In this videocast, I present three ways the Nigerian telecom operators like MTN, Airtel, Etisalat and Glo can solve the OTT (Skype, WhatsApp, etc) revenue leakage problems. The article is available here.
Nigeria, Africa Needs Amazon More Than Google, Apple And Facebook
Since Adam Smith wrote his classic, in 1776, the Wealth of Nations, to upend the mercantilist system and setting forward the basic foundations for modern classical economics, we have seen corporations come and go. The core pillars of productivity and division of labour have been the tenets in the organization of firms which thrived. The free market system provided the cement mortars for states.
Andrew Carnegie lived. John D. Rockefeller lived. Aliko Dangote is living. Bill Gates is living. Jeff Bezos is living.
These men are icons of their generations, pursuing the noble cause of entrepreneurial capitalism – aligning assets and knowledge to provide services where fictions exist between those that want and those selling. Corporations exist to simplify that interplay of demand and supply and these legends and others thrived in providing solutions that eliminate most of the frictions. They pursued different levels of innovations for scale using productivity, specialization and uncommon vision.
In our contemporary time where the Wealth of Nations is largely the Technology of Nations as technology has become the enablers and pillars that underpin most of the elemental constructs postulated by Mr. Smith more than two centuries ago. Technology enables productivity and has become critical in eliminating the information asymmetry, making markets freer for both buyers and sellers. It has also fascinated the capacities of states to enable market forces to drive competition and the realignment of capital.
Technology has increasingly dismantled the notion of core competency because the world has become increasingly integrated, morphing into a society of people, firms and nations with exceedingly high level of connectivity. This means that hitherto unrelated areas can be linked together, at scale, previously impossible, because the cost of doing so is low.
An e-commerce giant can move into grocery; Amazon. A search empire can become a car company; Google. A digital village square can inspire to become an internet service provider; Facebook. These companies are increasingly showing that the world is nothing but a sector and classification into sectors like banking, insurance, and transportation is simply to help tax purposes.
Amazon bought Whole Foods – an American supermarket chain that sells foods without artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats. Amazon itself is the world’s largest e-commerce empire in revenue and other metrics.
Amazon today is a bank, lending to small companies that sell on its platform. It is also a transformation company with expertise in logistics in the air, sea, and road. With its networks of empires, anyone can live in the Amazon America, eating food from Whole Foods, watching moves from Amazon, reading on the Kindle, buying most things from Amazon. The list goes on. Its impact permeates industrial sectors and anyone it touches, it secures it as Napoleon Bonaparte did when it conquered nations in the 18th century.
This Amazon with this deep experience in marrying the digital world and the meatspace is what Africa needs.
In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization. Amazon is the fourth most valuable public company in the world, the largest Internet company by revenue in the world and the eighth largest employer in the United States. In 2017, Amazon announced their plans to acquire Whole Foods Market for $13.4 billion by the end of the year, vastly increasing Amazon’s presence as a physical retailer.The acquisition was interpreted as a direct attempt to challenge Walmart as a physical store
Africa Needs Amazon
Today, we have Google, Facebook, Microsoft and other great American brands across Africa. These are iconic companies with demonstrated results of innovations for decades.
However, they are marginal in our current African needs. They are digital companies and are good in that space. Facebook connects the world, digitally, provided you can be in the digital space. Google gives you information, digitally, provided you can get there. Microsoft sells products, mainly digital in nature. They feed on the incremental progress in Africa. But they will not redesign the architecture of the continent linking the meatspace and the cyberspace. They are digital companies and they live therein.
But Amazon is different.
Amazon, if it comes to Africa, will invest in logistics which small businesses can use to improve e-commerce. Amazon will become the modern postal systems in Africa. In Nigeria, where none practically exists, Amazon will build one, for itself as first customer, and then open it up to enterprises to use in order to support its business. Most of the Amazon fulfillment centers in America are used by Amazon sellers. Africa needs that.
Amazon, if its makes it into Africa, will bring efficiency in the food delivery system. It will invest in preservation and storage of food, making sure that waste is reduced. Amazon is vertically and horizontally integrated and understands the meatspace more than any of the present operating peers in Africa. It will find a way to source local food items in local farms and will touch the lives of farmers. The vision of Whole Foods will be the one for Africa.
A content creator, unlike Facebook, Google and others that aggregate and feed on others, Amazon will invest in local contents for Amazon. You will see it build up Amazon Prime Africa with local contents that will give jobs to artistes and others. Instead of asking you to do it, Amazon will do it with you, providing the money.
Amazon will massively put money in local carpenters, apparel makers, etc to make sure they can produce enough to meet the demand in its ecosystem. It will lend money as it does in U.S. to those doing well.
Above all, Amazon will make sure that Africa intra-trade works. We rarely trade among ourselves because our trade routes are still linked to the colonial masters that built them. Amazon will provide a digital trade route that will decouple us from those colonial routes and offer a true emancipation.
The question is this – who can get Amazon, an evolving important company in the 21st century with increasing deflationary power in the U.S. economy to think Africa. It is the real deal because of its mantra of big and bold vision. Amazon may even build new airports across African cities to make sure its businesses work. Sure, you may say Amazon will dominate but the good news is that with its ecosystem business, it can only succeed when the locals are succeeding. That is why it is different.
I see a future, if Amazon makes it into Africa, for Amazon Africa virtual wallet to become the singe African currency, because if everyone trades on Amazon, we can simply use its wallet to settle obligations across borders. This will work because Amazon is both a meatspace and cyberspace business, unlike any other.
Amazon. Come here – the load to Africa is business and investment. We want you. (Of course, Google, Facebook, Microsoft etc, please stay; love y’all.)
TLcom Capital Raises $40M for Its New $100M TIDE Africa Fund
London and Nairobi-based venture firm TLcom Capital has raised $40 million for its new Africa fund. The target is $100 million. TIDE Africa Fund will focus on tech startups in Sub-Saharan Africa. The investors include African Development Bank, the European Investment Bank and FBN Capital. The fund will make investments between $500,000 and $10 million per company.
PRESS RELEASE
June 22, 2017, Nairobi, Lagos, London: TLcom Capital, the VC fund started in London two decades ago with over $300m under management and tech investments spanning Europe, Israel and the US, today announced that commitments to the TIDE Africa Fund have hit US$40 million.
TIDE Africa is the first international venture capital fund focused exclusively on technology enabled solutions and innovation serving Sub Saharan Africa (SSA). The Fund will provide capital and business building support to world class African entrepreneurs developing tech-nology driven solutions to the Continent’s biggest problems.
TIDE Africa will make equity investments from early to growth stage in the US$500,000 to US$10 million range, focusing on fast growing scalable companies leveraging the high pene-tration of mobile (now well over 70% across the Continent) to serve the SSA market in large underserved consumer and corporate verticals such as financial services, commerce, ener-gy, health and education, often only available to 20% or 30% of the population. Due diligence is under way on the first round of investments.
“In recent years the TLcom team has invested heavily in the Africa VC opportunity. We have opened offices in Nairobi and Lagos, looked at hundreds of tech entrepreneurs in Africa, and successfully invested and exited the best among the first generation of African mobile start-ups, such as Upstream (acquired by private equity group Actis) and Movirtu (acquired by BlackBerry). While the Africa tech ecosystem is still maturing, we don’t see why Africa is any different from other tech investment opportunities across the globe in terms of the magnitude of the investment upside”, says Maurizio Caio, Nairobi based Founder and Managing Part-ner of TLcom.
“From the high quality of entrepreneurs to the opportunity of building companies serving large markets that are highly valued by global acquirers and capital markets, all the ingredi-ents are now in place for Africa to become the world’s next attractive tech investing destina-tion” adds Ido Sum, London based Partner of TLcom and a former tech entrepreneur in Afri-ca himself.
“TLcom believes that African scalable tech enterprises represent not only a massive value generation opportunity, but also a unique development tool that can result in job creation and much wider inclusion. Low income segments that still represent the vast majority of local demand can access many basic services only when technology enables affordable solutions for consumers and SMEs”, says Andreata Muforo, Nairobi based Partner of TLcom, previ-ously with African Development Bank.
The Fund has now reached its first close of US$40 million – of the US$100 million target – with the African Development Bank (AfDB) and the European Investment Bank (EIB) committing US$10 million each, alongside other African, American and European corporate investors and family offices such as FBN Capital, and Silicon Valley based Bob King, founder of the Stanford SEED institute. Other investors are currently working with a view to join the final close of the Fund scheduled in June 2018.
“TIDE Africa offers a great opportunity to our investor partners and to global private capital to achieve significant returns and support world class technology entrepreneurs who are working in Africa to create solutions for local and global markets. We look forward to finalizing our first deals and working closely with African entrepreneurs to help them reach their full poten-tial,” concludes Omobola Johnson, Lagos based Senior Partner of TLcom, and former Minister of Communication Technology in the Nigerian government.
The unique combination of African and London presence of the four partners of TLcom, al-lows the team to work closely with their portfolio companies, actively participate in the Africa tech ecosystem, and access their global network of co-investors, advisors and technology expertise.
The Strengths and Weaknesses of MTN Nigeria – [Video Updated]
In this videocast, I present the strengths and weaknesses of MTN in Nigeria. You can read the article version here. This video has been updated (last one was corrupted).
How MTN, Glo, Etisalat, Airtel Will Solve OTT Problems And Boost Revenue In Nigeria
OTT (Over The Top) services like WhatsApp and Skype are decimating revenue for telecom operators around the world. The trajectory is an existential threat to the operators, as if the revenue base is lost, these operators could collapse. From Kenya to Brazil, Nigeria to Indonesia and beyond, operators are exploring ways to overcome this problem.
OTT services use the infrastructure made possible by telecom operators to enable users to communicate with marginal monetary value accruing to the operators. OTT destroys monetary value (the revenue) in the industry; it does not by itself keep the value. The revenue MTN loses on SMS due to Skype is not directly transferred to Skype. That monetary value is simply destroyed, though the user benefits for using it largely free.
In Nigeria, the telecom industry has lobbied for government to regulate the use of the OTT services. The industry regulator, Nigerian Communication Commission (NCC), has noted that it would not be regulating the services. The EVC of the government institution, Prof. Umar Danbatta, in First Annual Lecture of CKN News noted:
“As a regulator, we will remain technology-neutral and will not regulate social media use of apps also referred as OTT’s. We nevertheless use our moral authority to request that Nigerians take advantage of the social media platforms to exchange information and participate in the political, social and economic processes of our country” Prof. Umar Danbatta,
In this piece, I propose three ways telcos can deal with this OTT problem in Nigeria. It will take a long-term approach. It is evident that the telcos have enough customer base to execute the steps proposed.
(Table below presents the number of subscribers per each individual telecoms operator at the end Q1 2017) (Source: NCC).
| MTN | 60,391,959 |
| Glo | 37,328,827 |
| Airtel | 34,656,605 |
| Etisalat | 19,621,806 |
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Build Credit Bureau with Banks
In Nigeria, the telecom operators already have massive personal data of Nigerians through the biometric SIM card registration. They will need to work with the banking sector to integrate all they have with BVN (bank verification number) in partnership with NIPSS. The goal is to make it easier for operators to ascertain the credit worthiness of subscribers towards moving into monthly paid plans. They can also work with NIMC and integrate its own data. They have the technical capacity, and can execute this project if they work together, to fund a credit bureau with focus for the telecom and banking sector..
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Locked Smartphone With Contract
To help in the penetration of smartphone in Nigeria, the telcos will use the credit data they have collected to know those they can sell smartphone with option to pay over time. This is not really about the ability to earn salaries. There are many rich Nigerians with no formal salary (asks herdsmen that sell cows seasonably). The goal is that even those not earning salaries, they simply have to agree to pay when due. The telcos have to trust them. This system can be solid if all the telcos work together. Anyone that buys and refuses to pay off may never get SIM card ever since they have a central database of all people offered credit.Yes, you cannot have a default contract and still buy a new SIM card or even register a new SIM card. With this, they will increase the smartphone penetration and reap on their investments on 4G with more people having the tools to use data. Imagine if people can pay for Tecno phones at six installment payments. The number of smartphone users will skyrocket. That will benefit the telcos to push their data products.
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Unlimited Monthly Data Plan
The present model of Pay As You Go is the easy way out. But that is going to hurt the telcos in long-term. You buy a N500 data of Etisalat and you can do WhatsApp for ten days. It makes no business sense to telcos. They have to innovate ferociously to exist. They have to sell their packages in monthly plan which means that if the user has paid, it does not matter if the person is doing WhatsApp or not. But to offer this plan, they need to have more data about the users and that is where the credit system is critical. They can still sell to PAYG customers but they will now increase the rate to compensate for the inherent lost value since those people will be doing WhatsApp and Skype outside monthly payment plan. They cannot increase that cost now without the monthly plan alternative. (Note: unlimited is never unlimited, they need to cap the monthly plan data usage.)
Rounding Up
I do believe that the telcos need to think outside the box and come together. All the pieces are available at the moment to redesign their revenue base. But they need to execute. A new business strategy is required and that will mean working with banking institution and pioneering new areas like credit bureau. There are basic pillars which can help them overcome some of the challenges they have today.