full service and compete directly with UTL.

The awardee of the license had to build 89,000 fixed lines and 2,000 pay phones across the country within 5 years.

Celtel, which had focused on building infrastructure for mobile, withdrew from the bidding process because they didn’t believe there was a market for fixed-lines. Moreover, if they won the bid, it would require a complete restructure.

MTN won the second license and gladly began operations in 1998.

MTN’s growth in Uganda skyrocketed 🚀

MTN achieved its 10-year business plan in 3 months 😲

They blew Celtel away and became the market leader within 1 year.

Let’s dig into how they did it.

Pricing was black and white

MTN entered the market with prepaid phones, a business model they had tested with great success in 1996 in South Africa.

Prepaid phones allow subscribers to purchase small denominations of airtime, therefore only paying for what they need.

Moreover, the actual phone was much more affordable.

A phone could be purchased for 40,000 ugx or $10, 100x cheaper than Celtel’s postpaid phone, which required a large ~$1,000 deposit.

Lastly, Celtel was charging in US Dollars, a currency the locals did not understand. MTN ensured to price in Ugandan Shillings.

Copy-paste did not always work

Voicemail, common in South Africa, completely failed in Uganda.

The idea of leaving a voicemail did not catch on.

Instead, people would beep: where someone would call and immediately hang up so that the receiver, who likely had airtime, would call back 🤣

MTN turned the marketing landscape upside down

The company built its brand presence by:

• Painting towns yellow

• Running full page and color adverts in newspapers

• Displaying catchy and relatable adverts, for example, a shoe shiner that has grown his business and can now afford the finer things

• Offering free sim cards and phones to customers

To further foster its relationship with the community, MTN sponsored events that were deeply rooted in the culture.

• Kingdoms: in Uganda, your tribe was/is your pride. Erik Van Veen, MTN Uganda’s Marketing Manager, attended the Kabaka’s (king) wedding.

• Entertainment: MTN sponsored performances by widely loved musicians, like Juliana and Chameleon.

Everyone got a piece of the pie

MTN designed a decentralized distribution network to ensure their phones and scratch cards were accessible to all.

The commission was tiered, offering a percentage of the pie to all distributors from the warehouse to point of sale.

To ensure uniformity and quality, MTN branded shops had specific guidelines regarding design and decor.

This distribution strategy created employment opportunities for the everyday man.

The above reads like the perfect storm.

It surely was for Celtel. They tried to pivot but couldn’t keep up.

As a result, in 2000, Vodafone pulled out of Celtel and entered Kenya to build Safaricom, the creator of MPESA.

Mo purchased Vodafone’s equity stake, making him the largest shareholder in Celtel.

Foreseeing Celtel’s defeat in Uganda, Mo stepped in

Starting in 1998, Mo led Celtel’s expansion across Sub-Saharan Africa.

How Mo chose markets

Mo focused first on a handful of countries that had inexpensive or free network licenses available.

Additional considerations included:

• Ease of doing business: Celtel entered markets where they would receive little pushback from inhabitants. They also chose markets that were on good terms with the Netherlands, MSI’s headquarters. For example, Dutch leadership saw Zambia as a ‘beacon of stability’ in the region.

• Immense gaps in supply: Celtel chose virgin territories that had little to no mobile network penetration and, therefore, pent-up demand. For example, in Gabon, customers actually knocked down the door of one of Celtel’s offices, trying to get in. That’s how badly people wanted to make phone calls.

12 Markets in 4 years 🤯

12 markets in 4 years is insanity…

We’ve already discussed how Mo chose markets.

Now let’s discuss how he blitz-scaled 🚀

To start, Celtel’s original owners, the IFC, CDC, and MSI, funded the expansion.

At later stages, foreign investors from the US, like Bessemer Venture Partners, and those in other European countries, came on board.

After each round of funding, Mo and his colleagues would follow. They always used an external anchor to set the price.

Celtel’s board gave them credibility and helped them attract the talent they needed to grow.

A few board members included:

• Sir Gerry Whent, Vodafone’s first CEO

• Sir Alan Rudge, former Deputy Chief Executive of British Telecom

• Lord Prior, former UK cabinet minister

• Salim Salim, former prime minister of Tanzania

• Joseph Sloan, representative of the IFC

• Jonathon Bond, representative of CDC Capital Partners

• Tom Barry, representative of Zephyr Asset Management

• Felda Hardymon, representative of Bessemer Venture Partners

No matter their equity stake, Mo insisted that a Senior Director from each investment fund be on his board. This later came in handy to fend off bribery.

Celtel recruited Africans who understood the environment.

They discovered highly qualified Africans working in the diaspora for operators like Ericsson, Siemens, Nokia, and Motorola, who dreamed of returning home.

Mo made it an easy decision.

Celtel offered globally competitive salaries and employee stock options.

In areas without coverage, Celtel spent $450m to build quality communications networks.

The exorbitant costs involved transporting equipment from Europe, where Mo had relationships, and delivering it to rural areas, where base stations needed to be built.

Many of these locations did not have electricity. Therefore, Celtel had to pay for generators and the associated labour to service them.

Customer Acquisition

In Uganda, Celtel was seen as a status symbol.

Only high-income earners, typically based in major metro areas, could afford Celtel’s $1,000 phone.

When MTN entered, it democratized access and became the market leader within a year.

Learning from their experience in Uganda, Celtel dealt the same blow to Telecel, the incumbent, when they expanded into the DRC.

A Telecel handset was $5,400. Customers also paid a $100/month subscription fee in addition to $0.36/minute for local calls and $16.00/minute for international calls 💰

Given the cost, Telecel’s customers were mainly state officials based in Kinshasa, where only 15% of the DRC’s 64 million population lived.

Celtel promised to provide access to all corners of the country.

Celtel didn’t struggle to acquire customers because the demand was there. They were creating a new market for an unserved segment.

Within a month, they had taken over as the market leader.

Distribution

Similar to MTN, Celtel implemented a decentralized distribution strategy in new markets.

Distribution partnerships were established with formal and informal businesses, creating a multitude of entrepreneurial opportunities. Small shops that had traditionally sold dietary staples and soap now also sold mobile phone credit (airtime).

All these efforts led to 5 million customers

The exit

IPO or acquisition?

Celtel was growing 50% - 60% per year in an attempt to supply demand. Keeping up with this level of growth required a lot of investment.

Raising capital had become the CFO’s main responsibility, which was distracting for management.

So Celtel had to think through its next stage, which was potentially an IPO.

By 2004, Mo had set his sights on the UK and Johannesburg stock exchanges, not only to allow Celtel to obtain liquidity from retail investors, but also to join the Fortune 100.

Mo wanted to bring the story of investing in Sub-Saharan Africa to the world - to display that it was possible for an African company to list on the stock exchange 7 years after launch. He knew it would have been a great story.

The board appointed the Deputy Chair, who at the time was Lord Simon Cairns, a former head of the CDC, to lead the IPO process. Celtel hired Goldman Sachs and Citibank.

Banks weren’t familiar with Africa, so they found the transaction difficult to price. A walk through how they settled on a share price is as follows:

• Initial meeting ➡️ $24 per share

• Due diligence during first trip to Africa ↗️ $30 per share

• Due diligence during second trip to Africa ↗️ $34 per share

• Final price ↗️ $45 per share

7 years prior, Celtel’s share price was $2. The last round of financing was $15 per share. The first investors were looking at a 23x return, and the last were looking at a 3x return.

As Celtel was going through the IPO process, they were receiving unsolicited offers.

An offer came in from Kuwait's Mobile Telecommunications Company (MTC) at $56 per share or $3.4B. Investors in the last round of financing, which was 6 months prior, would get 4x.

While Mo still saw value in IPOing, he let his board decide. They chose to exit via acquisition.

What was the economic impact? How much value was created?

We focused this piece on Celtel, the telecom provider that was able to grow fast and large enough to sell in one of the largest corporate transactions Africa had seen at that time.

However, all early players contributed to the economic impacts that ring true today.

Before we close, we want to share a few examples of how Africa’s leapfrog to mobile technology has shaped our present.

Transformed Society

Access to mobile was the beginning of the shift from an agrarian to a service-based and knowledge-based economy.

Mobile phone-based applications were birthed and now deliver financial, agricultural, health, and educational services.

The most well-known use case has been to bank the unbanked through mobile money.

New Business Models

In 2002, Celtel launched Celpay in Zambia, the first real test of mobile commerce.

Major multinational companies, like Coca-Cola signed up.

Celpay allowed service providers to complete secure e-payments through mobile money transfer.

Coca-Cola’s delivery fleet no longer had to collect payments in cash and could instead receive payment immediately and securely from the distributor.

Mo admits that he did not envision this revolution panning out as large as it did with MPESA.

Job Creation

In 2021, the mobile ecosystem supported more than 3.2 million jobs, of which 400k were formal and 2.8m informal.

Additionally, the evolution of telecom and the internet has enabled remote work for both local and international firms.

Intra-Africa trade

In 2006, Celtel launched One Network in East Africa, the ***world’s*** first borderless mobile phone network.

was extended to 12 of its 14 countries of operation only a year later.

One Network not only fostered an integrated community, especially in East Africa, and also not enabled access to larger markets, but especially in East Africa,.

External trade

Telecom networks allowed Africa to better integrate with the world economy.

Mobile penetration:

Finally, all early players played a role in what would eventually increase mobile penetration rates in Sub-Saharan Africa.

If you made it to this point, thanks for joining us on this ride 🚌

We know it was a long one.

Before we part ways…

We wanted to leave you with 3 lessons learned, especially if you’re a founder

1. Think big. Bigger than Pan-African. Think global. Even if your operations are confined Africa, think about how your creation will impact the rest of the world.

2. Have your eyes wide open in the early days. Pay close attention to what’s working and what’s not. Understand why. Leverage this information to effectively build your solution.

3. Copy-paste is often discussed in the context of Western services entering Africa. But this concept applies within Africa as well. Uniquely design each market to win.

Future Events

Jasiel and I will host bi-weekly office hours for founders interested in practicing their 5-minute pitch. Sign up to join us!

That’s all we have for you this week!

Thanks so much for making it to the end!

Look out for our newsletter in 2 weeks. We’re still noodling on what to share…

If there’s anything else you’d like us to explore, send me a note. I’d love to hear from you! You can find me on:

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Until next time!

👋🏾 Ona and Marge