African Communications Group

————————————————- Strategy Assignment 1 – African Communications Group Business Case Projections The business case presented focuses on insatiable demand amongst a growing population for a service built on dilapidated, poorly maintained infrastructure, against a backdrop of government deregulation in the telecoms sector. As of 1992, there were a mere 78k telephone lines for the 27m people living in 4. 7m households (a population set to double over the coming 24 years), with users suffering success rates of just 25%.

Demand was forecast to grow to 500k subscribers by 1996. The recent deregulation of the telecoms sector (via the break-up of TPTC into TPC and TTCL) and the formation of a regulator (TCC) had paved the way for private investment in the sector, something supported by a World Bank initiative to invest $220m in a repair and upgrade programme. Private foreign investment was further being supported by a removal of foreign exchange restrictions and the National Investment Act which, amongst other incentives, introduced tax reliefs.

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TCC had by mid-1995 already issued 20 licenses for pay-phone services in Tanzania (ACG was amongst those successful). Base case ACG forecasts of moderate usage would see pay back within 9. 5 months for each phone installed (with 200 due to be installed initially in Dar es Salaam), net income of $2. 6m in year 2 (41% profit margin), $4. 6m in year 5 (47% profit margin) achieving zero debt status in year 4 (debt that would fund initial equipment purchases) paints a healthy picture. Business Model Who? * Business people (accounted for 70% of Tanzania’s telecom revenue): * In agricultural sector (accounted for >50% GDP) * In transportation sector, e. g. business couriers, truck-drivers * Callers at banks, airport, hospitals, and education institute * Citizens * Those living in cities but having family members in rural areas * Middle- and high-income customers who made international calls * Installed first 400 payphones in Dar es Salaam by end 1996, and then 600 in 3 other cities by end 1998| What? * Card phones * Activated by a pre-programmed card for the holder making calls lasting a specific number of minutes * Paging and voice mail services * Allowed subscribers to receive and leave messages for other subscribers * New telecom infrastructure using radio transmission between outstations and central platform * Central platform routed calls to TTCL, which would direct calls to local, long-distance and international. TTCL levy a charge for directing each call| How? * Card phones installed in public areas, where were carefully chosen to maximize phone usage * Organized a large multi-media campaign for pay-phone launch with public demos * Retail dukas could sell the cards at 14% margin * Set competitive pricing, 50% lower than most of the other service providers * Trained technicians to provide quality services and recruited professionals to better manage the company * Selected durable equipment and replaced them in 5 years to ensure quality| Evaluation of Choices Choices| Evaluations|

Tanzania / Dar es Salaam| * Politically stable, high telecom demand, 8-year tax exemption, telecom licenses in issuance * 80% phone lines and 71% payphone users concentrated in Dar es Salaam| Public payphones| * Private phones and mobile phones were hardly affordable by most people * Fit for highly mobile people like couriers, truckers, travellers * Coin-phones (mostly defectively) accepted coins no longer in circulation due to high inflation | Paging and voice mail| * Enabled quick communications to a majority of people who could not afford private phones * Expected to double payphone usage| New telecom infrastructure| * Existing telecom infrastructure was antiquated and poorly maintained * Enabled equipment suppliers to showcase new technologies in exchange of lower capital cost | Various card values| * Catered for customers with different calling purposes, say local, long distance, or international * Competitive with other telecom service providers| Ventures with suppliers| * Lower capital cost in network setup| Recruitment| * Recruited graduates and trained technicians to provide quality services * Recruited experienced expatriates to manage the company better| These choices fit for the business model to provide high-quality, low-cost public telecom services in Tanzania. However, there is a risk – the surcharge levied by TTCL on ACG. Any change in the surcharge was not taken into account in the financial projections. We will advise the VC to invest in ACG only if TTCL’s surcharge is capped at a level that would not jeopardize ACG’s profit (through appropriate contracts etc), or there are other alternatives than TTCL’s exchange infrastructure.

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