African Communication Group

Strategy

Case: African Communication Group
This report describes the Business model developed by African Communications Group (ACG) in Tanzania during the mid‐1990s, based on an analysis of the customers (WHO), the product offered (WHAT) and the ways used to get the market (HOW). Finally, the strategies and tactics adopted by the company are presented, showing how these tree elements converge in the same direction. By 1992, ACG bet for Tanzania, mainly because ACG was a young American company trying to develop a new market and this country doesn’t call the attention of the large telecom players. Tanzania had the highest backlog in Africa for telephone service, which was delivered by the State. With less than 80,000 telephone lines for a population of 27 million, the ratio of phones per person in the capital was around 1/100 and in rural areas 1/2,000. With an economy based on agriculture in rural areas, the main consumers of telephone services were the business people, who had to pay excessive fares. Even though the country presents several difficulties, the opportunity to develop a new platform of telecom services was interesting considering that by 1995, the demand for telephone services was 500,000 and the main public locations didn’t have phones. Furthermore, the demand for international calls (tourists, expatriates, business travellers) was considerable and unsatisfied. In addition, for other services as paging, ACG anticipated a base of 10,000 subscribers. In order to get this market, ACG considered an innovative pay phone system that didn’t require copper wire between outstations and ACG’s central platform; the use of wireless radio was a new concept that could be adapted to other markets and allowed ACG to operate on only one connection to TTCL, which operated the country’s wireline telephone system. ACG pay phones were activating by inserting a card that had been pre‐ programmed to allow the holder to make phone calls lasting a specific number of minutes. These cards could be purchased in a variety of values from retail establishments that were located near phone booths. This wireless radio system would easily support paging and voice‐mail services at very low incremental cost. An important advantage of ACG phones was their versatility, they could be programmed to accept cards, that could be validated by either magnetic strips or PIN numbers. The phones could be connected to regular lines or adapted for cellular systems, and configured to use AC or DC power. In addition, the phones could support outdoor locations. In this sense ACG based its value proposition on the quality, dependability, and convenience of its products, which made the system attractive enough to command a premium price. Besides, ACG hoped to maintain high quality and low service costs by replacing phones in 5 years. This replacement will allow the company to take advantage of tech advances. By 1996, ACG got 5 licences and chose Intellical (USA) as the principal equipment supplier of pay phones and its central platform, while the radio transmission would be supplied by SR Telecom (Canada). This mix, would give ACG the lowest cost card phone system in Tanzania. ACG planned to develop a network of 1,000 card phones in the major cities of Tanzania. By the end of 1996, it would install 400 phones in the capital, and by the end of 1998, it would extend the network by installing 200 phones in each of 3 other cities. In order to launch the new system, ACG planned a multi‐media campaign and the sales force would demonstrate the phone use and assist the customers at phone booths. We can see how the three components of the ACG Business Model are mutually reinforced in its long term strategy: “exploit significant economies of scale and scope through multiple ventures in Africa. The pay phone would serve as a foundation not only for paging and voice‐mail, but also for data communications, private networks, and other communications and media services”. Following this strategy, since the beginning ACG had focused in a new market with similar features to other markets in the region, which would give them the know‐how. In the same way, ACG bet for an overstated platform, a versatile product and a new technology that could be applied to several markets; and finally ACG developed a new model of logistics, sales and marketing in the region that could be successfully replicated. The final tactics and scenarios such as target the lower‐income customers, expand to other cities or countries, and concentrate in specific services reinforce the convergence between the who, what and how around a common strategy.