Interview With MTN’s Erik van Veen - Part 1

Erik van Veen is the Chief Commercial Officer of MTN Uganda. When it comes to corporate executives, he just might also be one of the most approachable, down-to-earth people ever. I emailed Erik following a discussion on Uganda’s I-Network mailing-list about the costs of bandwidth in Uganda for consumers. Erik is a member of the mailing list and offered some insight as to why things are the way they currently are from a provider’s perspective. Having been impressed by his willingness to engage the public, I asked him to participate in an interview….

Appfrica: What’s your background?

Erik van Veene: I was born (1967) and grew up all my life in South Africa, Pretoria to be specific. After finishing school did a BSc Engineering at University of Cape Town. Worked as an engineer in SA in early nineties while studying for a Bachelor Commerce as well. In 1993, I left SA (to avoid conscription) and spent 4 years abroad, backpacking most of that time. Returned to a democratic SA in 1996 and my first job as a Market Analyst with MTN who had just launched service in South Africa. I was part of MTN’s international business development team who secured licenses in Africa, amongst them Uganda. I then took on a Marketing Manager position as part of start-up team MTN Uganda. I was promoted to Chief Marketing Officer in 2001 (Sales & Marketing). Returned to South Africa for a year with MTN Group as General Manager in Business Development. Then I returned to Uganda in 2004 to pursue my own business interests with friend Patrick Bitature. MTN Uganda asked me to return in 2006 in my current role.

A: The world financial market is experiencing some turmoil right now. Do you think this has more potential to hurt or help Africa in the long term?

Erik: I think it will have limited to mild impact depending on how the credit crisis pans out. The credit crisis in itself will have very little affect on Africa other than the handful of more developed African countries who are connected to the world economy to a larger degree (South Africa, Morocco, Algeria etc…).

A mild impact will be felt if the credit crisis precipitates a world recession. Three economic areas will be affected. Firstly, raw commodity exports will decline if recession does become reality. This will affect mainly mineral exporting countries – Uganda should be spared. If consumer demand in US and Europe decline, it will affect manufacturing output in Asia etc.. I don’t believe the developing world has ‘economically decoupled’ from the western world as many tend to believe. The developing world has thrived on distorted trade balances over the last 2 decades driven by cheap labour and especially Asian governments who have persisted with maintaining devalued currencies.

Although I don’t believe developing world economies themselves will go into recession, their growth rates will slow significantly as a result of lower exports. The second impact is that national budgets in the West will, even without recession but just from the pressure of the national budget bail-outs needed to prop up the financial system and institutions, will be stretched in years to come. I can envision Aid budgets could be one of the first casualties as national treasuries try to shore up their reserves. Less Aif to countries such as Uganda, Tanzania will affect their economies, albeit in the short term only. The 3rd aspect that will put pressure on Africa is that with shrinking GDPs in the west, unemployment will increase and this in turn will put pressure on the tens of millions of Africans who do mainly casual labour in those countries. I can see foreign remittances from the diaspora declining. And we know what an important component remittances are to most African national economies – in Uganda it could make up as much as 20% of the annual GDP.

A: The mobile industry has grown at an incredible rate throughout Africa. Some countries boast penetration levels ranging from 30% to 100%. What is your advice for foreign groups and investors eyeing the African mobile market?

Erik: Firstly, I believe mobile opportunities for foreign companies in African countries are dwindling fast. Most African countries are well down the road of liberalizing their telecoms markets, many have in fact moved ahead of Europe / US in terms of opening up their markets. Although penetration rates may still be low, they will never reach the levels in the West due to the fundamental demographic and economic realities at play. In Uganda, 52% of the population is under the age of 17yrs, and more alarmingly only 13% are urbanized. This places major obstacles to mobile penetration increases. As markets liberalise quickly, frequency spectrum in especially the lower frequency bands which give wider signal coverage are fast running out. This is going to increase the cost of entry for foreign investors.

More importantly revenues per user, are very low in Africa by international standards, and require a low cost operating model if the Operator is to be profitable. If you look at East Africa, new customers joining the mobile category spend about $4 per month – that is not a lot! Just think of the licensing costs per subscriber for the various network nodes you need to manage a customer and you are left with only a small percentage. These are only marginally profitable customers and hence you need to make sure you have a low cost model in place to ensure profitability. Revenues per user in the west are well in excess of $25-30. Connecting sub $4 mobile consumers is not the type of business model Western operators are comfortable with. I see Asian, especially operators from the sub-continent, playing a bigger role in Africa as they have been able to survive in cut-throat, highly competitive, low tariff environments in their home markets. The downside is that it is going to be increasingly difficult to balance network quality whilst trying to operate a low cost operating model.

This has been particularly challenging for operators in the sub-continent and I am beginning to see similar trend developing in East Africa.

A: Unlike many other industries, in the mobile space there are some areas where the West seems to be playing ‘catch up’ to Africa. For instance with mobile-banking and micro-payment options. What do you feel mobile operators around the world can learn from the African market when it comes to mobile finance services?

Erik: I don’t believe the West will really learn anything. What is being rolled out in terms of mobile money / banking services in Africa was actually conceptually developed in Europe and Asia and not Africa as many seem to think.

What Western operators tend to do at times is over-complicate things which often renders their concepts unworkable in our environment. What has made mobile financial services so successful in Africa is due to the ‘technology leapfrog effect’ – the lack of banking infrastructure has allowed the mobile device to fill that void and leapfrog over more traditional banking services. M-Pesa in Kenya satisfied a major need as the banking system was too shallow in terms of distribution. Another critical fact that has allowed mobile financial services to thrive here is due to looser banking regulation. In South Africa for example, the M-Pesa concept could not be rolled out due to stricter banking regulation. Ditto Europe!

A: What are some of the challenges a mobile company faces doing business in the African market? How has MTN managed to do it so well?

Erik: I alluded to two aspects in my previous answer. Demographics, mainly young population and low urbanization present unique challenges. A flat age demographic pyramid may be inhibiting today, but presents itself as an opportunity for the future as the quantum of people entering adulthood / economic activity is set to explode in most African countries. This presents itself as a major growth opportunity in terms of penetration potential going forward.

Low cost revenue per user is a major challenge. We are continually trying to find means to ensure that we are able to attract customers further down the value pyramid at profitable levels. It is difficult!

And then you have to deal with the cost of doing business in Africa. Infrastructure and productivity remain major hurdles that add costs to the P&L. Our own success, relative to other companies in most African economies, has backfired on mobile operators in Africa, where governments see these as an easy source of tax income. In East Africa, excise tax (read luxury tax) has been institutionalized within the mindset of financial ministerial policy on tax. Uganda has the 2nd highest tax burden on mobile services in the world, Tanzania 3rd. Just think about it – in Uganda we hand over nearly a third of the cost of every call to the government. What a shame!

It is a short sighted initiative that is impeding growth of the ICT industry.

A: In general sub-Saharan African seems to have rebounded from some of it’s troubled history. Kenya, Uganda and Rwanda all boast 6% per annum growth over the last decade and longer. Has MTN found that its growing with the economy? If that growth is sustained, where do you see MTN in five years?

Erik: Absolutely. Economic growth is like lubrication for the mobile industry, especially in less developed economies. We have visibly witnessed the monetization of rural Uganda. Today 63% of our base is rural – that is an amazing statistic where most industries rely on 60% of their business being derived in Kampala. I know other industries are beginning to experience similar trends.

Without giving too much away, I believe that MTN will double its customer base in the next five years if the macro-economic impetus is maintained.

A: Internet prices are notoriously expensive in sub-Saharan Africa (even for licensed ISPs). Can you offer any insight into how this can change? What needs to happen?

Erik: Very simply, we need fibre to connect us to the internet and light us up! We are suffocating and suffering being satellite locked. 2010 is not too far away. I envisage internet charges to come down by several factors. MTN Uganda has invested in the EASSy cable, which is due for completion in late 2010.

The price per Mb we will be paying for bandwidth off EASSy is a fraction of what we are currently paying via satellite. There is a perception that data providers are ripping the customer off – that is simply not true. If they were, why have we seen so many ISP closures and consolidation over the last few years? There is not exactly a flood of foreign data providers investing in the sector either. So that should prove that there just is not a lot of money to be made in the data provision business at the moment.

We are the 2nd biggest data provider in Uganda after UT (Uganda Telecom) and we can vouch that it is a low margin business at best! I know UT will vouch for that as well.

A: MTN offers a number of services for its customers. Most of them hardware and service based products. Does MTN have any interest in moving into software as a service (SAAS)?

Erik: Not really. Its not our core business and we don’t know anything about the software business. The idea of supporting Application Service Providers in partnership arrangements is a possibility, but we need to stick to our knitting which is mobile, fixed and data. We have our hands full just with that!

A: The growth of cloud-computing in developed countries offers a great model for Africa to follow when high-speed, affordable bandwidth finally arrives. What’s your stance and how do you see Africa capitalizing from it?

Erik: I think that is the way to go for Africa. The big players in the industry (Microsoft, Google etc) also understand this and believe me are not sleeping. They have an interesting vision for Africa and appreciate that a different ICT model is needed if Africa and its people are to have universal access to the digital world.