How Nokia and Prepaid Airtime Fractionalization Gave Rise to Africa’s Digital Economy: Guest Post by Niti Bhan

What can we learn about the digital society emerging in Africa without the trappings of legacy infrastructure and institutions?

3 seemingly unrelated events in different parts of the world in the early to mid 90s converged, to culminate in the perfect storm  – what we now call Africa’s Rising digital economy.

One was in the mid 1990s, in a small city in northern Finland, where engineers and designers began work on the product development of a mobile phone that would eventually become one of the best selling Nokia models ever – the 3310, released in Europe and the Far East in the year 2000. The continent of Africa was not yet on their radar as a target market and Nokia’s impact on sub Saharan Africa, as well as its iconic success for its legendary durability was still some years in the future.

The second event was around the same time, in 1994 – 1995. Portugal Telecom’s mobile telephony division TMN, invented the prepaid business model whilst researching ways to lower barriers to credit services, and thus reach a wider audience. They too, were not thinking about the farmers, traders, or biashara vendors on the African continent, for whom the prepaid plan would turn out to be a godsend, matching their needs for flexibility and control over the timing and amounts spent on cellular services. This, too, was still a handful of years in the future.

The third is the liberalization of African state owned monopolies such as in telecommunications in the mid 1990s which opened the doors to private sector operators in cellular telephony, and thus, to competition.

These 3 events would prove to be a fertile time for the perfect storm and the firm foundation on which today’s African digital economy thrives.

It was Prepaid that made our Fortunes

Africa in the 1990s was a bleak time of rising prices, declining employment rates, and meager economic growth.

African nations were still adjusting to the impact of the Structural Adjustment Programmes (SAPs) imposed by the IMF and the World Bank in their attempts to boost the lackluster developmental progress. Hundreds of thousands of civil servants had been laid off as Africa strove to meet the demands of liberalization and globalization [aka Washington Consensus] and young graduates left universities with few opportunities and fewer jobs. Uncertainty was rife, as Cameroonian scholar Walter Gam Nkwi observed.

Around the late 1990s, Telecommunication companies (Telcos) used an approach to forecasting sales and revenue projections to inform service pricing and payment plans that was reliant on 

  • number crunching annual growth in adoption rates from a hundred different markets where mobile telephony had already been introduced and  then
  • comparing against a selected basket of countries with similar economic and demographic attributes to their target country.

This approach provided metrics that, within the short span of a decade, proved to be laughable.

For instance, in 1999, Kenya’s Safaricom forecasted reaching 3 million subscribers by the year 2020  – in reality, Kenya  had crossed 41 million subscriptions by the end of 2018.

These modest forecasts led to Telcos assuming a High Margin; Low Volume business model targeting the wealthy who would be eligible for credit required for a monthly subscription. In addition, they expected businesses, government departments, and non governmental organizations of all stripes to sign up for reliable communication services given the inadequate fixed line infrastructure and the moodiness of its service quality.

Nobody really expected much from these markets, and investments in cellular infrastructure was limited to capital cities, major trunk roads, and a handful of other urban clusters. After all, Africa’s declining growth in the 1980s and 1990s, together with the SAPs, had made a hash of the economy and poverty was endemic. 

It took two African visionaries, independently, to consider the prepaid business model as the key to Africa in 1998.

Strive Masiyiwa, had been on a long hard fight to crack the telecommunications monopoly in Zimbabwe, tightly held by Mugabe’s government. It would take him 5 years  before he was able to launch Econet Wireless with its Buddie prepaid plan, ultimately transforming the Zimbabwean market.

In London, Mo Ibrahim, a Sudanese telecom engineering consultant, saw the fortune at the bottom of the pyramid that an African mobile services operator could reap, if only he could make it happen. For him too, prepaid was the wedge that would drive demand among the African populace navigating economic uncertainty on irregular incomes. Celtel would go on to pioneer per second billing in lower income developing countries (LDCs) like Malawi in 1999, and capture the lion’s share of the market as price and service became affordable in prepaid micro-sized bundles that began to flexibly match local cash flows.

Both men would later be quoted as saying it was prepaid that made their fortunes.

 

Hockey Stick Growth

By 2003, airtime vouchers for voice and text messaging on mobile phones across Africa could be purchased for as little as 50 cents, if not less. This ability to purchase bite size pieces of communication triggered the hockey stick curve of adoption of mobile telephony seen in the chart below

hockey stick growth
Mobile telephony adoption in sub Saharan Africa (Source: IFC)

Led by the Finns in their northern stronghold, rapid improvements in the prepaid billing model made by advances in software and switching technology, as well as GSM standards for telecommunications, over the next few years made all the difference as they permitted greater fractionalization of purchasing power thus lowering the barriers to adoption for the vast majority of the population.

By this time, the robust well engineered Nokia models of the late 1990s were entering the second hand markets, both locally in Africa, as well as shipped in bulk from the wealthier markets of Europe, as people upgraded their devices to keep up with the times.

For as little as $10 or $20, Nokia phones were suddenly made affordable for the masses, who did not hesitate to put down their hard earned shillings or kwacha or rands for the chance to become connected, at last. Hand me downs by wealthier relatives and devices sent home by migrant workers also played their part in this heady period of adoption and growth.

It would take the visible impact of the hockey stick curve of growth for Nokia to turn their focus on the African consumer and her needs, before phones were being designed and built for this market.

 

The Perfect Storm

This was the perfect storm of design, engineering, and business that came together on a fertile field to create exponential growth in mobile handset sales and mobile prepaid service subscribers in Africa (among the informal economy) that would lead to the next 15 years of annual growth rates of more than 30%, until slowing down in 2018.

Commerce and finance have been disrupted by the mobile phone in the past ten years, and daily life including rural/urban linkages and relationships impacted for the past 15 years.

There was a flurry of research on understanding the impact of mobile telephony in the informal economy and among the low income demographic also known as the bottom of the pyramid in the early years of mass market penetration circa 2007 to 2010. 

However there has been little or no study taking the long view of the changes that the sudden intervention of modern telecommunications and ICT have made on society, particularly among small businesses, traders, and manufacturers in the informal sector.

What can we learn about this digital society emerging without the trappings of legacy infrastructure and institutions? 

Early signals of a decentralized digital economy are emerging, and in today’s context, what can these emergent and novel models of supply chains, distribution, marketing, and commerce show us for the future ways of organization for inclusion and impact in our increasingly smaller and more connected world?

I, Niti Bhan, the author of this blogpost, have been granted right to study at Doctoral level by Aalto University School of Engineering – studying the longer term transformations that have taken place in the past 15 years in Africa, using the case of Kenya – the world’s leading mobile money market and the test bed of innovative products and services on the mobile platform for startups and companies from around the world.

 

*This post by Niti Bhan was originally published on July 20, 2019 on “The Perfect Storm: A Continent, A Phone, A Business Model”

Header image source by By Alamy as featured on The Economist titled “Mobile phones are transforming Africa” published December 10th, 2016

Author: Michael Kimani

Consultant, Entrepreneur, Researcher, Writer, Digital Assets Investor and Trader,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s