MTCs Journey

through Africa
0238/53 Nalband Abul Aala
0312/53 Ramyakant
0322/53 Rishi Kanungo
0374/53 Shivani Kankash
 MTCs Strengths and Weaknesses

STRENGTHS WEAKNESSES
Largest footprint in ME and Africa
Experienced & diversified team Low brand equity compared to Celtel
Innovation
- First GSM service in Kuwait
Celtels scale in Africa is not big as MTNs
- One Network in Africa
High market credibility
Traditional Frameworks
FRAMEWORKS Applicable REMARKS

CULTURAL Moderately similar in terms of religion

ADMINISTERATION Difference in political stability and in Rules & Regulation
CAGE
GEOGRAPHICAL Less proximity considering Africa's size
ECONOMY No similarity in terms of economies

OWERSHIP No asset advantage; No common governance

OLI LOCATION Minute cross-country ideological, language, cultural differences
INTERNALIZATION No advantages from interdependent activities

LINKAGE Acquisition of equity in Sub-Saharan

LLL LEVERAGE Lower or no scope of leveraging capabilities
Low scope of learning; instead replication of Middle East model in
LEARNING Sub-Saharan
Challenges in Uganda, Tanzania and Nigeria
Nigeria (Oil Exporter)
Moderate per capita income ($1000-2000)
Very high dependency on oil exports
(contributes 52% of GDP), government focus
on other industries like telecom will be less
Growth of consumer markets outperforms
growth in institution/infrastructure building
Challenge of maintaining political stability,
temptation by overinvestment
More consumers have high WTP and need
better quality services
Uganda and Tanzania (Transition)
Lower per capita income (<$1000)
Major sectors are agriculture and natural
resources (35% of total)
Manufacturing sector plays important role in
exports (2/3rd of the total)
Low penetration of banking, telecom and
modern retailing
Large consumers with low WTP, need value for
money services
MTC vs MTN
MTC MTN

Internationalize to Transition countries Internationalize to both Transition and Oil

first and then to Oil Exporter economies Exporter economies
Commonalities
Presence in Middle East Arab & African Presence in Middle East Arab & African
countries countries

Innovated Offering - One network, Top- Investment in offerings

up Xtra: Reduced Rate tariffs,
(MTN copied it within few months) electronic wallet Pay Transaction
Differences Yellobahn Infra of 3500 km fiber optics
(capital intensive, cant be copied quickly)

Incremental investments assistance from Incremental + Rapid investment and disruptions

Ericcson of Sweden over 2 years
 MTC Strategy in Africa
Inorganic growth by acquiring various existing telecom players
- 61% mobitel in Sudan
- majority equity in Madacom in Madagascar
- 65% Vmobile in Nigeria
- Takeover of Celtel

Customer Acquisition and Retention - Innovative Product Offerings, Expensive promotions.

Lower rates for new subscribers, decreasing charges for different time of day and top-up service
outlet and electronic services.

Developing sustainable competitive advantage One Network, leverage broad regional footprint

Fill the skill gap - Buying talent pool with Celtels acquisition

Managing risk Partnership with local politicians, coordination among countries

 MTC Country specific case discussion
MTC after acquiring Celtel in 2005, gave the autonomy to work independently for over 2 years without interfering in local dynamics

Telecom infrastructure was very poor and one of the first to be liberalized
Tanzania Dr. Saad is influential enough to have a meeting with the President of Tanzania
Celtel brand is valued as seen in the market research of mobile phone branding

Started mobile telecom in 1995 and awarded first license to Celtel; sole provider till 1998
National infrastructure is extremely weak which Celtel began to transform rapidly
Uganda Launched One Network in EAC which required regulatory approvals from Govt. departments of
the respective countries indicating that Celtel had considerable influence in getting the necessary
approvals

Meeting with President Olesegun Obasanjo (Nigeria, 2nd largest economy where the growth is in 3ple digit)
Nigeria Since 2001, licensing of GSM network & launch of digital mobile service resulted into remarkable transformation
Brand equity is high as rebranding Vmobile helped in surpassing the targets despite cutthroat competition from
others

MTC is Power broker with major focus on transition & oil exporter economies
 MTN Country specific case discussion
MTN, South Africa based mobile operator strategically expanded on developing rural markets.
Entered Middle East by acquiring telecom company in Iran - dual African-Middle East identity was bolstered by Investcom acquisition.
MTN paid $5.6 bn for acquiring Investcom, for which MTC would not have paid more than $1.6 bn

MTNs entry in 1998 constrained MTCs growth significantly, leading to MTCs having just 20% market share
Disrupted product offering, with substantially lower tariffs, establishing MTN as largest operator within 1 year
Uganda More than half of subscriber were from areas outside urban areas
Competition further led to expensive promotions lower airtime charges, increased coverage, voicemail, sms

MTN was strongest player, with 45% market share and a penchant of heavy investments
Nigeria Introduced Xtra, Electronic wallet and Yellobahn Consistently innovating towards value for money
quality service

MTN is workhorse with strategies to disrupt competitors position with innovated product offerings
Advantages of being Powerbroker?
Can effectively influence government to fill institutional voids
e.g. telecom infrastructure, stable electricity supply, banking etc.

Assist growth of economies to open market for other industries

MTC can try to target Workhorse pockets of Powerbrokers by

Bring innovative offerings at the beginning which is not present in the existing
scenario
Committing long term presence in the country
Setting up infrastructure for future growth
 Comparison - Nigeria & Saudi Arabia
PROS
Largest population of Africa (140 million)
29 million mobile subscribers growing at 56%
Nigeria
Celtel is 3rd largest provider having 20% market
share
Has a population of 26 million
Low mobile penetration as compared to other gulf
countries
MTCs home region no liability of foreignness
Saudi Arabia
Lucrative mkt with large expatriates
Large number of Muslim pilgrims come for Hajj
CONS
Frequent network congestion & suspension of
connection for prolonged period
Pressures on existing players due to changes in
licensing structure and interconnection tariffs
Celtel has constrains of foreign ownership
shareholding
Competitors are providing tailor-made services
Serious bidders which will result in very high
expected license fees
Even after investing $6billion, MTC would be 3rd
largest operator
Large Marketing and Advertising cost to capture
market share.
Innovative product offerings with low profit margin
will be required long break even period
Comparison - Nigeria & Saudi Arabia
Dimensions
Knowledge with respect to Institutional
void in economy
Managing government regulations
Pan Region Mobility
Scope of innovation
Favors going to Reason
Less of institutional voids, as relatively developed
compared to Nigeria.
Saudi Arabia
Market understanding will be better, as MTC is ME
MNC
Easy to influence in Nigeria, where the regulations
Nigeria are still being made.
Consumers expect value for money services as Per
capita income is low
Nigeria
where as in ME, no such offerings leveraging pan
presence
High Competition in low income market led to
Nigeria innovative Product offerings
Zain OR MTC & 10 more?
Pros Cons

Differentiate from other competitors Existing brand identity and brand value will phase
out

Help build a global brand identity and wide service

offerings Changes in brand loyalty is unpredictable

Increases bargaining power to deal with suppliers Expensive Exercise: Large additional cost of
and government offices rebranding and promoting

Low cost now, as compared to doing it in future No immediate benefits

Internationalization overview
Developed Markets First Emerging Markets First Least Developed Economies

Learnings First mover advantage First mover advantage

Quality Growth markets Rapidly growing markets
Overall Saturated Markets Similar conditions
New Capabilities Global brands difficult

Niche Products Launch full product range Low priced offerings

Less retaliation Manage institutional voids Face Institutional voids
Product Portfolio
Pigeon holed

Brands less important Brands very important Brands are important over
Bargaining Power Distributor powerful Distributors less powerful time
Distributors less powerful
Internationalization overview
Developed Markets First Emerging Markets First Least Developed Economies

Brands Helpful Yes, very expensive Doubtful Less

Less at start Expensive

Investments Expensive to start
Grow very high high risk

Diversified
Human Resources Largely local control is issue Can be from HQs
Experts from the economy
Thank You
Appendix
Introduction
Kuwait based mobile operator, going from 600k to 32 million customers

Want to become 1 of top 10 mobile operators in the world by 2011

MTC had option of looking at developing market or else pay a lot

Africa had become hot destination for aggressive Asian and ME investors

Weak telecommunication infrastructure in sub-Saharan Africa

Celtel became the largest pan-African wireless service operator

MTCs telecom equity acquisition in multiple sub-Saharan Africa countries

Why Africa?
Decrease in hostilities, creating political stability which is necessary for growth

Rising economies shrinking budget deficit and foreign debt, increased exports
Economic reforms and high commodity prices led to GDP growth rate at 6%

Market friendly policies privatisation, reduced trade barriers and strengthened

regulatory & legal system

Abundance of natural resources 10% worlds oil reserve, 40% gold ore and 80-
90% Cr and Pt group metals.

Sizeable middle class is young & growing

Rise in migration to metropolitans (from 28% to 40% in 2008)

Frontier Economies
Frontier Economy possess one or more of below 3 characteristics

Faltering Prosperity
Either has an annual per capita income of < $1500 or it has experienced a drop in real
GDP per capita of 20% or more in 6 yr period over past 2 decades or both
Corruption
Industries are driven by politically engineered market distortions or state given
concessions rather than innovation or competitive differentiation.
Arbitrary Enforcement of rules and regulations
Countrys leaders have broad power to do as they please without checks and balances
 Faltering Prosperity

The Frontier Matrix Corruption

Arbitrary Enforcement of rules and regulations

LOW GOVERNMENT CONTROL

-Small companies WORKHORSE CLUSTER BUILDER -Clusters to take advantage of low production costs,
availability of skilled or cheap labor and other inputs
-Competitive advantage- product differentiation, Local manufacturers, Electronics and -Export cluster firms compete on price and quality.
operational efficiency, marketing, HR service providers, garment
development. retailers, small farms manufacturers , -They benefit from clear and business friendly laws and
serving the domestic & shipping lines and call regulations, require well developed institutions
local market centers.

DOMESTIC CUSTOMERS FOREIGN CUSTOMERS

HIGH GOVERNMENT CONTROL

-Political influence has a big role POWERBROKER RENTIER -Operations including taxes, royalties, and other
-Such businesses are regulated to promote Large telecom Oil, gas, mineral and obligations are spelled out in contrast with the
competition or protect customers companies, utilities, other resource government.
-Regulations primarily directs profits to the infrastructure extractors -Operate in a concession space- basis of government
providers, cement licenses.
government or privileged interests
manufacturers,
gasoline distributors
 Strategies in Frontier Economies

LOW GOVERNMENT CONTROL

WORKHORSE CLUSTER BUILDER

They adapt and leverage existing Consumers are highly sensitive to labour
capabilities and adjust their marketing conditions, environment damage, and
and distribution strategies to reflect government oppression in frontier
local tastes and constraints economies

DOMESTIC CUSTOMERS FOREIGN CUSTOMERS

HIGH GOVERNMENT CONTROL

POWERBROKER RENTIER
Create workhorse pockets through CSR
programs Good relations with the govt.
Engaging with the stakeholders with Providing the government with hard
long commitments currency
Firms make themselves indispensable to
powerful local players in multiple ways
 Four Type of Economies
Pre-Transition Transition
Poor, Very low per capita income Lower Per Capita income
Some of them growing rapidly, Avg 7% Rapidly Growing
Lack the basics stable government, strong public institutions Agriculture and resources 35%
and sustainable agricultural development 2/3rd of exports are manufactured goods
High risk for Multinationals Low penetration of Banking, telecom and modern retailing,
Attractive opportunities
Poorer customers
Planning to increase commodity exports

Oil Exporter Diversified

Highest Per Capita income High per capita income, stable GDP growth
High dependency on Oil Exports Slight chances of political risks
Rapidly growing Consumer Markets Banking, telecom, retailing 70% GDP growth
By 2020, 5.2% increase in telecom Largest Consumer Markets
Challenge of maintaining political stability, temptation by Higher Labor Cost
overinvestment Struggle to compete in Low value mftg indst
Transition to Diversified Economy Need to expand exports, improve education to create skilled
workforce and build Infra