Katy Gabel
18 September 2008
interview
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.
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It was an utter pleasure to hear from the man himself, Michael Joseph, on how he has lead Safaricom to one of the greatest success stories in bridging the digital divide while growing a highly profitable and successful business. Growing any technology business, even mobile telephony, to those living at the bottom of the pyramid, is one of the hardest tasks for any company or leader.
Last month I wrote an article about how Safaricom and Joseph "had figured it out" with respect to the strategies for growing a for-profit technlogy businesses in emerging markets. (http://www.disruptiveleadership.com/2008/08/23/safaricom-has-figured-it-ou t/)
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