Be Prepared

The Afghan mobile market may still be in its infancy, though is set to welcome its third and fourth mobile operators. Karim Khoja, CEO of Roshan offers them some words of caution.

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By  Alex Ritman Published  June 28, 2006

|~|KarimKhoja200.jpg|~|Roshan CEO Karim Khoja says that the reality for Etisalat in Afghanistan will be much different from a business strategy devised in the UAE.|~|Following a deal worth US$40.1 million with the local regulator in May 2006, UAE operator Etisalat is set to add Afghanistan to its growing list of international assets. As the fourth licence holder it will compete with market leaders Roshan, the Afghan Wireless Communications Company (AWCC) and the Investcom-owned third operator, Areeba, which is due to begin operations this year. But, according to Roshan CEO Karim Khoja, the road to success for any new entrant will be a rocky one, and some distance from a simple business plan drawn up in an office several thousand miles away. “You can't take nine women and make a baby in one month,” Khoja comments, implying that in order to establish a successful business in Afghanistan requires serious long-term commitment and careful consideration. With two operators already operational in Roshan and AWCC, the Afghan communications ministry last year decided to auction a further two licences. Investcom — currently in the process of being acquired by South Africa's MTN — was ranked first with a US$40.1 million offer. A Saudi-US consortium, Watan Mobile Afghanistan, came second with US$30.03 million, and agreed to match Investcom's bid to secure the fourth licence. But having promised the money, it failed to find sufficient financial backing. Khoja claims that Watan unsuccessfully touted the business opportunity around to different operators in the region, and was even handed an extension to the original November 15, 2005 deadline to find the money. “Basically, whoever they went to did a market study, and found that really the mobile market was not big enough for four operators.” Etisalat's entrance into the market is an interesting conclusion to the set of events. “There was a rumour that Afghan Telecom was up for sale, and Etisalat was going to buy it through a bilateral government deal,” explains Khoja. In 2Q06, Afghan Telecom, the 100% government-owned incumbent, began using the same green colour as Etisalat in its branding and started advertising upcoming 3G services, part of an advertising campaign that Khoja says cost around US$1 million. “And they (Afghan Telecom) don't even have that sort of money.” The rumour then goes that Etisalat would only purchase Afghan Telecom on condition it received a GSM licence. But according to Khoja, having secured the mobile licence, there is speculation that Etisalat will now not follow through on the purchase of Afghan Telecom. While there has been no official word from either Etisalat or the Afghan government regarding this deal, the manner in which Etisalat was simply handed the fourth licence suggests that some manner of agreement existed between the parties. Once Watan failed to make the licence fee payment in time, normal procedure would have suggested that the tender be nullified and the process to find a fourth licence holder started afresh or at least offered to other interested bidders, which included pan-continental operator Millicom. Whatever the exact circumstances, Etisalat has begun establishing its Afghan network, something Khoja claims will not be as easy a task as perhaps initially thought. The UAE operator's major overseas greenfield success so far has been in Saudi Arabia, where the operator has some understanding of the culture and market. “But Afghanistan is not Arab, trust me,” claims Khoja, who adds that people are beginning to realise that the country does not easily fit into any regional stereotypes. “There are huge personal prices to pay.” According to the stipulations in Investcom's licence, it is due to begin commercial operations in Kabul by July 9, and the other six major cities by January 9, 2007. While Khoja says that he has slowly been seeing the operator’s base stations erected around the capital, he is very doubtful that the target dates will be met. Since it began operations in July 2003, Roshan itself has been beset with difficulties that Khoja describes as coming as part and parcel of working in a country that is still suffering from continual violent instability and years of under-investment. ||**|||~|Afghanmobilestore200.jpg|~|Roshan operates a franchise network of distributors and counts 110 dealers, and 170 shops around the country.|~|“In the past four weeks, we've had five staff leave us,” he says, describing how many of his workers are under intense pressure from their families overseas to return home because of the level of insecurity present in Afghanistan today. Earlier this year a subcontractor working for Roshan was kidnapped and beheaded. Making the phone call to the family of the victim is something Khoja says he does not wish on anyone, but warns that it is certainly something Investcom and Etisalat should be prepared for. Khoja says that Roshan has also seen its shops stoned and staff attacked and even jailed when they have not been able to help customers. “It's not objective, it's subjective.” And it might be unwise to expect much help from the Afghan government, judging by Roshan's experience. “Every commitment the government has made to us they have broken.” The operator had to renegotiate its financial agreement because the new government claimed that as the previous finance minister signed it, it was invalid. “They (the government) also made commitments on security. Today we have to provide all our own security.” Roshan spends around US$12 million per year on security. Security aside, operational costs are also far and above what any operator might usually expect to have to pay. Afghanistan has no real sustainable electricity production, even in the capital Kabul. To run its business, Roshan has to burn US$2 million of fuel each year. On the staffing side of things, Roshan has had difficulties bringing across labour from abroad because of the risks. “And also because the government of Afghanistan is very anti-Pakistani.” But employing locals has its own issues, with most having missed out on three decades of education through the Taliban and, claims Khoja, only around 30% of the population being literate. “It's not like entering Pakistan, where you have a very well educated people who speak English, who understand technology.” On the first day Roshan began looking for engineers, Khoja says his chief technology officer told him that they would have to change the recruitment process. “Basically if they could switch a computer on and speak English, they got the job. So that's what we did.” Training is therefore an important aspect of Roshan's work, and Khoja claims that US$1500 per year is spent on each Afghan employee. “And this is just on English and IT training, it is separate from their functional job training.” Despite these problems, Roshan has become the number one operator and arguably the country's most successful company to emerge from the post-Taliban era. It took the lead position from AWCC in its first year of operation, and currently has around 900,000 of the country's 1.5 million mobile users, covering around 150 villages and cities. “We expect to reach 1 million this year, in the next three or four months,” says Khoja, who adds that 2006 will also see coverage extended to another 50-100 villages. The largest foreign direct investor in Afghanistan having spent US$300 million so far, Roshan is also the largest taxpayer, set to settle a tax-bill of US$35 million this year. “We're also the largest formal employer.” Khoja estimates that there have been around 15,000 jobs created via Roshan, 775 directly and the others indirectly. He gives examples of drivers, scratch card sellers, SIM card sellers and general distribution points. It is the manner in which Roshan has approached the Afghan market that has led to this employment effect, and in turn offered a greater assistance to the country's sustainable economy. Rather than open up its own Roshan chain of stores run by Roshan employees, the company chose to franchise out its distribution to local entrepreneurs. “We actually have over 110 dealers, and today there are 170 shops around the country,” Khoja explains. The local Afghans own the outlets and they are the ones who make the commission from Roshan. There are formal dealers, who are required to have the Roshan branding on their stores, but there are also informal ones, the smaller businesses who may sell Roshan cards in their electronics stalls or grocery shops. “So when I say we have 170 stores, we've probably got about 1,000 people now selling our goods.” And on the streets there are around 3,000 people, often kids, selling Roshan scratch cards. “And they can earn US$50-100 per month.” Roshan itself owns just three shops in Afghanistan. “But we view those as best practices, to show the dealers what they should look like.” Quality control methods, such as secret shoppers, are employed to ensure that the franchises keep to Roshan's image and values. Failure to do so could see them shut down and the initial deposit they are required to pay lost. “It's a carrot and stick approach, which they understand very well.” Despite the huge costs, the prices passed down to the customer are not above the ordinary. Khoja says that for around US$60 a customer can get set up with a phone and SIM. In July 2003, before Roshan started operations, the entry barrier was extremely high, over US$400 and the call charges were up to US$2 per minute. With Roshan's pricing structure anyone in Afghanistan can be called for US$0.10 per minute, and US$0.05 during off-peak hours. And the services are not restricted simply to voice. Roshan launched SMS voting for reality TV show Afghan Idol, and provides downloads of ringtones, which Khoja says is mainly Indian content. “We're also planning to launch GPRS this summer in Kabul,” he claims, with the target being Afghan consumers of picture-based content and foreigners wishing to use their Blackberry handsets. “And we'll charge these foreigners an exorbitant amount to subsidise the poor. It's your classic Robin Hood.” When Roshan first bid for the second licence in 2003, it offered US$5 million. Investcom at the time bid just US$1 million, and the fact that the operator has now returned for the third licence with a US$40.1 bid indicates that perhaps Roshan has shown that a successful business can be created in Afghanistan. “Three years later, they've seen the success that we've had, and are willing to up the ante by eight times what we paid.” It is not just the Afghan telecoms opportunities that Roshan has been able to showcase through its efforts. Khoja claims that the likes of Coca-Cola and Proctor & Gamble are now looking to enter the country and, having seen what can be achieved with the right approach. “They've seen the success, they've seen what mobile communications can do, and now they want to come in.” So to Etisalat and Investcom, Khoja warns they must be willing to adapt to conditions and situations they find. ||**||

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