The Perfect Storm: A Continent, A Phone, A Business Model

In the mid 1990s, in a small city in northern Finland, engineers and designers began work on the product development of a mobile phone that would eventually become one of the best selling Nokia models ever – the 3310, released in Europe and the Far East in the year 2000. The continent of Africa was not yet on their radar as a target market. Its iconic success for its legendary durability was still some years in the future, as was its impact on sub Saharan Africa.

Around the same time, in 1994-5, Portugal Telecom’s mobile telephony division TMN, invented the prepaid business model whilst researching ways to lower barriers to credit, and thus reach a wider audience for their services. They, too, weren’t thinking about the farmers, traders, or vegetable vendors on the African continent, for whom the prepaid plan was to be a godsend, matching their needs for flexibility and control over timing and amounts expended on cellular services. This, too, was still a handful of years in the future.

Meanwhile, across the African continent, the 1990s were a bleak time of rising prices, dropping employment rates, and meagre economic growth. African nations were still adjusting to the impact of the Structural Adjustment Programmes (SAPs) imposed by the IMF and the World Bank in their attempts to boost the lacklustre developmental progress. Hundreds of thousands of civil servants had been laid off as Africa strove to meet the demands of liberalization and globalization [aka Washington Consensus] and young graduates left universities with few opportunities and fewer jobs. Uncertainty was rife, as Cameroonian scholar Walter Gam Nkwi observed1, and this was to prove to be a fertile field for the perfect storm that was on its way.

Liberalization of state owned monopolies such as in telecommunications in the mid 1990s opened the doors to private sector operators in cellular telephony, and thus, to competition. In the early days, circa the late 1990s, telcos used a forecasting model for sales and revenue projections to inform service pricing and payment plans that was reliant on number crunching annual growth in adoption rates from a hundred different markets where mobile telephony had already been introduced 2, and then compared against a selected basket of countries with similar economic and demographic attributes to their target country. This approach provided metrics that were to prove to be laughable within the decade. For instance, in 1999, Kenya’s Safaricom forecasted reaching 3 million subscribers by the year 2020 (Kenya crossed 41 million subscriptions in 2018), and Botswana’s Mascom3 to consider themselves comparable to Germany if they met the target of 6000 subscribers per year in the first three years.

These modest forecasts led to telcos assuming a High Margin; Low Volume business model targeting the wealthy who would be eligible for credit required for a monthly subscription. In addition, they expected businesses, government departments, and non govenmental organizations of all stripes to sign up for reliable communication services given the inadequate fixed line infrastructure and the moodiness of its service quality. After all, Africa’s declining growth in the 1980s and 1990s, together with the SAPs, had made a hash of the economy and poverty was endemic. Nobody really expected much from these markets, and investments in cellular infrastructure was limited to capital cities, major trunk roads, and a handful of other urban clusters.

It took two African visionaries, independently, to consider the prepaid business model as the key to Africa in 1998. For Strive Masiyiwa, it had been a long hard fight for 5 long years to crack the telecommunications monopoly tightly held by Mugabe’s government before he was able to launch Econet Wireless with its Buddie prepaid plan, transforming the Zimbabwean market. In London, a Sudanese telcom engineering consultant, Mo Ibrahim, saw the fortune at the bottom of the pyramid that an African mobile services operator could reap, if only he could make it happen. For him too, prepaid was the wedge that would drive demand among the African populace navigating economic uncertainty on irregular incomes. Celtel would go on to pioneer per second billing in LDCs like Malawi in 1999, and capture the lion’s share of the market as price and service became affordable in the bite size pieces that began to match local cash flows. Both men would later be quoted as saying it was prepaid that made their fortunes.

Mobile telephony adoption in sub Saharan Africa (Source: IFC)

Rapid improvements in the prepaid billing model made by advances in software and switching technology, as well as GSM standards for telecommunications, again led by the Finns in their northern stronghold, over the next few years made all the difference as they permitted greater fractionalization of purchasing power thus lowering the barriers to adoption for the vast majority of the population. By 2003, airtime vouchers for voice and text messaging on mobile phones could be purchased for as little as 50 cents, if not less. This ability to purchase bite size pieces of communication triggered the hockey stick curve of adoption of mobile telephony seen in the chart above.

End of life 1998 model Nokia in use in 2008, South Africa

By this time, the robust well engineered Nokia models of the late 1990s were entering the secondhand markets, both locally in Africa, as well shipped in bulk from the wealthier markets of Europe, as people upgraded their devices to keep up with the times. Available for as little as $10 or $20, end of life Nokia phones were suddenly made affordable for the masses, who did not hesitate to put down their hard earned shillings or kwacha or rands for the chance to become connected, at last. Hand me downs by wealthier relatives and devices sent home by migrant workers also played their part in this heady period of adoption and growth. It would take the visible impact of the hockey stick curve of growth for Nokia to turn their focus on the African consumer and her needs, before phones were being designed and built for this market.

Photo Credit: Ken Banks, kiwanja.net

This was the perfect storm of design, engineering, and business that came together on a fertile field to create exponential growth in mobile handset sales and mobile service subscribers in Africa (among the informal economy) that would lead to the next 15 years of annual growth rates of more than 30%, only beginning to show signs of slowing down in 2018.

There was a flurry of research on understanding the impact of mobile telephony in the informal economy and among the low income demographic also known as the bottom of the pyramid in the early years of mass market penetration circa 2007 to 2010, but there has been little or no study taking the long view of the changes that the sudden intervention of modern telecommunications and ICT have made on society, particularly among small businesses, traders, and manufacturers in the informal sector. Commerce and finance have been disrupted by the mobile in the past ten years, and daily life including rural/urban linkages and relationships impacted for the past fifteen years.

What can we learn about this digital society emerging without the trappings of legacy infrastructure and institutions? Early signals of a decentralized digital economy are emerging, and in today’s context, what can these emergent and novel models of supply chains, distribution, marketing, and commerce show us for the future ways of organization for inclusion and impact in our increasingly smaller and more connected world?

Now, what I will study is the longer term transformations that have taken place in the past 15 years in Africa, using the case of Kenya – the world’s leading mobile money market and the testbed of innovative products and services on the mobile platform for startups and companies from around the world.

This entry was posted in Africa, African Consumer Market, Afrique francophone, Airtime, Analysis, Articles on Design and Innovation, Base of the Pyramid, Biashara Economics, Business Models, Cashless transactions, Commerce en ligne (e-commerce), Consommateurs, Consumer Behaviour, Design, Economy, Ecosystem, Emerging Futures, Emerging Markets, Flexibility, global, Informal & Flexible, Innovation Planning, Kenya, Mobile platform, perfect storm, Perspective, Platforms, Prepaid Economy & Informal Sector, Research, Rural Economy, South Africa, Sub Saharan Africa, Systems, Technology, User research and tagged , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

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