Nairobi — The mobile phone industry has made a bigger social impact on people’s lives than anything else, ever, in Africa, argues Michael Joseph, chief executive officer of Kenya’s Safaricom, in an interview with AllAfrica’s Katy Gabel.
Tell us about your background and how you came to be at Safaricom in Kenya.
I'm originally South African. I went to the United States about 20 years ago, but I've worked in many countries, mostly in South America, Europe and Africa. I'm an engineer. I've been in telecommunications all my working life, and I've been in mobile for the last 20 years. Before I came here I was in Hungary, where I set up a network. I came here in 2000 with four other guys who came with me. Now we're a very big company.
What were some of the challenges you faced in getting Safaricom up and running?
At the beginning, Safaricom was a joint venture between Telkom Kenya and Vodafone of the UK. We inherited the company from Telkom Kenya. It was a very poor network: very heavily congested, very expensive, very inefficient. So we had a big issue in that we were faced with inheriting a bad network. There was also another competitor starting out, so we had to go very quickly to get going. We had to work very hard. We also had the history of a bad company name – Safaricom.
But we launched the company in October of 2000, and we launched as a pre-paid model straightaway. We had some very innovative ideas and products and services, so we were quite successful. We overtook the competition in June 2001, and we’ve been the market leader ever since.
It was a big challenge because we had nobody. We had to bring in a lot of people from outside the country; we had to train a lot of people inside the country, we had to build offices and sites… it… it was quite a challenging time, but an exciting time.
Did you have to deal with perceptions abroad that setting up a network like Safaricom wouldn’t be profitable?
Yes. If you look at 2000 and our business plan when we came here, we predicted 400,000 customers in five years – maybe. We were going to have a lot of corruption, and so on. Our overseas shareholders were very skeptical about whether we would be successful or not. As a result, we struggled a lot in the beginning because we didn’t have any money. Investors looked at Africa as a big continent with a lot of corruption and poor people… They wanted to know how mobile could ever be successful on such a poor continent – excepting North Africa and South Africa.
When we started out we had no cash. We had 20 million [United States] dollars. That was the initial investment made by Vodafone. And $20 million doesn’t go very far in our business, where one switch costs you five million dollars and one base station costs you $200,000. So we quickly ran through that money and then we had to borrow money. It was quite difficult to borrow money at that time because we were not so successful. So we struggled against perceptions that Kenya was not a very good environment to do business in – particularly mobile business.
Now, of course, it’s exactly the opposite. People are anxious to lend us money; people are anxious to invest in our company. And now we’re a success story, but eight years ago it was quite different.
How did you overcome those early challenges? Was there a recipe for success?
Well, now that we’re a success story we’ve been used as a case study in various management schools, and we’ve given a lot of talks about it. People always ask the same question – what is the secret of success? How come you were so successful against all these odds, and how is Safaricom so successful against its competitor, which is languishing somewhere at around 15 percent of the market share, while we have 85 percent?
It’s very easy, very glib and cliché to say, “Well, we were good at our job.” But it’s really a combination of things. We did have an experienced team. I had done quite a few start-ups before. I’d come from a very difficult working environment in Hungary. And we made some very good decisions which, in hindsight, were the best decisions that we could have made. At the time we were making them, we had no idea whether or not they would be successful, whether they would be the right decisions or not.
The main decision we made was to have a pre-paid model right from the start, rather than a contract or post-paid model, which is what our competitor did. So an average person on the street could go and get a line straightaway – no questions, no forms to fill in. We made a decision that we would bill on a per-second basis. That means you would only pay for the seconds you use, unlike on most other continents with most other companies, where people are billed per minute. So if you speak for 61 seconds, you’ll pay for two minutes. But on our network if you speak for 61 seconds, you only pay for 61 seconds. Our competitor billed per minute. It was a very good decision for us because the people that we were targeting didn’t have a lot of money.
Another decision was to have 24-hour-a-day, seven-days-a-week free customer care, which was a very positive choice for our kind of customers. We introduced low-cost phones right from the very beginning. We decided our target market would be the man on the street, not the upper echelons, not the business people driving around in chauffeur-driven cars. That was where we targeted our products and services, and that was the key reason for our success.
Did the Kenyan market demand different sorts of products than more mature markets in Europe or the United States?
No, not really. Africa is a big continent. Every country is different. But Kenya is different from Uganda and different from Tanzania. The products that we sold to the average Kenyan person were the same as what had been sold in Europe, except cheaper. The market demanded SMS [short message service], for instance. If you look at how SMS took off in Europe maybe only 10 years ago, it only took off because kids in school used SMS to send messages to their friends while they were in school. Here, it took off straightaway because it was a cheap way of communicating. And the way we sold it and used it meant that people adapted to it very quickly. The market was very receptive to the products that were the same products being sold, essentially, as in Europe for voice and data.
What has Safaricom done to create jobs in Kenya?
Well, that’s one of the really exciting things in this business. We started with nothing eight years ago. We now have over 1,600 people working for this company. But we also have close to 400 dealers who sell our airtime, and another 4,000 M-Pesa dealers who deal just with M-Pesa, and each one of them has sub-dealers and sub-sub-dealers. So we’ve probably created 100 jobs for every employee in this company – about 150,000 jobs.
It’s a fantastic business, but it operates in this peculiar environment. If you want to go and buy airtime now, for instance, you won’t go to a big shop. You’ll likely go to some shop on the side of the road. That person probably didn’t get the airtime from one of our dealers. He bought it from another person, who bought it from another person, who bought it from another person. It’s this creative distribution channel selling our products and services that’s created a tremendous amount of work apart from all of the other things we do, like building our base stations, maintaining them, and things like that.
What, in your estimation, has been the impact of the mobile phone on Africa?
Without a doubt the industry has made a bigger social impact on people’s lives in Africa than anything else, ever, because it has given people freedom and enabled people to do things they would never have been able to do before.
If you look at Kenya, for example, we have between 40 and 50 percent unemployment –- real unemployment – people who do not have a job. We have 300,000 university graduates every year, and we probably only hire 20,000. The rest don’t have jobs. But Kenyans are hardworking people who don’t want to sit back and do nothing and cry. They want to work. But if you have your own phone, you can go and create your own duka (Kiswahili for shop), you can buy and sell stuff in the markets, or go and grow it and sell it on the side of the road, or you can be an artisan, paint people’s houses, plumbing – whatever it is. And the tool that has enabled you to do this is the mobile phone.
In the past, if you wanted to send a message to your family to say that you’re ill or you need money, you’d have to go and get on a bus or matatu, you’d have to travel on bad roads, maybe you’d have to send a telegram, or you’d have to go to a matatu with a piece of paper, give it to the driver and ask them to deliver it. But now you can call them up. For personal and security reasons, the mobile phone has helped tremendously in a country like Kenya where there’s insecurity and poor roads.
For health: you know, we are disseminating health information over the mobile phone to all over Kenya. Not just HIV/Aids, which is the popular thing, but tuberculosis, diabetes, how to get help, etc. It’s just revolutionized people. It’s had the biggest social impact on Africa since electricity, which maybe fewer people have.
What are some of the challenges you face in riding the wave of mobile development?
The thing is to keep it affordable. There’s no point in selling a line or SIM (subscriber identity module) card for 50 shillings when people can’t afford to use it. We have to make it as affordable as possible. And governments in Africa don’t help. What they do is they see this as a huge way in which they can tax people, by taxing airtime and so on. But the challenge is to keep it as affordable as possible.
What can the international community, including governments and private investors, do to support this kind of growth?
Governments should not see this as a tax cow, something you can milk for money. Governments should see it as enabling their people, enriching their people. They should look at if they lowered their taxes, how many more people would be able to afford to use it, and therefore create more jobs and more wealth. They should tax us less and regulate us less.
Investors should invest in this business. It’s a good business. But we’re riding on a wave of success right now. In Safaricom’s case, we’re a very profitable business. We’re the most profitable company in East Africa. But you shouldn’t expect big returns. This is a big investment, so expect longer-term returns. If you look at the mobile industry in Africa, investors want to put money in mobile because there are big returns now. But the longer-term returns will be a little bit longer in coming.
How has Safaricom managed to maneuver in Kenya’s delicate political arena? Has the political environment become increasingly important recently?
Politics always plays a very important part in any company’s life in this kind of environment, where a company like Safaricom is top in the awareness of any politician, mostly to see what they can get out of it. And because we’re top in the awareness of the public as well, whatever we do it is always scrutinized or has some news value. If our network goes down for half a minute, it’s headlines in the next day’s paper.
We always have to work in this political environment. I think we’ve done very well. Because we provide such an essential service, politicians in general tend to let us get on with our job of providing services because it benefits everybody, including them. And we have a direct line – I speak directly to ministers, the highest in the land, whenever I want, because this is a very important service we provide.
I try to push the ministers not to raise our taxes. They all nod their heads very wisely, and say yes, they understand, but they don’t do it, because it’s a very lucrative source of revenue for them. Twenty-six percent of airtime is taxed, so a quarter of what a customer pays goes to the government. That’s very high.
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How will the introduction of a third provider affect your business?
It definitely will reduce our market share. Right now we have 85 percent market share, which is pretty unhealthy and actually quite dangerous. If you have such a big market share, your competitor gets very desperate. They do desperate things, like cut prices to the bone or give it away for free, which is not good for us from a shareholder point of view.
For sure, our market share will reduce, but it’s whether our absolute numbers will reduce or not, and that will not reduce. That will continue to grow. But we will have less of a share of the pie . That’s to be expected, but the competition is good for us. When you are so big, and when you have won so many awards you get very complacent, and your team gets very complacent. Competition makes my team lie awake at night worrying. And that’s good for us.
How is Safaricom planning to capitalize on the landing of undersea fibre-optic cables and the advent of increased access to high speed Internet in Kenya?
We are a foundation investor in the undersea cable. We are one of the three biggest investors in the Teams cable. We are a 20 percent shareholder, on par with the government and Telkom Kenya. So we’re very keen for that cable to come because we have broadband, we have satellites, but satellites are expensive and have very slow response times. We have 3G (third generation) broadband mobile already, and we will invest in the other cable – Seacom – as well.
The undersea cable is going to give us broadband capacity at a very low price. Not very, very low, like the United States, for instance, but a very low price compared to satellite. And the applications that we will roll out into Kenya will use broadband a lot and we will see that grow. But they must provide the services at a low price, and all they talk about right now is maybe. I haven’t seen any cable land yet.
Ten years down the line, where do you see Kenya?
Kenya is one of those countries that’s always on the brink of greatness. We’re never there. We’re always just there, and then we somehow jump back to the other side. The key for us is that we need people to have access to the outside world. My dream is for every school to have a computer so that kids can freely access the outside world. If you go to schools throughout the country, you can find plenty of computers, but they have no access to the outside world. So what do they do with these things?
In this global world, we have to have access to the outside world. That’s where I think ICT could be very important; where the cable would be important, the government initiatives putting fibre-optic across the country – that’s where it’s going to be key. Get it into the schools so the next generation will be completely computer literate. You can’t wait for handouts. We need to create all that work, and businesses and industries in Kenya. And we can do it – if we have access.
