19 May 2017

Africa's Mobile Operators Do Start-Ups - Why and How They Are Getting to Grips With a Changing Landscape

London — Over the last three years, the continent's mobile operators have got involved in working with African start-ups and in some instances become part of the ecosystem supporting them. In the extended article that follows Russell Southwood looks at why and how Africa's mobile operators have found themselves getting involved.

The simple question that not everyone seems to have a clear answer to is why if you're an African mobile operator you should get involved with start-ups. It's seems a such a simple question but it brings into focus the broader question of what will mobile operators look like in five to ten years time?

Let's leave aside Corporate Social Responsibility, that's an easy one: giving a small amount of money to start-ups is part of the mood music of the coming Africa, so why miss out? But what if it's a real money question like why sink lots of shareholders' money into start-ups? By their very nature start-ups are high risk and some significant number will fail. But let's suppose you strike lucky and find yourself a very successful start-up, what then? Does it grow your business or do you just sell it? For example, if you're in communications, how does it help you to have invested in a very successful health tech company?

The answer to these questions can really be focused on two main strategic views:

It's about synergies

With the transition to digital, mobile operators need to be encouraging those who provide digital content and services onto their data platform. The more users use the content and services, the more mobile operators will sell them data. And/or if you have a successful payments platform, any successful business that drives payment volumes, drives the financial success of your platform. The issue is then who owns these services and makes money from them?

Mobile operators have sought to compete with the new generation of OTT services and clearly feel that if they can create successful challenger services they will reap the reward from the high risks. Also arguably, relatively small investments will help accelerate the arrival of some of these services.

The future view of synergies is best summed up by a recent quote from an interview with Bruno Mettling, Deputy Chief Executive Officer, Operations in Africa and the Middle East (MEA) in La Tribune:"In 2050, mobile payment, agriculture and energy will be generating more (revenues) than connectivity."

So for example, already 21% of Safaricom's revenues come from its mobile money product mPesa. In this version the mobile operator becomes the successful sales channel (using both data and SMS) for a variety of needed products and services. It has customers and it knows how to mobilize reliable connectivity for a range of services, how to manage customers and has a certain amount of retail assets, both bricks and mortar and online.

It's about changing Ground

This is really pushing the strategic synergies argument to its final conclusion. If you're earning increasing amounts from mobile money, why not become a bank? If you need to video content to drive data revenues, why not become a media company? And so on... Re-engineer the business so that you're not left holding disappearing margins.

In the quadrant analysis much beloved by consultants, the legacy voice and data business sits with lower but more predictable revenues in the "bad corner" of the quadrant and all the potential new businesses have growth and margins putting them in the "good corner".

This might sound like a flight of fancy but as I noted in issue 875, this just what Orange has decided to do in Europe and it has ambitions to have a mobile bank with a turnover of 400 million euros by 2018. In Africa, Senegalese money transfer company Wari recently bought Millicom's local subsidiary for US$129 million. And at a more developed level, Equitel in Kenya has a substantial work in progress based on the same sort of thinking from the starting point of being a bank.

At this point, the mobile operator with the data platform has two streams of revenues, a new one growing and the other legacy one holding steady. With habits becoming increasingly digital even in Africa, the game is to provide services in the ways customers want them, not just because that's always how you've provided them.

The unsettling part of this more radical option is that everyone wants to be everything all of a sudden. OTT operators might become payment platforms, banks can become MVNOs and on and on you go.

Everyone wants to be making and eating fine meals but no-one wants to be left doing the washing up. So the OTTs seizing centre ground are not actually owning and running anything, just moving transactions around more efficiently.

A mobile operator has a number of different ways it can get involved with start-ups: everything from opening up its APIs to investing directly in them. What follows is an overview of who is doing what.

Of Africa's big five operators (MTN, Vodacom, Orange, Airtel and Etisalat), only Orange and MTN have a significant involvement in African start-ups through investment at group level. However, neither of them seems to have a strategic view of these investments. As one person close to the process told us:" These are balance sheet investments. They are opportunistic rather than according to a plan by the CEO and there is not a clear focus".

Outside of these two, most companies are running these relationships at a local level and whether it happens or not relies on particular individuals within an opco. Companies like Millicom and Airtel have bigger things to worry about and are doing much less. Airtel's parent Bharti Airtel has acquired a stake in a loan company called Seynse, which is powered by a proprietary credit engine and advanced machine learning capacity. But there is nothing similar in Africa.

It's hard to underestimate the importance of the opening up of operator APIs to the whole process:" They become central in any digital services. They run through any symbiotic relationship". There should be common ground between the operators as you don't want different APIs for each operator.

Orange

Orange is doing a lot both across the group and within Africa and is present at each stage of the ecosystem.

In Africa, it has its Social Innovation Prize which has international prize money totaling €60,000 and smaller amounts for country winners. Last year's winner was Morocco's Med Trucks which deploys mobile care units in the Morocco medical deserts and in emerging countries. These are connected trucks that can offer telemedicine and an online training platform for health professionals. It also has sponsored hackathons in a range of the countries it operates in.

It has opened its own incubator spaces - Orange Fab Labs - which sit inside the company: it has opened then in Senegal, Cote d'Ivoire and Cameroon and will soon open another in Egypt. They offer small amounts of funding, working space and partnerships with different business units. The Orange Fab Lab in Dakar is home to among others Carrapide Tech (VoD) and Ouicarry (logistics and ecommerce).

It is also opening up its APIs to start-ups to encourage services on their platform. In a recent interview with Balancing Act's Sylvain Beletre, Roger-Edgar Kra, Business Development Manager For Open tech Hub in MEA Zone at Orange 'Technocentre" said:"In order to support developers and save them time and money, Orange offers a suite of new business solutions based on three blocks: communication, distribution and payment". There have been 12 country deployments of SMS APIs and 6 for Orange Money Web Payment.

One example Kra gave was in Senegal:"The MLouma startup has created a virtual agricultural platform that publishes real-time information on the price, location and availability of farm products. At its launch, the platform was only available on the Web - making it difficult to access and costly for rural users. Integrating # 303 # My Store has given a very strong impulse to the service: now accessible from any phone, MLouma has gone from 1,000 to 75,000 users in 6 months! In addition, MLouma will be able to federate new users in all the other countries where the platform # 303 # My Store is available without requiring further development. MLouma also integrated the SMS API to alert users of the availability of new products, as well as the MEA DCB service to bill USSD requests".

Finally there is a venture fund - Orange Digital Ventures - which has invested in Africa-relevant start-ups based in France: Afrostream (VoD) and (Diaspora payments for goods and things like school fees). It has also launched a US$50 million fund dedicated to Africa but it's not clear whether this will be under Orange Digital Ventures or will be through a separate vehicle.

Last but not least, it invested 70 million Euros in African e-commerce company Jumia along with MTN and Millicom,

MTN

MTN has made three significant investments in start-ups, two in Africa and one in Iran. In February 2016 it announced a US$40 million partnership investment in South Africa's Travelstart with Amadeus. Travelstart says it is the leading online travel agency in Africa and has built a market leadership position in South Africa, Nigeria, Egypt, Kenya and parts of the Middle East. It achieved revenues of US$200 million in 2015.

Herman Singh, Group Chief Digital Officer, MTN, added: "MTN's vision is one of delivering a Bold New Digital World and this investment in partnership with Amadeus is a key step on a multi-year journey to achieve that promise. It strongly complements our existing investments in online and e-commerce in retail, marketplaces, classifieds and travel".

In March 2016 it was part of a US$326 million investment in e-commerce start-up Jumia through its parent group AIG along with AXA, Goldman Sachs, Millicom and Orange. At the time it was said that Jumia Nigeria had an estimated annual turnover of US$600 million. Its co-Chief Executive, Sacha Poignonnec, said the Group aims to be "profitable in the next three years." Jumia Group's revenue dropped by 42% from €145 million in 2015 to €84 million in 2016.

Jumia's top seller in many of its territories is mobile handsets so one synergy is that MTN has handed over its sales of handsets to Jumia in those territories where the two of them are both present.

The last of the three major investments was in Snapp in Iran where in October 2016 MTN was the sole investor, putting in $22.3 million. Founder Shahram Shahkar said that the company has 10,000 drivers and over 500,000 riders using its app, and that the app eliminates the "bazaar" aspect of getting a ride. "This pre-pricing is our value proposition; it eliminates haggling."

In April 2016 it ran the MTN Entrepreneurship Challenge with Jumia with a cash prize of US$25,000 as well as access to a Facebook Start Programme to the value of US$15,000. The competition was also run with MTN Solutions Space at the Graduate School of Business, University of Cape Town, of which MTN was the founding sponsor. (Watch Lianne du Toit on Venture Lab, UCT Graduate School of Business' early start-up incubator) The competition was won by interactive health platform MedX from Ghana that also got the opportunity for space at the UCT incubator or at any of Jumia's nine offices.

At a local level, it also has a partnership in Zambia with Bongo Hive. Mobile operators are not good at accessing start-ups so relationships with accelerators and incubators make sense.

MTN has started to open up its APIs but one person who's familiar with the system says that it works better in some places than others and goes back to who is in place in the opcos. Start-up Zazou in Zambia is an example of a start-up using its APIs.

Vodacom/Vodafone

Vodacom/Vodafone's involvement is really quite localized and it has made no major investments in them. Vodafone Ghana has collaborated with Ghanaian incubator the Meltwater Entrepreneurial School of Technology (MEST) to hold a hackathon (encouraging the development of solutions that improve access to information, simplify transactions and shorten process) in 2015 and has been supportive of local start-ups. The work is led out of the Vodafone Business Solutions Unit.

Kenya's Safaricom has set up a US$1 million Spark Fund and has invested in 5 start-ups with a sixth awaiting sign-off. The start-ups are: Sendy (small size delivery); Eneza (edtech); mSurvey (market research); Link (jobs) and Farm Drive. In the autumn it will open its own innovation space somewhere on the Ngong Road or in Westlands. (Watch Veronica Ogeto-Tchoketch, Head of Innovation on how Safaricom is investing in the Kenyan start-up ecosystem)

At a more modest level, in January 2017 Tanzanian micro-health insurance startup Jamii formed strategic partnerships with Jubilee Insurance and Vodacom Tanzania to enable mobile premium collection and a cashless facility from over 400 hospitals.

Econet

On its home turf in Zimbabwe it has set up a hub that teaches code to 16-35 year olds. 10% of the 1000 students who graduate go on to become entrepreneurs. As Tendai Mashingaidze, Econet told me:"At the end of the training, we want someone who is proficient. They have to create a workable prototype." A start-up from one of its alumni - RoundShopper - won at Demo Africa. It has put a small amount of equity into some of the start-ups:"We like start-ups focusing on e-commerce as a group. RoundShopper is an e-commerce start-up... The value for us as Econet is that our mobile money system is extremely well used and we have a vested interest in supporting the micro sector."

Other

The rest of mobile operator activity in the space is relatively small-scale, significant in its own market but not necessarily something that's highly visible at Group or Board level.

Some highlight include work done by Etisalat Nigeria (training 100 entrepreneurs and giving businesses over N40m in grants); Airtel Nigeria (Catapult-a-Startup invested in 7 entrepreneurs with start-up ideas, 1million Naira each); Millicom (competition and support for a start-up space in Rwanda, now withdrawn); Ooredoo Algeria (tStart invested in 20 start-ups); and Ooredoo Tunisia (incubator space called Start-Up Factory).

The conclusion? According to one insider:"Successful collaborations will only happen when synergies are in place and then there's an alignment of KPIs."

For further reading, the latest publication on the topic from the GSMA: OPENING DOORS: A start-up's guide to working with mobile operators in emerging markets

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Kwesé TV signs distribution deals with Africa's mobile operators for Kwese Play Roku box and mobile streaming - 40% of channels exclusive

Mobile media agency Mobi Hunter combines representing online publishers in Africa with digital advertising campaigns for brands

Africa-based Trace TV launches TracePlay, first urban and afro urban mobile pay platform globally -"We're doing in 2 weeks what Netflix did in 10 years."

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