Ahmad Mokhles, Liquid Telecom’s COO, discusses the company’s plans to install fibre optic infrastructure linking up Central and West Africa.
Liquid Telecom was founded 14 years ago by Zimbabwean entrepreneur and businessman Strive Masiyiwa. Last July, it achieved what would have been a pipedream all those years ago, connecting Cape to Cairo with fibre optic cable. Under Group CEO Nic Rudnick, Liquid Telecom has deployed infrastructure in 13 countries and some 660 cities. Today though the business is a much different proposition than he or Masiyiwa’s would have envisaged all those years ago.
The fast talking and no-nonsense Ahmad Mokhles joined the group a little over four months ago, but you would not know it as he reels statistic after statistic on the group and its development. Having worked extensively in Africa (Airtel Nigeria) and the Middle East (at Dubai-based Etisalat and Qatar-owned Ooredoo), his excitement about the size of the opportunity that connectivity offers is palpable.
The group operates a major wholesale business and is increasingly looking at the market opportunity to provide mobile network operators (MNOs) with bandwidth. With margins falling on calls and texts the growth lies in greater data usage or what Mokhles calls mobile broadband inclusion, as well as financial inclusion, including mobile banking.
The future is data
The African continent has been linked to the internet either through undersea cable (which is still largely the case in West Africa) or satellite. Fibre optic however, according to Mokhles, is the most effective in terms of connectivity speeds and reliability. Here lies the opportunity because networks that cannot offer high quality, affordable and fast data will not survive. Global estimates say that 80% of all traffic by 2020 will be video.
When it comes to their next target on the map, West Africa from Cameroon to Nigeria and Mali to Senegal, Mokhles says the firm will explore all options including co-builds, which will also mean partnering with local players in the market. Liquid Telecom do not release the outlay in terms of capital expenditure to build the network to date, but Mokhles says that raising finance is not an issue, not least because of their track record. They raised nominal proceeds of $730m in a bond last year, with a coupon of 8.5%. The company in the financial year of 2017-2018 made revenues of $680m and adjusted profits before interest, tax and depreciation (adjusted EBIDTA) of $191m, a 28% return. The first half results for this year which were recently released showing a 10% increase in revenues (from $315m to $349m) and a 20% increase in adjusted EBIDTA.
Mokhles is adamant that there is a direct correlation between connectivity and development. He says that they have seen traffic grow sixfold once two countries are connected, as well as direct impact on trade and financial transactions. There is appetite for greater bandwidth but the challenge he says is making it affordable. Internet penetration, at 20% by World Bank estimates, could easily become 60% but the problem is getting the price points right and that means building the infrastructure and helping mobile network operators provide data at affordable prices.
One of the main opportunities for the firm will be mobile banking services. The mother company of Liquid, Econet, itself a mobile operator in its home country, Zimbabwe, launched Ecocash, a bitcoin before the bitcoin hype he says, when the country faced currency issues.
Despite other markets having failed to develop to the extent of Kenya or Zimbabwe, he sees no other alternative to digital money. The traditional banking model’s costs are simply too high and mobile is the only platform that can provide cash on the spot and has the requisite footprint to serve the masses. Nigeria, with a population of approximately 200m people, has just 53m bank accounts. But if you analyse those and you use a threshold of N100,000 (or $250-300), there are actually only 1m unique users or 0.5% of the population. Which means that the only way to capture this market cost effectively is through mobile money, or similar digital solutions.
And this is where the Econet group comes in, providing a vertically integrated solution, leveraging on the back of the hard infrastructure provided by Liquid Telecom. They are launching a remittance service, Cassava, effectively taking the Ecocash solution globally. Of all financial transactions Mokhles says, 70% of these is local remittance; 20% is used for bill payments and the other 10% for other services. So remittances, domestic and international is where the bulk of the market lies. The Econet group is also developing a digital TV network, Kwesé TV, not unlike Netflix, but also offering live sports and other channels, thus taking on the cable operators.
They launched in 2017 the Liquid Telecom Innovation Partnerships initiative aimed at supporting the growth of digital technology innovation across Africa. By bringing together key players from within the region’s innovation ecosystem, it aims to scale up African tech companies through mutually beneficial partnerships. The company has partnered with Nairobi Garage’s Entrepreneurship Centre in Nairobi, supporting up to 300 co-workers with free high-speed internet connectivity.
They recently partnered with Sigfox, a leading internet of things (IoT) services provider, to build and deploy a nationwide IoT network covering up to 85% of the Kenyan population. This, Mokhles explains, could open up new opportunities to provide IoT services, such as GPS tracking for trucking and logistics companies. Traditionally, because of the lack of coverage in more remote parts of the country, transporters would have to use some satellite device or a European or US operator to track their trucks, which is generally quite expensive.
However using narrowband IoT, effectively using the unlicensed spectrum owned by the state, they can provide a similar service at a much lower cost, providing vehicle tracking and analytics such as average speed, fuel efficiency, downtime etc.
Is he worried about regulation holding back innovation in the digital space, such as greater taxation of internet packages or regulation curtailing social media? Mokhles admits that regulation will always be a challenge, but says that the firm’s startup mentality will allow it to thrive. He points to a flat hierarchy and quick approval processes, which he says allow the firm to find solutions that are adapted to the market.
But with ICT today being in excess of 10% of GDP, governments are inevitably showing an interest in private revenues. Liquid Telecom’s challenge, says Mokhles, will be to continue boosting additional bandwidth so that any price increase as a result of increased taxation or regulation will be offset by improved service to customers. n