Celtel Plans to Become Africa's Mobile Leader

By Eddyson Lugangwa Posted 27 November 2006 @ 02:54 pm EET     Print     Reprint     E-Mail     Comments

Johannesburg (IBTimes.com) - Network operator Celtel was aiming to overtake MTN as the cellular king of Africa, with ambitions to top MTN’s subscriber figures in the not-too-distant future. Last year Celtel was barely on the map as a key voice on the continent.

Now it is chasing MTN’s crown, and two factors make that potentially feasible: firstly its $3,36bn purchase by cash-flush Kuwaiti group MTC, and secondly its canny entry into Nigeria, the jam-packed nation poised to overtake South Africa as Africa's largest cellular market.

”It’s no secret that we intend to buy more operators across Africa,” said Mwambu Wanendeya, Celtel’s marketing and communications manager. Although he would not flesh out a timeframe, he wholeheartedly believes Celtel could become Africa's largest player.

It has its work cut out. MTN has 31,5-million subscribers, with 25,4-million of them in Africa and 6,1-million in the Middle East from its $5,5bn acquisition of Investcom. MTN’s revenue of R20,2bn ($2.8bn) for the six months to June generated a profit of R5,39bn ($750mn) and that was before factoring in the Investcom acquisition.

MTC has not broken down its figures to show Celtel’s contribution, but MTC as a whole enjoyed record earnings of $2,9bn and a profit of $767mn for the first nine months of this year.

Its customer base has doubled since last year to almost 25-million, with 15,2-million of them in Africa, fuelled by Celtel’s $1bn acquisition of 65 percent of Nigeria’s V-Mobile, adding 6-million. Such phenomenal growth makes it no surprise that beating MTN was on its wish list.

”There are 53 countries in Africa and we are only in 14 of them,” Wanendeya said. “MTN is in more countries in Africa, but those countries contain fewer people. Our licences in Africa cover more than 400-million people.” That leaves 39 countries to aim for, he says, although technically it actually operates in 15 as its parent, MTC, runs the MobiTel network in Sudan.

“Before we were constrained by revenue, but now we are a subsidiary of a listed company with strong revenue streams so it’s much cheaper for us to raise finance,” Wanendeya said. ”We can do things we couldn’t do before, and improve our coverage to a greater percentage of the population. In Nigeria we are spending more than $700mn rolling out base stations.”

Wanendeya said “the fear factor” that foreign investors have of buying assets in Africa still lingers, but Celtel has raised money in Tanzania and Gabon as local investors see how profitable cellular operations were. In June it raised $70mn for expansion in Tanzania in the largest loan yet granted in the East African country.

Another factor fuelling Celtel’s growth was its technical prowess. In September it became the world’s first operator to unite its networks in different countries to eliminate high cross-border roaming rates. That three-way tie-up in Uganda, Kenya and Tanzania boosted subscriber growth so rapidly that the technology development costs and the lost revenue from roaming fees were dwarfed.

It also abolished the fees that users paid to receive incoming foreign calls, said Michael Dabaly, the chief commercial officer for Celtel Kenya. Its airtime cards work in all three countries, and people could send airtime to another person by SMS across the borders.

As a result, customers were defecting from rivals that could not offer that service, and other operators would be forced to match its services, said Dabaly. But playing catch-up would be a long and costly exercise. “People who are roaming don’t accept international calls because of the punitive charge so that revenue was depressed anyway,” he said.

“A number of very large corporations that operate across the three countries have moved to Celtel because of the convenience. We are targeting 54 corporations that have business in all three countries.” The Standard Bank and the American embassy were already benefiting from the cross-border initiative. Calls between the three countries still cost about 10 percent more than calling a Celtel user in the same country” a difference blamed on tax and currency differences.

The governments of Kenya, Tanzania and Uganda were moving towards tax and regulatory harmonisation, which made the process easier than it would be in other countries. Even so, Celtel planned to roll out its One Network technology across all its African operations.

If it succeeded, smaller players among Africa's 115 cellular operators would struggle to survive. No company would be able to compete if it was surrounded by Celtel in neighbouring countries because the lure of cheap roaming would steal away its customers, said Wanendeya.

Celtel’s big talk of overtaking MTN was unlikely to translate into actual results, said Virgin Mobile South Africa's CEO, Sajeed Sacranie. “I don’t believe its feasible for a while. Celtel is trying to be a coherent group, but it is very disparate from country to country,” he said.

”It’s trying hard to get it right, but it needs brand coherence with core values of what it stands for. To actually create something that wins the hearts and minds of people is a challenge.” Moreover, it’s One Network technology would inevitably be copied by its rivals. “That doesn’t translate into world domination,” said Sacranie.

For Celtel to really succeed it must find a “disruptive technology” to make its network and services unquestionably superior, he said. One possibility could be to use the WiMax wireless technology to cover large distances with high-speed access to email and the Internet, as well as to provide lower-cost calls.

”WiMax could create a very powerful offering of cheap voice calls and broadband services. That’s the sort of stuff it needs to be looking at.” However, MTN’s new and expensive debut in Iran could be the “joker in the pack” that causes MTN to lose the game. “The complexities around Iran could be something they have underestimated,” Sacranie warned.