Celtel, the second largest mobile operator in Nigeria, has
franchised 100 base stations across the most rural and poorest
parts of the country — and the returns are already
exceeding expectations after just a few months.
The company, part of the Zain group, plans 650 rural base
stations by the end of 2008, creating 6,000 jobs in an
initiative where franchisees themselves recruit local
representatives to sell services and protect their local base
station at the centre of their area.
Celtel is the second largest mobile telecommunications company
in Nigeria, with a 28% market share in mid-2007 and eight
The company is successful in serving cities and larger towns,
but has now shifted its attention to serving poorer consumers
in rural areas — a massive but still under-tapped
This shift from urban to rural has not been easy, and although
half of Nigeria's population live in rural regions the
challenges of reaching them sometimes seems overwhelming.
To address the opportunities and challenges of serving
low-income rural consumers, in mid 2007 the company launched
its rural acquisition initiative — or RAI.
Lars Stork, chief operating officer, is the executive behind
the project. "We set out to develop a unique new route to the
rural market, an initiative that will help us to profitably
reach the 50% of Nigerians who live and work in rural
communities," he says.
"Beyond commercial success for Celtel, our broader objectives
are to empower rural communities through sustainable job
creation, local wealth generation, and improved availability of
our products and services."
The RAI centres on an innovative micro-franchising plan for its
base stations. This is the first use of such an approach to
serve rural consumers in Africa. The initiative provides a new
route to market with the aim of rapidly and profitably scaling
the provision of mobile services to rural communities.
According to the GSM Association, in a study in 2006, the
potential annual revenues from the rural population of all
developing countries will be worth around $95 billion a year by
2012, with Nigeria identified as Africa's largest rural growth
Norman Moyo, marketing director with Celtel Nigeria, gives his
figures: "The total potential value of the Nigerian rural
market is estimated at some 158 billion naira ($1.2 billion),
but rural areas generated just 3 billion naira ($23 million) in
revenues in 2006."
According to Moyo, analysts forecast that 80% of new net
subscriptions in the Nigerian market over the period 2008-12
will come from rural areas, with a potential rural subscriber
base of some 40 million people spread across some 35,000 rural
"The total value share of the rural market is expected to grow
to at least 20% of total industry revenues over the same
period, up from just 2% in 2007," he says.
While the underserved rural regions of Nigeria are seen to
offer huge potential for the mobile telecommunications
industry, the issues in serving them are very different to
those of urban areas.
Stork has spent more than 30 years working outside his home
country of Denmark, including many years with Unilever
spearheading major restructuring programmes. He joined Celtel
International, which has since become part of the Zain group,
in 2005 as vice president of operations responsible for Zambia,
Sierra Leone, Gabon and Malawi.
"None of these experiences compared to the complexities faced
in Nigeria's rural regions," he says. "Success in serving the
country's rural poor requires a radical new approach."
The Nigerian Communications Commission showed in a study in
2006 that there was very high demand for telecommunications
services in rural areas, but 40% of the rural population
identified themselves as non-telecom users.
The other 60% of the rural poor used their own phone,
"umbrella-man" outlets, public call offices or shared family or
The same study found that, on average, users in rural Nigeria
allocated approximately 14% of their total income to telecoms
spending, roughly double the share of consumers in more
According to Stork, the rural poor in Nigeria typically earn
about 4000 naira ($32) a month, with the majority of income
generated through the sale of agricultural commodities.
"Although rural families typically earn low incomes, they also
have lower living expenses than urban residents, and fewer
opportunities for consumer spending on entertainment and
'non-essential' items," he says.
"Rural Nigerian families save an average 18% of their annual
incomes, and an important source of additional income is
remittances — both within Nigeria from urban-based
family members, and from relatives living abroad. Given these
income and savings levels we see a real opportunity in rural
A Celtel-sponsored market study conducted in early 2007 by
strategy consultancy Globalpraxis revealed that price was a
barrier to frequent use of telecoms services for 65% of rural
Poor network quality was a barrier for almost 30% of
consumers, and tariff complexity was an inhibitor of usage for
more than 20% of consumers.
According to Tayo Emden, Celtel project manager for the rural
acquisition initiative, underdeveloped rural distribution
networks mean that a consumer can be forced to pay up to 320
naira ($2.50) for a recharge card with a face value of 200
naira ($1.60), and urban dealers have not shown themselves to
be particularly entrepreneurial in pushing into underserved
"In reality, the urban dealer knows very little about the
rural markets," says Emden. "He sees the rural poor as a small
opportunity, and why should he chase this hard-to-reach market
when he has more than enough business coming to his door in the
city? We have had a hard enough time encouraging dealers to
activate their own urban markets, let alone push into
Handset ownership remains at less than 1% among the rural
poor, and almost 20% of rural poor indicate lack of access to a
phone as a barrier to using communication services.
While more than 80% of mobile users in urban areas of Nigeria
are within convenient access of an umbrella man or other
telecommunications outlet, this figure is less than 14% for
rural areas. On average, there are 2,500 people per
shared-phone outlet in rural areas, compared to just 850 per
outlet in Nigerian cities.
Says Stork: "If rural people want to make a call, they
typically have to travel to an umbrella man vendor at the
roadside or in the village centre. This distance is significant
in some areas — and can be over 100 kilometres in some
parts of the North East — although these distances are
shrinking rapidly as operators roll out network
Growing the rate of handset ownership and ensuring the
availability of affordable recharge cards are just two of the
challenges facing Celtel in reaching the rural poor.
Many areas of Nigeria are in media "black spots" which are
not reached by television or radio signals. This makes
communicating about products and services particularly
"Some of the traditional approaches of marketing are very
difficult in many parts of Nigeria," says Moyo. "Billboards are
quickly stolen and recycled for building materials or fencing,
and it is dangerous in some regions for Celtel staff to travel
for direct marketing activities at markets or other rural
Celtel believes that a GSM base station site can be viable if
there is a population of at least 5,000 people within a radius
of the site's five to seven kilometre range. Nigeria is one of
the most densely populated countries in Africa, so this density
is generally not too difficult to achieve, with the exception
of the sparsely populated North East region.
But rolling out and maintaining a mobile network in Nigeria
poses challenges very different to those found in more
"Village-level chiefs and religious leaders hold significant
power in many regions of Nigeria, and Celtel needs to ensure
that it respects this influence when investing in local areas,"
"Even if approval is given by national authorities, the
company needs to negotiate with tribal leaders before rolling
out network infrastructure. Permission is also sometimes sought
for the safe passage of Celtel staff through tribal areas to
maintain the network, or for the entry of fuel trucks to
deliver diesel for the company's onsite generators."
The Nigerian electricity grid is unreliable and does not reach
all areas of the country, so generators are a necessity for
virtually all of Celtel's rural base station sites.
Vandalism and theft
Site security is a major concern and expense in many parts
of the countryside. "Vandalism and theft of base-station
equipment is common, requiring Celtel to install guards on
rural sites," says Stork. "Even though Celtel typically
recruits these guards from the local community, this has not
always reduced the incidence of theft of expensive
In the past year or so highly organized gangs of thieves have
emerged, moving from rural site to rural site stealing diesel
generators, even using heavy cranes and trucks to pick the
generators up from their installations and ship them out of the
"In some instances guards have been held at gunpoint, but we
also suspect collusion by guards and the local community in
some instances," says Stork. "With low levels of mobile usage
in some rural areas, downtime of telecommunications does not
seem to weigh heavily against the pay-off from stealing and
selling Celtel equipment."
Rather than trying to overcome the unique challenges of
operating in rural areas, the rural acquisition initiative aims
to partner with local communities to dramatically increase the
affordability, availability, awareness and acceptability of
Key to the RAI is the identification and recruitment of local
entrepreneurs, so called associate distributors, or ADs, to act
as franchisee trade partners. These franchisees market and
distribute a relevant portfolio of Celtel products and
services, and are also responsible for base-station site
security and basic maintenance.
Once recruited the AD acts as the exclusive representative of
Celtel in his or her community, says Emden.
"As is the case with any franchising model, the selection of
highly motivated and entrepreneurial franchisees has been
identified as critical to the success of the rural acquisition
Franchisees are selected in close cooperation with village
chiefs or other heads of the community, and once recruited they
attend a three-day welcome workshop hosted by the Celtel
"The workshop covers aspects such as route to market, products
and services, basic financial management, retail execution and
an overview of the AD opportunity, sales and marketing,
distribution, site maintenance and basic business skills," says
The main activities of the AD are village-level distribution of
SIM packs and low denomination recharge vouchers. The AD also
operates a fixed GSM payphone from a Celtel branded kiosk in a
central location in the village, and carries out site security
and surveillance and basic base station maintenance and
"Each AD typically recruits four or five commission-driven
hawkers who travel in the local community and surrounding
villages within the base station coverage zone," says
These hawkers are recruited from the local community and
promote Celtel's brand via word-of-mouth, explain tariffs and
special offers, travelling from village to village on
Celtel-branded motorcycles to sell SIM packs and recharge
vouchers, and to act as roving call agents by providing access
to mobile phones for consumers to make calls.
The AD is supported by a strategic distribution partner or SDP,
based within 30-50 kilometres of the AD site.
"The SDPs have been identified as large official Celtel
distributors with distinct territories," says Emden. "They buy
directly from Celtel and supply retailers, rural associate
distributors and any sub-dealers within their territory."
The Celtel/Globalpraxis research revealed that more than half
of rural consumers would like to be able to recharge for values
of 150 naira ($1.20) or less. Some operators in developing
markets have already introduced over-the-air recharging to
replace card distribution and introduce low-denomination
recharge amounts, and Celtel Nigeria hopes to introduce OTA
recharging through its rural franchisees in the near
The initiative has been highly successful for Celtel Nigeria,
says Stork: "Average weekly base station site revenues and
minutes of use have increased substantially at virtually all of
our Celtel franchised sites." Recharge voucher sales by ADs has
exceeded the initial business case forecasts by over 100%, he
adds, that rural ARPU will be higher than initially
"Payphone usage has been more than twice as high as forecast.
And with such close involvement of the local community,
incidence of vandalism and theft of Celtel's base station
equipment in franchised areas has fallen dramatically."
The RAI has been welcomed by the Nigerian government, and is
viewed as a positive development at a time when the Nigerian
Communications Commission has been critical of the quality of
service offered by the major network operators.
"We have invested heavily in local communities by deploying
our infrastructure such as base stations and thus stimulating
economic development and growth through the provision of
communication services, and our new route-to-market approach
for rural areas is accelerating uptake of these services," says
Stork. "It is a well-documented fact that every naira or dollar
invested in telecoms business leads to at least a five-fold
growth in the local economy. This is clearly in line with the
federal government's drive for job creation and rural
But the initiative has not just delivered results for Celtel
and the Nigerian government: it has also impacted the lives of
individual franchisees and their communities. On average each
franchisee employs five local people, generating local
employment and improving the livelihoods of local
"This partnership has resulted in the creation of many job
opportunities," says Stork. "I dare say that under this new
initiative, our partnership with the rural communities will
extend beyond business to the actual ownership of and
responsibility for our network facilities. We view the
initiative as win-win for Celtel and local communities."
Celtel Nigeria's CEO Bayo Ligali believes that the innovation
could propel Celtel to market leadership in rural areas, and
provide an important pillar underpinning the long-term success
of the company.
"The rural acquisition initiative is a first for Nigeria,
and overturns the widely held industry perception that rural
areas cannot deliver real profitability," says Ligali. "The
rural poor represent a significant market in Nigeria, and
Celtel is the first operator to develop a scalable model to
serve them profitably while at the same time delivering real
value to local communities. And we should not forget that
universal access to communication is an important driver of
Nigeria's future prosperity."
As of early 2008 Celtel Nigeria has almost 100 franchised base
station sites in rural Nigeria, and is rapidly expanding the
initiative. "With a target of 650 sites by the end of 2008,
Celtel will generate more than 6,000 jobs in some of the
country's poorest regions," says Ligali.
Despite its initial success with the rural acquisition
initiative, Celtel Nigeria is not standing still. The company
is now exploring new approaches to increase handset penetration
in rural areas, and preparing to launch value-added services
specifically developed for the rural poor.
Jamie Anderson is fellow of the Centre for
Management Development at London Business School; Ronan
Moaligou is manager within the telecommunications practice of
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