ACL’s trial by fire
MALAWIBy BiztechAfrica - Aug. 1, 2012, 9:14 a.m.
By Gregory Gondwe, Blantyre, Malawi
ACL, launched during an economic downturn in Malawi, says starting up was tough, but there are promising signs of growth ahead.
Between 2009 and early 2012 the Malawi economy deteriorated and this hit hard on the telecommunication industry. Unfortunately enough, this is also the time that Access Communications Limited (ACL) rolled out as the second fixed telephone operator in Malawi.
“I think probably the worst time to launch such a large scale business in Malawi would have been in 2009 when we had international financial shocks and in 2010 things started deteriorating in Malawi,” observes ACL CEO Faizal Okhai.
“We actually started in 2008 when the licence was awarded. We rolled out and made our first test call in September 2009 and then we had a commercial launch in September 2010,” recalls Okhai who concedes that things have been difficult.
“Obviously micro-economic conditions in Malawi although [they] have recently improved, were very difficult over the last three years. And especially in 2011 things started getting unbearable in terms of lack of forex and lack of basic commodities such as fuel and people were really suffering because although the official rate of inflation was not that high, the real cost of living was very high,” explains Okhai.
He says when a person had to make a decision whether to buy salt, soap and sugar or airtime, airtime was not amongst the top priorities. This made matters challenging for telecommunication firms like ACL.
When ACL applied for its operating license, it had proposed to roll out 80,000 telephone lines to subscribers in five years.
When the awarding of licence to ACL was announced government was clear on its intentions as it hoped that the new company would bring competition against the then sole fixed-line provider, Malawi Telecommunications Limited (MTL), which had been around for over 50 years.
The Malawi government believed that with a competitor around it would enhance quality services to the telecommunication industry.
Plans for growth
At that time, ACL had said it will invest over USD56 million in implementing their operations and the company was expected to start its activities in three months' time upon getting the licence.
Malawi Communications Regulatory Authority (MACRA) had also indicated at the time that ACL would provide 20,000 lines in the first year of its operations and expand as time goes.
Four Malawian companies have stakes in ACL: Gestetner with 23.03% shares, Dynamic Communications holding 25.97%, Fags Investments Limited 27% and VoiceCom Investments 24%.
Okhai says in 2009, ACL had probably about 2 to 3 hundred lines, with MACRA and the Ministry of Information using some lines.
“Since then we have deployed 35,000 devices into the market. Out of these abut 5,500 are data devices and 28, 000 roughly are telephone devices some of which are smart phones. The majority, 80 or 90% are voice and SMS for the basic phones,” explains Okhai.
The coming of the smartphones in the services of what was a fixed telephone service provider, followed MACRA’s decision to award dual operating licenses to telecommunication players following proposals that those operating mobile phone services will be allowed to operate fixed telephone services, and vice versa in October 2010.
With the amendment of the individual licences, Airtel Malawi and Telekom Networks Malawi Limited (TNM) which at the time were operating mobile phone services were now given a leeway to operate both fixed voice and mobile telephony services.
The same for MTL and ACL that were at the time operating fixed voice telephones services.
Investment and customer base
Now ACL says it has expanded its customer base. “Roughly, active subscribers are about just under 30,000 and our network capacity as of today is 100,000 subscribers, so we are well below capacity. I think we can grow the business, but the main impediment is the cost of the handset,” says Okhai.
He says to date, the investment, including shareholder funds, supplier or vendor financing and bank financing, has been in the region of USD15.5 million to USD16 million.
“We are looking at expansion plan for this year which we are hoping to finalise within the next four to six weeks as we are about to bring about 16 regions into coverage areas which is roughly going to be in the excess of USD3m to USD4m; the team is still on the ground doing surveys and other things,” he explained.
“We will also obviously be expanding by also filling coverage gaps. It is an evolutionary process rather than revolutionary process. But it’s something we focus on based on feedback from customers,” he added.
Okhai believes the way the company started has also limited its growth.
“When we first got a licence it was a second national fixed service. As first stage, as we were rolling a CDMA network we were allowed to have limited mobility, so if you were within Blantyre you could make calls using your phone anywhere within Blantyre or within Lilongwe etcetera,” he explains.
And that subsequent to that all operators’ licenses were converged including the incumbent GMS operators TNM and Airtel where they were allowed to provide fixed services or mobile, the same with them, they opened up roaming on their network.
“So whether you were in Chikhwawa or whether you were in Mchinji you could make a call using the same number; initially we had a different number for Lilongwe and a different number for Blantyre like a fixed line network but it does not matter now as long as you are on 02 (the opening digits for ACL network) you can make calls wherever you are in Malawi,” explains Okhai.
He says this change of licence status also prompted them to do a phase two of their network expansion and they extended to about 14 new districts.
“Basically we did quite a lot of expansion and this year we have increased to 15 more districts,” he says.
“We have expanded in quite a few areas we are doing for the consumer side and activation programme; we have a promotional bus going around to the various districts; to date we have interacted with over 300 thousand people. And I think there is a lot of excitement in terms of the services that we are providing,” he further explains.
CDMA over GSM
Okhai says one of the issues that they have in capturing the market is to be more attractive.
“CDMA being unfamiliar technology in this part of the world, or in Malawi anyway, people do not have CDMA handsets, everyone had a GSM handset and to try and convince someone to spend a 4, 000 or 5,000 kwacha on a new handset when they had already a GSM handset is difficult, even if it is saving a lot of money in making calls,” the ACL CEO explains.
He says it is not easy because people have limited amount of funds so they would rather opt to pay double in the called rate because they would only be losing a 100 kwacha a day or whatever, without realising that had they spent that 4,000 kwacha today they would only be paying a 40 kwacha or 50 kwacha a minute which is half that called rate.
“But it’s that capital that they need to buy that phone that has been a major stumbling block for us in terms of expansion,” he says.
Embracing the internet
Okhai says any new product, whether it is a service product like internet or whether it is a product like sugar or a new brand of soap, there is a push from the company to push the product into the market and there is a pull from the consumer because s/he wants that product.
“I think that there is still a lot of opportunity in data; however I feel that the dongle is probably not a long term solution because you need to be able to afford a laptop or a PC to be able using it,” he observes.
“What we are trying to focus on now is WiFi hot spots or smartphones. We have launched a couple of Android devices, and they have done extremely well, much better than we thought,” he adds.
He says the prices are roughly between 40 and 50 thousand kwacha for the current models. These smartphones allow users to do everything that they could do on a PC, like checking emails, as well as going onto facebook or twitter.
“You can also use it as hotspot; if you have a laptop you can use the phones as your personal hotspot as well,” he says. “I think that is the way that the future will go.”
He says looking at more developed telecoms economies like in Kenya, Android smartphones have done extremely and people rely on them as their data portal.
In contrast, Okhai says to buy a laptop; look after it, get a suitable electricity supply to charge a laptop, all take money and time, making laptops inconvenient for many.
“I think it’s not only in Africa, I think the whole world is moving that way if you look at sales of Android tablets as well as iOS tablets; they are in effect replacing the traditional PC,” says Okhai.
“For a writer like you, you cannot substitute your laptop, but for most people – the casual users – they are checking email, they browse to check information, they look at facebook, they tweet, they Google, I think a smartphone or a tablet is perfectly adequate and that’s the way the industry is moving,” he told BiztechAfrica.
Therefore, ACL is focusing more on the smartphone and tablet market.
Pay per use vs unlimited rates
“We have tried to keep our rates more competitive, we have a pay-as-you use rate, we have other people in the market who are offering unlimited rate; unlimited usage offering,” he says. “But we find that it is very difficult to manage quality of service that way”.
He says if the user knows that they are paying per megabyte or per gigabyte then they guarantee good service because they are paying for it.
“It’s like when you fill fuel at a filling station, whether one has a 10 litre tank and a 500 litre tank and everyone turned up and said it is unlimited, you just pay K20, 000 and you get unlimited fuel, there would be chaos; filling stations would not be able to meet demandy,” he explains. “That’s what usually happens with unlimited services, they look great on paper, they look great to the consumer, but at the end of the day you don’t get the speed or the quality that you want.”
Okhai says with the Malawi economy now picking up, the telecommunications industry in general will soon get quality signal in order to grow services. With this in mind, ACL is preparing for this growth and expanding its coverage area.
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