HomeBusiness DigestThe Human Capital Telescope: Can Wazara’s Broadacom disrupt Masiyiwa’s Econet?

GPA Impasse Weighs Down Hunting Season

Not surprisingly, he got this dismissive not-in-a- thousand-years response and rebuffed the idea. They surmised Masiyiwa’s prediction that wireless telephony would overshadow fixed telephony was a pie in the sky. In any case, PTC could make sure Masiyiwa would not fulfill the idea — they would fight anyone who dared challenge their telecommunications monopoly. Much to their surprise, Masiyiwa’s mobile telephony prophecy was fulfilled when Econet was launched on July 10, 1998.

This followed a Supreme Court ruling at the end of 1997 that the state’s monopoly over telecommunications was a violation of the right to freedom of expression as enshrined in the Constitution of Zimbabwe.

History appears to be repeating itself — a founding Econet top-executive, Zachary Wazara, who joined Econet as the Assistant General Manager for Marketing in 1996, rising to the Managing Director position in 2000, before becoming CEO for Econet Nigeria, has established his own telecommunications company called Broadacom, competing with Econet and other telecommunications incumbents head-on.

What business prophecy does Wazara have that Econet is not aware of? Can Wazara disrupt his former company, much like what Masiyiwa did to PTC?
When Zach Wazara left Econet in 2009, the usual standard line about leaving to pursue business interests was touted.

Very few people could, at the time, have suspected Wazara was set on challenging his former employer. What is overwhelmingly surprising is Wazara’s sheer determination to lock horns with the giant Econet in a market where they have a stranglehold, with over 70% market share.

Guts or naivety

Evidently, Wazara is a very smart and seasoned business executive endowed with creative prowess, having played a critical role in setting up and rolling out Econet’s parent, Johannesburg-based EWI’s expansion into Africa and beyond.  Informed by this premise, it is almost impossible to fault Wazara as having naively thrown himself into the lions’ den of the cut-throat Zimbabwean telecommunications world.

A plausible theory is that Wazara, as a founding executive of Econet, is up to date with Econet’s business paradigm and its accompanying blindspots, leading him to identify potentially lucrative areas which he could have calculated Econet would not be interested in. 

Excerpts from an exclusive interview Masiyiwa gave  a few years ago to Russell Southwood, a telecommunications technology journalist, lends credence to this theory. On being asked the question, “Are you thinking of expanding the internet side?”, Masiyiwa replied: “Where we are now is where we’re most comfortable. We don’t like being an ISP (Internet Service Provider), we don’t like that as a business. We prefer to sell bandwidth. For example, we’ve looked at purchasing Africa Online all the way back to the days when it was owned by Prodigy.

“We always found ourselves saying: how do we build a business case? It’s not possible. Our route to the internet is via improved technology on our networks, We’re playing with GPRS in Nigeria to see if we can create better internet access. It’s revenue added to what we already do.”

Could this apparent lack of interest in the ISP business have contributed to building Wazara’s guts to tread into the mouth of a behemoth?  

It is highly likely that Wazara could have bet on Econet not quickly moving to offer internet-dependent services such as Voice over Internet Protocol (VoIP) or even Internet TV. VoIP, in simple terms, is a communication technology that allows one to make calls over the internet.

With VoIP, one can make calls from a device that accesses the internet such as a smartphone, laptop and a tablet computer, for instance. The most attractive value proposition offered by VoIP is that calls can be made at ridiculously low fees, as low as US4 cents per minute, compared to the US23 cents per minute being currently charged in Zimbabwe for the GSM services (normal cellphone to cellphone service not routed via internet).

A well-known VoIP application is Skype, where it is possible to make calls virtually for free, excluding the cost of being connected to the internet. The odds of Econet suddenly changing tack to embrace a low-cost and low-balling pricing strategy in future could have appeared very low, given Econet’s historical strategy of pioneering and premium pricing.

That assumption, in my opinion, could have given Wazara reason to believe he could pursue a first-to-market but  low-cost strategy in the telecommunications space, piggy-backing on the internet and counting on Econet’s probable lack of interest in internet-dependent low-cost services.
Another historic precedent could have further cemented Wazara’s strategy assumptions. In 2006, when VoIP began taking root in South Africa,  MTN and Vodacom threatened to either  block VoIP calls or charge the normal GSM rates.

Vodacom’s official position then spelt out its contempt of VoIP: “Vodacom does not currently provide VoIP services as the technology does not yet lend itself to the quality carrier-grade voice solutions our customers have come to expect from Vodacom.” 

This kind of strategically-fatal response might ring a bell for regular readers of this column — the onset of disruptive innovation. Disruptive innovation is the process by which incumbents are systematically and gradually decimated by start-ups employing simple and affordable technology to deliver value to customers by initially targeting low-income segments who are content with good-enough-quality, gradually moving into high-income segments as the start-up improves the quality of their offering.

Wazara’s gutsy decision to take Zimbabwe’s telecommunications incumbents head-on could have been bolstered by the assumption that incumbents would like Vodacom arrogantly dismiss VoIP, thus lending them to disruption.

From Wazara’s much-publicised intention to launch a Wimax 4G network (enables super-fast internet access speeds) from the get-go, it would appear that Broadcom wanted VoIP to be highly reliable. Unreliable on- and-off internet, poor voice quality when making VoIP calls were among the quality problems that made normal GSM calls superior to VoIP. With Wimax 4G, quality of VoIP is greatly enhanced.

Thus Broadacom could theoretically manage to rapidly win over low-income and middle-income customers, quickly disrupting telecommunications incumbents.

It would appear Econet quickly realised the disruptive threat to its voice business (where they are currently generating the bulk of their revenue) of a Wimax 4G-enabled VoIP being offered by an aggressive start-up like Broadacom.  Econet could have seen the folly of the Vodacom-MTN’s 2006 intended strategy of blocking VoIP and /or charging prohibitively high interconnection fees on VoIP calls routed through their respective networks.

If Econet did that, their own subscribers, especially the low income end, would possibly migrate en masse to Broadacom who would offer both GSM and VoIP in addition to other internet services. Broadacom could then grow into a big player commanding huge revenues from both voice and data.   In May 2011, the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) issued Broadacom an Internet Access Provider (IAP) licence. As per POTRAZ requirement, Broadacom published its tariffs:

 

Broadacom to Broadacom calls US 6 cents, Broadacom to other networks US 12 cents, international calls US 27 cents. It’s not too difficult to see how Broadacom’s strategy is a real threat to the telecommunications incumbents.  Who would not want to enjoy calls 130% to 360% cheaper than the current incumbents’ rates?

 

Econet has in the past three years spent more than US$400 million in upgrading its network capacity, compared to Brodacom’s reported investment of US$25 million.  On 26 January, Econet, through its Econet Broadband division, launched VoIP on its network. VoiP@Work and VoiP@Home are the two VoiP products offering call rates lower than the normal GSM rates,Econet launched in January. Clearly, this is Econet’s strategy to counter disruption from the new entrants, Broadacom being the most potent. If Econet can succeed in encouraging its subscribers to use its VoIP service, migration to a potentially disruptive start-up or incumbent is minimised.

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