Upload
vusi-silonda
View
300
Download
9
Embed Size (px)
Citation preview
1
CCOOMMPPEETTIITTIIVVEE RRIIVVAALLRRYY IINN TTEELLEECCOOMMSS::
AA SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT CCAASSEE SSTTUUDDYY BBEETTWWEEEENN
VVOODDAACCOOMM AANNDD MMTTNN
VVUUSSII SSIILLOONNDDAA
Submitted in partial fulfillment of the requirements for the degree of Masters in
Business Administration MBA Unit, Nelson Mandela Metropolitan University in the
Faculty of Business Administration with the University of Wales, Cardiff.
Supervisor: Dr Gillian Marcelle
April 2009
2
DECLARATION
This work has not been previously accepted in substance for any degree and is not
being concurrently submitted in any candidature for any degree
Signed…………………………
Date……………………………
STATEMENT 1
This dissertation is being submitted in partial fulfillment of the requirements for the
degree of Masters in Business Administration
Signed……………………………….
Date………………………………….
STATEMENT 2
This dissertation is the result of my own independent work/investigation, except
where otherwise stated.
Other sources are acknowledged by footnotes giving explicit references. A
bibliography is appended.
Signed……………………………
Date………………………………
3
PREFACE AND ACKNOWLEDGEMENTS
The original title for this research was ‗The Scramble for the African Subscriber‘ and
came from reading articles by, as well as discussions with, Marina Bidoli, of the
Financial Mail, in late May 2003. The competitive rivalry between Vodacom and
MTN had its roots in South Africa, but Nigeria was the epic battle ground where it
finally culminated in 2003-2004. This research is a case study that will demonstrate
how competitive advantage is a systematic process that develops as rival firms, like
Vodacom and MTN, target each other in the material and interpretational domains. In
this case study competitive advantage resulted from both actions taken by Vodacom
and those taken by MTN in response.
My thanks to the following MTN staff people who were untiring in their efforts to
answer endless questions: the then CEO MTN Nigeria, Adrian Wood, (replaced by
the MTN Group COO and would also be the CEO MTN Nigeria, Sifiso Dabengwa)
Brian Goldie, Business Operations Executive, MTN Nigeria; Afam Edozie, Chief
Strategy and Marketing Officer MTN Nigeria, Yolisa Siqebengu from the MTN
Innovation Center in Johannesburg. David Clark and David Black in Nigeria, who
narrated how it all started in Nigeria and the challenges the organisation faced in those
early years. Efforts to get information from the Vodacom Group were unsuccessful.
The boardroom drama at Vodacom SA in early June 2004, illustrated how volatile,
sensitive as well as pivotal the role of Nigeria in the geographical diversification
strategies of both operators
My eternal gratitude to the following individuals, in particular my supervisor, Dr
Gillian Marcelle who challenged me and encouraged me script after script to not only
work harder, but also developed in me the love for research; Sydney Seakamela;
Nthatisi Bulane who proof read my final draft; Dr Annalie Pretorious who was a
source of encouragement and guidance and enabled this document to be successfully
and timeously completed, Last but most certainly not least, to Rainbow, you
challenged me to be the best I could ever be, just to let you know that I am greatly
indebted to you, without your confidence in me I would not have embarked on this
MBA
4
TABLE OF CONTENTS
DECLARATION ....................................................................................................................... 2
STATEMENT 1 ........................................................................................................................ 2
STATEMENT 2 ........................................................................................................................ 2
PREFACE AND ACKNOWLEDGEMENTS .......................................................................... 3
TABLE OF CONTENTS .......................................................................................................... 4
TABLE OF FIGURES .............................................................................................................. 7
LIST OF TABLES .................................................................................................................... 7
Chapter 1 ................................................................................................................................... 8
1. INTRODUCTION AND PROBLEM STATEMENT ........................................................... 9
1.1 Background of the research ................................................................................................. 9
1.2 Drivers of Growth ............................................................................................................... 9
1.2.1 Competing by Connectivity and Functionality................................................ 9
1.2.2 Competing Under New Rules, New Technology and New Demand ............................. 10
1.2.2.1 Liberalisation and Privatisation ..................................................................... 10
1.2.2.2 International Reciprocity ............................................................................... 11
1.2.2.3 Technological Development .......................................................................... 11
1.2.2.4 Growth of SA Multinationals and Multilateral competition ......................... 12
1.3 Statement of problem ........................................................................................................ 12
1.4 Objectives .......................................................................................................................... 13
1.5 Significance of the research ............................................................................................... 13
1.6 Research methodology ...................................................................................................... 14
1.6.1 Selection of Suitable Research Methodologies .............................................................. 14
1.6.2 Literature review ............................................................................................................ 14
1.6.3 Theoretical Delimitation ................................................................................................. 14
1.6.4 Key assumptions ............................................................................................................. 15
1.7 Delimitation of the research .............................................................................................. 15
1.8 Geographical demarcation ................................................................................................. 15
1.9 Layout of the study ............................................................................................................ 15
Chapter 2 ................................................................................................................................. 16
Literature Review .................................................................................................................... 16
2.1 Introduction ....................................................................................................................... 17
2.2Globalizing Telecommunications Services: The Strategic Alliance Approach.................. 17
2.2.1 Strategic Patterns: Competition through Alliances ........................................................ 18
2.2.1.1 Strategic Pattern I: Focus ............................................................................................. 19
2.2.1.2 Strategic Pattern II: Best Product-Differentiation ....................................................... 20
2.2.1.3 Strategic Pattern III: Customer-Solutions Orientation ................................................ 20
2.2.1.4 Strategic Pattern IV: Lock-in Strategy ........................................................................ 23
2.2.1.5 Strategic Pattern V: Strategic Alliances for Scale, Speed, and Scope ......................... 24
2.2.1.6 Non-Structural Alliances ............................................................................................. 24
2.2.1.7 Structural Alliances ..................................................................................................... 25
2.3 Geographic and Product Diversification ........................................................................... 25
2.3.1 Relatedness and Complementary Resource Alignment .................................................. 28
2.4 Competitive Advantage ..................................................................................................... 30
2.4.1 Micro-culture .................................................................................................................. 33
2.4.2 Macro-cultures ................................................................................................................ 34
2.4.3 Process of Competitive Advantage ................................................................................ 35
2.4.4 How firms build competitive Advantage........................................................................ 35
2.4.4.1 Strategic Investments................................................................................................... 36
2.4.4.2 Strategic projections .................................................................................................... 37
2.4.4.3 Strategic Plot ............................................................................................................... 38
2.4.5.1 Resource Allocations ................................................................................................... 40
2.4.5.2 Definitions of success .................................................................................................. 41
2.4.5.3 Industry paradigms ...................................................................................................... 43
5
2.5 Competitive advantage as a systematic outcome .............................................................. 44
2.6 Conclusion ......................................................................................................................... 46
Chapter 3 ................................................................................................................................. 48
3.1 Introduction ....................................................................................................................... 49
3.1.1 Research Process ............................................................................................................ 49
3.1.1.1 Elite interviews ............................................................................................................ 49
3.2 Qualitative research methods ............................................................................................ 51
3.3 Case Study Research Approach ......................................................................................... 51
3.3.1 Brief Historical Overview .............................................................................................. 51
3.3.2 Definition of a case study ............................................................................................... 52
3.3.3 Data Collection ............................................................................................................... 52
3.3.4 Data Analysis ................................................................................................................. 53
3.4. Writing the Study Report.................................................................................................. 55
3.5 Conclusion: ........................................................................................................................ 55
Chapter 4 ................................................................................................................................. 56
4. Introduction ......................................................................................................................... 57
4.1 Background to the rivalry .................................................................................................. 57
4.1.2 Telecom reform 1992-2002 ............................................................................................ 58
4.1.3 The Telecommunications Act 1996 ................................................................................ 59
4.2 Policy and Regulatory Institutional Framework ................................................................ 60
4.2.1 Managed Liberalisation .................................................................................................. 61
4.2.2 Policy not conducive to growth and competition ........................................................... 62
4.3. Growth of mobile phone penetration 1992-2001 ............................................................. 63
4.4 VODACOM GROUP (PTY) LTD .................................................................................... 67
4.4.1 Vodacom Group‘s ownership structure .......................................................................... 67
4.4.1.2 Vodacom‘s First Mover Advantage ............................................................................ 68
4.4.1.3 Vodacom Creating Value for Shareholders ................................................................. 72
4.4.2 Vodacom‘s Strategic Plot ............................................................................................... 73
4.4.3 Vodacom‘s market share ................................................................................................ 74
4.4.4 Revenue Growth Driven by Subscriber Growth ............................................................. 78
4.4.5 Vodacom‘s strategic investments ................................................................................... 80
4.5.1 Home market strategy..................................................................................................... 81
4.5.2 Geographical expansion curtailed .................................................................................. 81
4.6 MOBILE TELEPHONE NETWORKS (MTN) (PTY) LTD ............................................ 83
4.6.1 MTN‘s ownership structure ............................................................................................ 83
4.6.1.1 Strategy and management ............................................................................................ 85
4.6.2 MTN‘s Subscriber Growth ............................................................................................. 85
4.6.3 MTN‘s market share ....................................................................................................... 86
4.6.4 MTN‘s strategic plot....................................................................................................... 87
4.6.4.1 Home market strategy.................................................................................................. 87
4.6.4.2 Geographical expansion not curtailed ......................................................................... 89
4.6.5 MTN‘s Strategic Investments ......................................................................................... 90
4.6.5.1 Orbicom ....................................................................................................................... 90
4.6.5.2 MTN Nigeria ............................................................................................................... 91
4.7 Conclusion ......................................................................................................................... 91
Chapter 5 ................................................................................................................................. 92
Geographical expansion into Nigeria ...................................................................................... 92
5.1 Introduction ....................................................................................................................... 93
5.1.1 Nigeria and its telecommunications sector in 2000 ........................................................ 93
5.1.2 Structure of Nigeria‘s telecommunications sector .......................................................... 94
5.1.3 World‘s First Spectrum Auction Successful! ................................................................. 96
5.2 The growth of the telecommunications market ................................................................. 96
5.2.1 The players in the Nigerian telecommunications ........................................................... 99
5.2.1.1 MTN Nigeria – First Mover Advantage Implications ................................................ 99
5.2.2 Ownership Structure ..................................................................................................... 100
6
5.2.3 Expanding Footprint ..................................................................................................... 100
5.2.4 MTNN‘s Strategic Plot ................................................................................................. 101
5.3 MTN‘s market share ........................................................................................................ 102
5.3.1 Revenue Driven by subscriber growth ......................................................................... 103
5.3.2 MTN Nigeria cash cow ................................................................................................ 105
5.3.3 Strategic Investments in Nigeria .................................................................................. 106
5.3.4 MTN more profitable than Vodacom- March 2004 .................................................... 107
5.4 Vodacom‘s cautious strategic plot ................................................................................... 108
5.4.1 Challenging rival MTN ................................................................................................ 109
5.4.1.1 Vodacom‘s Strategy in Nigeria ................................................................................. 110
5.4.1.2 Shareholders uncomfortable with Nigerian Investment ............................................ 111
5.4.1.3 Late entrant into Nigerian market .............................................................................. 112
5.4.2 Vodacom‘s unsuccessful bid for Econet Wireless Nigeria........................................... 113
5.4.2.1 Other suitors for Econet Wireless Nigeria ................................................................. 114
5.4.2.2. EWN board accepts Vodacom‘s offer, ..................................................................... 116
5.4.2.3 Vodacom terminates agreement with VEE Networks ............................................... 117
5.4.2.4 Management shake-up at Vodacom .......................................................................... 117
5.4.2.5 Econet Wireless International suing Vodacom ......................................................... 119
5.4.2.6 Vodacome Vodago .................................................................................................... 119
5.4.2.7 Belated lift of ban ...................................................................................................... 120
5.5 Conclusion ....................................................................................................................... 121
Chapter 6 ............................................................................................................................... 122
Comparative Analysis ........................................................................................................... 122
6.1 Introduction ..................................................................................................................... 123
Sources of competitive advantage ......................................................................................... 123
SWOT analysis of Vodacom and MTN (1993-2001) ........................................................... 124
6.2 Comparative Analysis ..................................................................................................... 132
6.2.1 Shareholding and Strategy ............................................................................................ 132
6.2.2 Entrepreneurial and enterprising management ............................................................. 137
6.2.3. Micro-culture ............................................................................................................... 140
6.2.4 Organising for geographical expansion ........................................................................ 141
6.3 CONCLUSION ............................................................................................................... 144
6.3.1 Measuring International Diversification ....................................................................... 146
6.3.2 Measuring Performance ................................................................................................ 148
6.3.2.1 MTN‘s Critical Success Factors ................................................................................ 149
6.3.2.1.1 Organizational Integration ...................................................................................... 150
6.3.2.1.2 Leadership .............................................................................................................. 152
6.3.2.1.3 Managing strategic change ..................................................................................... 153
6.3.2.1.4 Cultural change ....................................................................................................... 153
6.3.2.1.5 Learning organisation- TCB and Innovation .......................................................... 154
6.3.3 Lessons for corporate strategy and decision making .................................................... 157
References ..........................................................................................................................160
Annexture: Comparative Financials ...................................................................................179
7
LIST OF TABLES
Table 1 Total number of Mobile subscribers ............................................................... 65
Table 2 Operators ARUP ............................................................................................ 66
Table 3 Cumulative Capex in SA and Africa ............................................................. 67
Table 4 Operators Market Share ................................................................................. 75
Table 5 Revenue, Subscriber and EBITDA Growth .................................................. 78
Table 6 Mobile data revenues ..................................................................................... 79
Table 7 Vodacom‘s revenue and EBITDA ................................................................. 79
Table 8 MTN‘s subscriber growth .............................................................................. 86
Table 9 Africa‘s tele-density comparison 1999 .......................................................... 93
Table 10 The growth of mobile in Nigeria ................................................................. 97
Table 11 Swot Analysis of Vodacom and MTN ....................................................... 126
Table 12 Comparative Summary of Key Financial Indicators 2001-2004 ............... 128
Table 13 Summary Analysis of Key Factors ............................................................ 133
Table 14 Vodacom and MTN subscriber growth Sept 08 ........................................ 134
Table 15 Selected mobile operator presence in Africa 2005/12/31 .......................... 135
Table 16 MTN vision ................................................................................................. 142
Table 17 Proportionate Subscribers ........................................................................... 148
Table 18 MTN‘s Growth .......................................................................................... 149
Table 19 MTN‘s Critical Success Factors ................................................................ 150
TABLE OF FIGURES
Figure 1 Analytical framework influencing diversification ....................................... 29
Figure 2 Sources of competitive advantage ............................................................... 31
Figure 3 How firms build competitive advantage ...................................................... 32
Figure 4 How constituents affect a company‘s competitive advantage ..................... 33
Figure 5 A systematic model of competitive advantage ............................................ 45
Figure 6 South Africa's Telecommunications Structure ............................................ 60
Figure 7 Growth of the SA Telecommunications Industry ........................................ 64
Figure 8 Mobile Teledensity in SA ........................................................................... 65
Figure 9 Vodacom‘s Organisational Structure ......................................................... 69
Figure 10 First mover advantages .............................................................................. 71
Figure 11 Operators Market Share 1999-2003 ........................................................... 77
Figure 12 Vodacom‘s market strategy ........................................................................ 82
Figure 13: MTN Group Structure ............................................................................... 84
Figure 14 MTN‘s market strategy ............................................................................... 88
Figure 16 Market Share in Nigerian Telecoms ......................................................... 104
Figure 17 Entering a Competitors Cell ..................................................................... 112
8
Chapter 1
9
1. INTRODUCTION AND PROBLEM STATEMENT
1.1 Background of the research
This case study is a research project that traces the evolution rivalry between
Vodacom and MTN in the South African market from 1993 to 2001 and then traces it
to the Nigerian telecommunication market in 2003-2004 when Vodacom made an
attempt to enter that market; it also assesses the business factors and environmental
variables that influenced the strategic directions of the two competing firms.
Specifically, this paper investigates the internal and external strategic choices that the
two SA telecommunications firms made to adapt to changes and to respond to quickly
in order to create or sustain competitive advantage, in a telecommunications industry
where they faced important challenges from new technology, liberalization and the
convergence of markets.
1.2 Drivers of Growth
Chan-Olmsted and Jamison (2001:318) have asserted that the drivers of growth for
the telecommunications industry are the expansions both of its products and
geography. Once a geographically-bound voice transmission service provided over
specialized wire based networks, telecommunications was now part of a worldwide,
integrated communications system in which voice, data, and video were transmitted
and transformed over integrated wire and wireless networks connected by network
and customer devices. That integration has redefined markets and products and
changed how rival companies, like MTN and Vodacom in this case study, compete.
1.2.1 Competing by Connectivity and Functionality
Chan-Olmsted and Jamison (2001:318) have further asserted that convergence has
dramatically changed the role of competing telecommunications companies such as
Vodacom and MTN. Instead of being geographically based and hardwired for voice
service like Telkom, they now competed on the basis of coverage and functionality.
Thus, the degree and quality of access and the variety and differentiation of features
have become the strategic focus. Coverage and functionality were interrelated because
of network effects, network providers became more attractive to customers when they
were able to deliver a critical mass of connected customers and content
10
providers/packagers, and vice versa. The critical mass, in turn, allowed the network
providers to exploit scale economies and develop and market viable features that
made the network more valuable for these customers.
While connectivity and functionality were becoming the basis of competition, Chan-
Olmsted and Jamison (2001:319) assert that the means of transmitting and switching
communications were becoming increasingly substitutable, creating pressure for price
competition. Sappington and Weisman (1996) and Huber et al. (1993) describe how
cable television networks, satellites, fiber optics, copper wires, cellular and PCS
mobile radio, and numerous other networks were substitutable for some services.
Broadcast, circuit switching, and various cell-based technologies, such as packet
switching, were also substitutable for some services. As the mobile industry grew in
South Africa during the 1993-2001 periods as well as in Nigeria from 2001, the
number of mobile telephones exceeded the number of wire-line telephones and also as
voice over the Internet grew in popularity; customers were substituting e-mail and
voice over the Internet for voice telephone calls over traditional networks.
1.2.2 Competing Under New Rules, New Technology and New Demand
An industry can be defined as global if there is some competitive advantage to
integrating activities on a worldwide base. Liberalization, privatization, and a series of
international reciprocal agreements have unleashed industries which had been held to
traditional boundaries that were nearly 100 years old, and initiated new rules that have
created a favorable environment for globalization. Technological development,
customer demand, and multilateral competition (Jamison, 1999a) in the new
converging market are pushing further the strategic importance of globalization.
1.2.2.1 Liberalisation and Privatisation
While the controlled liberalisation of the South African market in 1994 meant new
business opportunities for Vodacom and MTN, it also translated to greater
competition and possibly (in South Africa‘s case) higher profits for the incumbent
telecom service provider, Telkom, through its 50 % share holding in Vodacom (Oh,
1996). Liberalization and privatization in the early 1990s created new strategic
11
challenges for traditional telecommunication companies from developed countries and
developing countries. Many of the new market opportunities were in developing
countries, like South Africa and later Nigeria; the latter was viewed as belonging to
that group of countries that lacked strong, stable legal and regulatory institutions and
had business practices unfamiliar in most developed countries.
As a result, companies from developed countries, Vodafone in this case study,
adopted an entry strategy into the South African market, which allowed them to
acquire local expertise and that decreased the probability and cost of expropriation of
investment. Such strategies included selecting projects with fast payback, selecting
well-connected local partners, and entering markets through alliances rather than
through direct investment (Levy and Spiller, 1996; Oh, 1996; Whalley and Williams,
2000; Henisz, 2000). But the operative word for Vodafone, hence Vodacom‘s as well,
in the developing markets was ‗caution‘ as was the case in Nigeria.
1.2.2.2 International Reciprocity
The impact of liberalization and privatization of many telecom services in the global
market was enhanced further by the recent reciprocity agreement in this industry
(Guy, 1997; Flanigan, 1997). The implementation of the World Trade Organization
(WTO) Basic Agreement on Telecommunications and the 1997 FCC Benchmarks
Order substantially reduced the settlement fees that US carriers pay foreign
companies to complete calls from the US. (These fees had been set under an
international settlement system to compensate countries for handling each other‘s
traffic and for any imbalance in the volume). Before the Benchmarks Order and the
WTO Agreement in 1996, the average price of an international long distance call
originating from the United States was 74 cents per minute. By 1999, it fell 25 per
cent to 55 cents per minute (FCC, 2000). In some parts of the world, fees already have
plunged as much as 80 per cent (Reinhardt et al., 1999).
1.2.2.3 Technological Development
Technology change also drives the globalization of telecommunications. Chan-
Olmsted and Jamison (2001:321) believe it has altered not only the types of
telecommunications services available but also the Industry‘s operation/production
12
cost structure, demands from its clients, degree of product substitution, and ability in
attracting capital investment. Technology change often lowers prices and creates
higher demand for both consumer and business services, thus facilitating the growth
of the telecommunications industry in the domestic as well as global market.
Furthermore, technology is enabling the dismissal of time and distance and re-
orienting telecom pricing toward a volume or bandwidth principle. For example,
distance means nothing for Internet communications and is losing its meaning in
mobile communications. Vodacom‘s and MTN‘s expansion has been driven by
technological partnerships and this will be examined in depth in chapters 4 and 5.
1.2.2.4 Growth of SA Multinationals and Multilateral competition
As the environment of the telecom market continued to change, the nature of demand
for telecom services changed as well. Multinational Corporations demanded better
communication services to connect their expanding local branches. In fact,
telecommunications companies were destined to operate globally as they responded to
the continuous growth of multinational corporations, which increasingly commanded
worldwide, integrated, and seamless communications networks. According to
Gillward (2007) South African telecommunications investment across the African
continent, from 1999, must be the most significant investment by any single country
in Africa. Finally, the increasingly blurred industry boundaries signaled a trend
toward multilateral rivalry and collaboration as competition in one industry or in one
area spilled over into another (Greenstein and Khanna, 1997; Jamison, 1999a).
Research has shown that multilateral competition in related product markets globally
was related positively to firm performance (Geringer et al., 1989). It was suggested
that an international diversification strategy, like the one MTN chose to pursue,
outperformed that of product diversification alone, Vodacom‘s chosen strategy.
(Sambharya and Hand, 1990). Kashlak and Joshi (1994) have specifically observed
the emerging trend of telecom companies venturing into both product and
international diversification
1.3 Statement of problem
Competing firms face a challenge of growth either by product or geographical
expansion. This study analyses the rivalry in the growth of two large South African
telecommunications companies and the effectiveness of their geographical expansion
13
as evidenced by the company performance in Nigeria; the comparative analysis
provides lessons for corporate strategy and decision making.
1.4 Objectives
This research has three goals:
Firstly it seeks to examine rise to the evolution of rivalry between Vodacom
and MTN in the period 1993 to 2001
Secondly it will examine effectiveness of Vodacom and MTN in executing a
geographical expansion as illustrated by the reference to Nigeria
Lastly it will look at the lessons this expansion provides for corporate strategy
and decision making
Carrying out the comparative analysis of the performance of Vodacom and MTN
examined the following issues in a systematic way:
Structure of diversification
Shareholding and strategy
Management
Micro environment
1.5 Significance of the research
This study will investigate the internal and external strategic choices that Vodacom
and MTN made to adapt to changes and to respond to quickly in order to create or
sustain their competitive advantage. In particular they faced important challenges
from new technologies, liberalization and the convergence of markets. Initially they
focused on the new market in South Africa and new businesses emphasizing their
plans to become major players in the South African market. However after 2001, with
the entry of Cell C into the market, they refocused and restructured their businesses in
order to increase their value and improve their competitiveness as evidenced by their
entry into the Nigerian market, arguably the largest telecoms market in Africa. This
research will provide a changed insight into the specific strategic projections, strategic
plots, as well as strategic investments that MTN and Vodacom undertook to maintain,
sustain and/or create new sources of competitive advantage.
14
1.6 Research methodology
In this section, the case study methodology to be followed in the research project is
described. The following procedures will be adopted in conducting this research
1.6.1 Selection of Suitable Research Methodologies
It is essential to find suitable research methodologies for data collection and data
analysis. According to Leedey (1993:121), methodology is the operational framework
within which the facts are placed so that their meaning may be seen more clearly.
When selecting a methodology, the data to be collected should be considered, because
data and methodology are inextricably interdependent and the research methodology
adopted for a particular problem must always recognize the nature of the data
amassed in the resolution of that problem. It is therefore necessary to investigate the
data to be collected, as the nature of the data and the research problem dictate the
research methodology. Given the multifaceted nature of this research project, the case
study methodology was selected.
1.6.2 Literature review
An in-depth literature study will be conducted in order to identify the keys factors
regarding the main problem. Information will be gathered from confidential company
documents, data from resources, industry experts, libraries, the internet, newspaper
articles, journals, magazines and knowledgeable people in companies as well as from
the Link Centre at the Wits Business School in Parktown, Johannesburg.
1.6.3 Theoretical Delimitation
This research cannot attempt to cover all aspects of the problem, as the topic is
subjective and prone to broad interpretation. It assesses the business factors and
environmental variables that influenced the strategic directions of the firms.
Specifically, this research investigates the sources of competitive advantage of rival
firms and how firms respond to a competitive challenge.
15
1.6.4 Key assumptions
This section of the research sets out key assumptions made by the researcher during
the investigation. The research is focused on competitive rivalry between, Vodacom
and MTN, and also explores those aspects concerned with competitive advantage, in
South Africa, as well as how this subsequently played itself out in Nigeria.
1.7 Delimitation of the research
This research is not necessarily applicable to all industries. It is limited to the ways in
which two emerging multinational South African telecoms companies used the
competencies they acquired while competing locally to create competitive advantage
in emerging markets. Delimitation of the research serves the purpose of making the
research topic manageable from a research point of view. The omission of certain
topics and areas does not imply that there is no need to research them. The study was
confined to MTN and Vodacom.
1.8 Geographical demarcation
This case study has been restricted to South Africa as well as Nigeria. References are
made to other countries only in respect of the investments that MTN and Vodacom
have made in those countries.
1.9 Layout of the study
The dissertation has been divided into the following chapters:
Chapter 1: Introduction
Chapter 2: Literature Review
Chapter 3: Research Methodology
Chapter 4: Background to MTN & Vodacom; the evolution of corporate
rivalry & expansion strategy
Chapter 5: The geographical expansion into Nigeria
. Chapter 6: Comparative Analysis and Conclusion
16
Chapter 2
Literature Review
17
2.1 Introduction
This study examines the state of the South African telecommunications market and
assesses the business factors and environmental variables that influenced the strategic
directions of Vodacom and MTN two rival South African firms competing in the
converging global telecommunications market. Specifically, this paper investigates
the forces that have contributed to the globalization of telecommunications services,
the major telecommunications strategies that the two rivals pursued and the factors
that might have contributed to the outcome of these strategies. The nature of
competition today in the global telecommunications industry seems to center around
market activities that aim at gaining competitive advantages through strategic
combinations of resources and presence in multiple products and geographical areas.
Integration of competing technologies and the development of standardization that
facilitate interoperability between these systems, along with the alignment of goals,
information, services, and operations between firms in alliances are the keys to
competitive advantages in this technology-driven industry.
2.2Globalizing Telecommunications Services: The Strategic Alliance Approach
A telecom company has two distinct choices to pursue growth in the global market. It
can either enter directly by building the product/service offerings with its own
resources in the target country, or it can collaborate with other firms (Joshi et al.,
1998). The ‗new entrant‘ globalization strategy gives the telecommunications firm the
freedom of choice in markets and technologies. However, it is a slower and more
costly process, inevitably lacks initial brand name recognition, lacks local political
and business expertise, and increases risk of expropriation of investment. This
approach is especially undesirable where time and speed are critical and where
resource commitments in a particular market, segment, or technology might be too
risky a pursuit for a company by itself, as in the case of the global telecom market
(Joshi et al., 1998). A telecommunications company may also enter a target market
through a strategic alliance relationship with other firms. The phrase ‗strategic
18
alliance‘ has been used very frequently in the news reports of today‘s
telecommunications industry. A strategic alliance is a business relationship in which
two or more companies, working to achieve a collective advantage, attempt to
integrate operational functions, share risks, and align corporate cultures. The degree
of strategic alliances may range from a simple licensing agreement, to joint marketing
effort, to establishing a consortium, to combining resources for joint ventures, to the
ultimate form of mergers and acquisitions. Companies may be interested in alliances
to capitalize on different expertise, build strategic synergies, mitigate risks, speed up a
venture with combined resources, and develop scope economies (Chan-Olmsted,
1998)
2.2.1 Strategic Patterns: Competition through Alliances
To explore the strategic patterns of the major telecommunications companies in the
global market, this study will subscribe to the generic strategic taxonomy for
analyzing industries and competitors proposed by Porter management framework that
is especially appropriate for studying firms‘ competitive behavior in a complex,
uncertain market environment, as in the case of the converging global telecom
industry (Hax and Wilde, 1999). Porter suggested that most competitive actions fall
into one of the three generic strategies: cost leadership, differentiation, and focus
(Porter, 1980). By achieving the lowest cost structure in the industry, a company can
either reduce its prices or keep the increased profits to invest in research to develop
new and better product and/or to market their products more vigorously. The
development of scale economies often contributes to a company‘s ability to
materialize low cost operations.
The second strategic approach, differentiation, involves making a product/service
appear different in a certain aspect (e.g., design, reliability, and service) in the mind of
the consumer through mostly a marketing/branding process. A focus strategy is when
a company concentrates on a market area, a market segment, or a product. The
strength of a focus strategy is derived from knowing the customer and the product
category very well so as to establish a ‗franchise‘ in the marketplace (Porter, 1980).
Hax and Wilde (1999), while recognizing the influential strategic framework
espoused by Porter, argued that the generic strategies do not describe all the ways
19
companies compete in the current environment. Based on the research of more than
100 companies, they proposed a new business model, the ‗triangle‘ strategic options
for firms that compete in the current economy. These potential options include ‗best
product,‘ ‗customer solutions,‘ and ‗system lock-in.‘ The best product approach is
similar to Porter‘s cost leadership or differentiation strategy with a focus on ‗product
or service.‘ That is, a company may choose to develop the ‗best‘ product by
aggressively pursuing economies of scale, product and process simplification, and
significant product market share that allow it to exploit experience and learning
effects. A company may also try to develop the ‗best‘ product in the consumer‘s mind
by differentiating itself through technology, brand image, additional features, or
special services. The customer solutions strategic option focuses on ‗customers‘ by
anticipating, studying, and offering a bundle of products or services that are
customized to satisfy most if not all needs of a specific target group. Finally, the lock-
in strategic option emphasizes ‗market collaborators‘ instead of the product or the
customer. In this case, the company actually concentrates on nurturing, attracting, and
retaining complementors (e.g., cell phone manufacturers and mobile networks),
providers of products and services that add economic value to its products or services
(Hax and Wilde, 1999). The three alternatives have different scope and scale
emphases. At the extreme end of the best-product position, scope may be trimmed to a
minimum to develop scale economies and thus enable low cost. As a company moves
to differentiate or bundle products, its scope is necessarily expanded. When a
company reaches the stage of including complementors, it would have moved from a
scale to a scope emphasis.
2.2.1.1 Strategic Pattern I: Focus
According to Chan-Olmsted and Jamison (2001) there appears to be two segments of
telecom companies that have approached the market with more of a ‗focus‘ strategy.
The first group involves public telecom operators such as NTT and China Telecom.
Either because of the recency of restructuring or the regional uniqueness, these major
Public Telecoms Operators (PTOs) center their growth activities in the Asian region
(i.e., a ‗geographical focus‘ strategy), unlike their European counterparts such as
Deutsche Telekom and Telefonica, which have sought expansion opportunities not
only in EU but also in other high-demand areas such as the US and the Americas. The
20
other group that has focused on a particular market segment is the mobile cellular
operators. While many traditional wireline service providers are expanding the scope
of their services to include wireless communications networks, mobile
communications companies such as Vodafone AirTouch and Mannesmann have
stayed in this particular product segment. AT&T is attempting to develop focus by
breaking itself into a family of four companies — AT&T Wireless, AT&T
Broadband, AT&T Business, and AT&T Consumer (Rosenbush, 2001).
2.2.1.2 Strategic Pattern II: Best Product-Differentiation
Many telecom service providers have attempted to develop brand assets and
marketing programs that would differentiate them in this converging global market
according to Chan-Olmsted and Jamison (2001). Because of the integration of
services and geographical markets, the new generation of telecom companies needs to
establish a market position that is associated with a growing market area and steers
clear of a regional utility label. In other words, the new telecommunications
multinationals are avoiding being linked with brands that highlight a service (e.g.
telephone) combined with a geographic component (e.g., British). A move from
British Telecom to BT is to limit potential constraints on its ‗brand elasticity‘
(Samzelius and Camman, 1996). Many of the key players continue to distant
themselves from the old economy image and begin to build differentiated brand
images that stress leadership in high growth areas, especially in mobile
communication and the Internet. For example, France Telecom implemented a major
branding campaign that promoted a new logo and visual identity for its worldwide
communications and branded the international carrier as an innovative, customer-
oriented Net company, delivering services focused on wireline, wireless and
availability of multimode connections (e.g., telephone, cable, and mobile connections)
for a seamless telecom network to customers, mostly through alliances, has also
become a differentiated point for companies like MCI WorldCom and AT&T Internet
convergence (France Telecom, 2000).
2.2.1.3 Strategic Pattern III: Customer-Solutions Orientation
21
Many of the global telecom companies have adopted a customer-solution strategy,
attempting to provide the connectivity/coverage and features that are attractive to the
customers, Chan-Olmsted and Jamison (2001) further assert. There are basically three
types of customers whose needs are driving multinational investments by
telecommunications companies. Large multinational customers often want a single
network to provide them with end-to-end telecommunications across multiple
countries (Kramer and NiShuilleabhain, 1997; Antonelli, 1997; Jamison, 1998). These
needs for smooth end-to-end networking drive telecommunications companies to
pursue local-to-global-to-local network strategies or local-to-regional-to-local
strategies. In fact, the emphasis on end-to-end coverage has pushed some
telecommunications companies to establish their own local networks where their
customers have business locations and connect these networks via their global or
regional network. Qwest and KPN in 1999 formed a joint venture to create a pan-
European IP-based fiber optic network linked to Qwest‘s infrastructure in North
America for data, voice, and video.
MCI WorldCom has invested extensively in building pan-European networks to
provide service. To stay competitive in the region, Telmex has made investments in
operators throughout the region including Guatemala (Telgua) and Puerto Rico
(Cellular Communications). A local-to-global-to-local network with facilities in
different regions will reduce a telecom company‘s reliance on incumbent phone
monopolies, enable it to deliver greater value and better quality of service control to
its customers, and improve the profitability of pricing and capacity decisions. The
importance of building such a seamless network often becomes an incentive for
alliances. For example, Concert, which includes BT and AT&T, is an alliance formed
to pursue a local-to-global- to-local strategy. In addition to the demand of end-to-end
network, customers no longer view wireline telephone, wireless telephone, and
Internet as separate products. As a result, some telecommunications companies are
bundling the products into a single price, or giving customers discounts for buying
more than one (William and Willow, 1997). For example, BellSouth offers a single
bill for wireless, Internet, and wireline products. The focus here is on the customer‘s
economics, rather than the product‘s economics. And telecom services bundling
would likely bring positive impacts on the customer economics either by lowering the
customer‘s internal costs or by allowing the customers to have higher revenue. It was
22
estimated that as the Internet continues to drive the growth of the global
telecommunications industry, so-called ‗data‘ would constitute 80 per cent of traffic
and voice the remaining 20 per cent of the total by the year 2010 (Raphael, 1998).
Following the consumer demand, many telecom players have ventured into this high
growth area. MCI WorldCom has various online joint ventures, including one with
Yahoo in Internet access service (Warner, 1998). British Telecom and AT&T through
the alliance of Concert, the joint venture that provides telecom services to
multinational companies, is investing $2 billion over three years on the development
of e-commerce services (British Telecom, 2000). Deutsche Telekom has just agreed
to purchase Debis System, a leading e-commerce and corporate communications
software company (Deutsche Telekom, 1999). And Telefonica has invested heavily in
content development, aiming to become a key player in the creation and distribution
of content across markets and systems (e.g., via its Internet service provider, Terra
Networks SA; TV services; and its cell-phone unit, Telefonica Moviles, in addition to
the traditional wire network) (Telefonica Telecom, 2000). A customer-solutions
strategic option calls for the development of partnerships and alliances, linking
various firms‘ ability to complement a customer offering.
MCI WorldCom is an example of expanding horizontally across a range of related
services for the targeted customer segment, or bundling. Chan-Olmsted and Jamison
assert (2001) that through a series of acquisitions such as Uunet Technologies, MFS
Communications, Brooks Fiber Communications, and GridNet, it is able to bundle
services such as local, long-distance, Internet, and advanced services together to
reduce complexity for the customer. To develop a pan-European network, BT has
purchased 26 per cent of Cegetel in France, entered a joint venture, Viag, in Germany,
and participated in joint ventures with Telfort in The Netherlands, Albacom in Taly,
Airtel in Spain, Ocean in Ireland, Telenordia in Sweden, and Sunrise Communications
in Switzerland (Valletti and Cave, 1998; British Telecom, 2000). Also, instead of
setting up a Spanish portal internally, Telmex entered a joint venture with Microsoft
to develop a region-wide Spanish-language portal, counting on Microsoft‘s extensive
software applications, portal applications and strong branding and its own regional
expertise and extensive access network (Hoover, 2000). To match customers‘
communications needs, scale also becomes essential for the telecom multinationals.
23
Scale involves both customer base and geographic reach. Customer base is the
number, size, and type of customers that connect directly with the company‘s
network. Customer base is important because it determines a network‘s value or
strength for making markets and interconnecting with other networks (Kramer and
NiShuilleabhain, 1997; Yoffie, 1997) For example, Frontier Communications began
as a local exchange company in New York and leveraged its local customer base to
succeed in long distance. In 1997, Frontier provided local service in combination with
long distance service, Internet, wireless, or calling card services to 40 per cent of its
local telephone customers (Frontier Corporation, 1998). Incumbent local exchange
companies in Finland had similar success when they began competing in long
distance. Southern New England Telephone in the US had a similar experience when
it entered the long distance market (Jamison, 1999a).
2.2.1.4 Strategic Pattern IV: Lock-in Strategy
Because the epitome of this strategy is achieving the de facto proprietary standard, it
appears to fall short for the telecom market. In this industry, system lockin is difficult
to achieve because of open standards (e.g., TSP/IP, Java, RJ11 jacks), network
interconnection requirements as mandated in the 1996 Act and by the EU (e.g., per
EU, Vodafone has to allow open access to its network for 3 years), competitor
propensity to compensate for lock-in (e.g., subsidization of mobile handsets in the
US), and rapid technological change (e.g., innovation destroyed dBase‘s lock-in).
Positive feedback is important in some systems (e.g., Instant messenger) and may
create a tipping effect (e.g., Acrobat), but has only minor effects in other systems
(e.g., mobile phones). However, mergers and alliances allow companies to internalize
positive feedback and so profit from integrating across markets. Also, creating open
standards in all components of the system (e.g., IBM‘s open PC), except your own
(e.g., Windows), allows the proprietary component provider to extract monopoly
profits from a large market if the system achieves market dominance.
24
2.2.1.5 Strategic Pattern V: Strategic Alliances for Scale (Cost Leadership),
Speed, and Scope
The strategies presented so far are not mutually exclusive and may be combined
depending on a company‘s particular circumstances according to Chan-Olmsted and
Jamison (2001). Note that one central theme runs through all options presented so far.
It is the strategy of forming alliances to achieve size, speed, and/or scope in the
market. Why and how do telecoms multinationals embrace globalization with such an
alliance emphasis? Oh (1996) suggested that the strategic objectives of global
alliances in this market are: (1) to reduce risks and entry costs into new markets,
especially in regional trade blocks, through joint production and marketing efforts, (2)
to improve global competitiveness with cost-effective procurement of critical
commodities or components and produce economies of scale through global alliances,
(3) to co-develop and co-produce high-tech products more efficiently and effectively,
and (4 benefit from the advantages of pooling limited resources. Joshi et al. (1998)
also found that most strategic alliances occurred between telecom firms that have
broad product lines and focus on product innovation and new market development.
They also discovered that most of the alliances which took place outside the US were
within industry, while most alliances that occurred in the U.S. were inter-industry.
Such developments may reflect the domestic deregulation in the US on cross-market
competition and trends toward international privatization and deregulation of national
telecom industries. We will now discuss the different alliance approaches in gaining
scale, speed, and/or scope advantages.
2.2.1.6 Non-Structural Alliances
The telecommunications industry has seen the development and collapse of many
major alliances such as Global One and World Partners/Unisource. Such alliances are
easier to set up and undo than a merger, and are often established to create strategic
synergies, pool resources, gain access to technology, procure critical
components/production /marketing assets/ relationship, and mitigate risk. Through a
non-structural alliance, partnerships in the forms of marketing agreements, licensing,
joint ventures, and partial equity often involve major global telecommunications
players and shape the direction of competition in the market. Oh (1996) has stressed
25
that telecom multinationals select the type of alliance depending on their relative
positions with respect to size, profitability, capital structure, and R&D capability. He
argued that the more profitable, heavily invested in R&D a firm is, the more self-
sufficient it is and thus more likely for it to rely on non-structural alliances. Size and
capital structure also influence a firm‘s alliance options and flexibility.
2.2.1.7 Structural Alliances
Acquisition occurs when one company acquires the operating assets of another in
exchange for cash, securities, or a combination of both. Typically the acquired
company continues to exist, while a merger is a combination of two corporations in
which only one corporation survives. In a merger, the acquiring company assumes the
assets and liabilities of the merged company. A merger differs from a consolidation,
which is a business combination whereby two or more companies join to form an
entirely new company. Theoretically, consolidation is a friendlier, cooperative deal
than either a merger or acquisition because it provides equal footing in the new firm
for each corporation. Strategic alliances through mergers and acquisitions present an
especially attractive avenue for the telecommunications industry since the
multinationals will be able to integrate different communications segments quickly,
capture a developed customer base, consolidate smaller niches, remove a rival and
prevent competition from doing so, and accelerate the implementation of new
technologies with combined resources. In sum, such integration a preferred method of
growth when speed and scale economies are the key to success, as it is in today‘s
information marketplace. To quickly establish a presence and leadership in the
converging telecommunications market is another important incentive for many
companies pursuing Merger and Acquisitions activities. For example, attempting to
establish an instant presence in the European wireless market, France Telecom
proposed to acquire E-Plus, one of the remaining large mobile communications
companies in the region (Young, 2000). To enter the growing US telecom market,
Deutsche Telekom has tried unsuccessfully to acquire both Qwest Communications
and US West (Shinal, 2000).
2.3 Geographic and Product Diversification
26
Diversification has had a rich tradition as a topic of research since the late 1950s
(Ansoff, 1958; Chandler, 1962; Gort, 1962). Booz, Allen, and Hamilton (1985)
defined diversification as a means of spreading the base of a business to achieve
improved growth and/or reduce overall risk that may take the form of investments that
address new products, services, customer segments, or geographic markets. Salter and
Weinhold (1979) proposed three general but related models in the discussion of
corporate diversification strategies. The product/market-portfolio model emphasizes
the attractiveness of the target market in terms of attributes such as market size,
growth rate, and profitability. The strategy model stresses the interrelationship
between the core-business market and the target market, which is the emphasis of this
study. The third approach, risk/return model, derives mainly from financial theories
and reflects the concern and interest of investors. Studies of diversification have
generally focused on one or more of the three aspects of diversification: (a) the
―extent‖ (i.e., less or more diversification), (b) the ―directions‖ (i.e., related or
unrelated diversification), and/or (c) the ―mode‖ (i.e., diversification via internal
expansion/ mergers and acquisitions or choices of mergers and acquisitions [M&A]
strategy) of diversification (Qian, 1997; Sambharya, 1995).
Diversification strategy may be studied from either the ―product‖ or ―geographic‖
perspective. More recent studies in product diversification often investigate the
directions of diversification as related or unrelated (Qian, 1997; Rumelt, 1984). Some
have argued that related diversification might exploit economies of scope, product
knowledge, and other relevant experience, thus reducing transaction costs and
improving performance (Grant, 1988; Williamson, 1981). Others have found no
differences or the opposite (Grant & Jammine, 1988; Michel & Shaked, 1984). In
general, the resource-based view of strategic management strongly argues for
strategic relatedness within a conglomerate when it comes to diversification strategy
(Chatterjee & Wernerfelt, 1991).
International market or geographic market diversification may be defined as when a
firm is horizontally and vertically integrated across different national submarkets
(Hisey & Caves, 1985). The benefits of diversifying internationally originate from
two sources—greater opportunities for higher returns and lower correlations of assets
across countries (Cavaglia, Melas, & Tsouderos, 2000). Research has shown that
27
international diversification provides firms with significant advantages, including
better firm performance (Hitt, Hoskisson, & Ireland, 1994; Tallman&Li, 1996). Some
studies, on the other hand, concluded that performance declines are associated with
increased international diversification, especially when the multinational firms‘
expansion is in developing countries (Collins, 1990). The inconclusive results may be
due to the notion that the relationship between international diversification and firm
performance was curvilinear, as increased complexity of international operations and
exposures to uncertainties, coupled with risk in consumer tastes, regulations, or access
to distribution, may lead to performance declines (Geringer, Beamish, & da Costa,
1989; Hitt, Hoskisson, & Ireland, 1994; Mitchell, Shaver, & Yeung, 1992).
As for the interrelationship between international and product diversification, some
research has shown that both diversifications individually have no effect on firm
performance, but their interaction leads to a substantial increase in firm performance
(Sambharya, 1995). Hitt, Hoskisson, and Ireland (1994) found that geographical
diversification improves performance in firms that are highly diversified in terms of
product markets. In fact, Kim, Hwang, and Burgers (1989) concluded that the
performance of related and unrelated product diversification strategies depends on the
degree of international diversification. In terms of the directions of diversification,
some have advocated that relatedness is especially important, as the utilization of core
skills, know-how, and management resources is necessary in reducing uncertainties in
the process of internationalization (Qian, 1997). Many have stressed that
organizational learning can be used to counter cultural barriers when diversifying
internationally, and firms that diversify internationally can exploit economies of scale
and scope, resource sharing, and core competencies across related business units (Hitt,
Hoskisson,&Ireland, 1994; Shambharya, 1995). Nevertheless, studies have also
indicated an inverse relationship between product and international diversification
(Buhner, 1987; Madura&Rose, 1987).As both types of diversification involve
substantial risks, it is unlikely that a firm would take on both strategies simultaneously
(Shambharya, 1995). In sum, geographic and product diversifications interact with
one another and, individually and collectively, influence differential firm performance
(Grant, 1987; Palepu, 1985).
28
2.3.1 Relatedness and Complementary Resource Alignment
The type of diversification one would expect to result from a resource depends on its
specificity within a particular industry (Chatterjee & Wernerfelt, 1991). The products
of global media conglomerates are quite different from the typical focus of many
diversification studies, which examined mostly manufacturing and, occasionally,
service firms. The major distinction between media and non-media products rests in
the unique combination of the following media characteristics. First, media
conglomerates offer dual, complementary media products of content and distribution.
Second, media conglomerates rely on dual revenue sources from consumers and
advertisers. Third, most media content products are nonexcludable and nondepletable
public goods whose consumption by one individual does not interfere with its
availability to another but adds to the scale economies in production. Fourth, many
media content products are marketed under a windowing process in which content
such as a theatrical film is delivered to consumers via multiple outlets sequentially in
different time periods (e.g., pay per view, pay cable network, and broadcast network).
In a sense, the total potential revenue for such a content product depends on the total
number of and pricing at these distribution points. Finally, media products are highly
subjective to the cultural preferences and existing communication infrastructure of
each geographic market/country and are often subject to more regulatory control from
the host country because of their pervasive impacts on individual societies.
The listed characteristics of media products lead to a market environment in which
related product/geographic diversification as well as complementary resource
alignment are likely to be the preferred diversification strategy. For example, as the
intangible, content-based media product may be stored and presented in various
formats (e.g., print vs. electronic media), related product diversification that extends a
conglomerate‘s product lines into related content formats (e.g., owning a magazine
and an online content site) would likely benefit the conglomerate by enabling content
repurposing, marketing know-how, and sharing of production resources, thus leading
to superior performance. It is also likely for media conglomerates to seek out
distribution products that complement their content products and vice versa. Such a
resource alignment concept has been discussed extensively in many alliance
literatures, which emphasize the importance of accessing resources that a firm does
29
not already possess yet which are critical for improving its competitive position
(Barney, 1991; Das & Teng, 1998).
Figure 1 Analytical framework influencing diversification
Source: Chan-Olmsted and Chung (2003)
The symbiotic relationship between media content and distribution products presents
a classic case of resource alignment. The fact that an existing product may be
redistributed to and reused in different outlets via a windowing process reinforces the
advantage of diversifying into multiple related distribution sectors in various
international markets to increase the revenue potential for such a product. The dual-
revenue source mechanism would likely lead to related and complementary
diversification, as the larger aggregated number of subscribers/audience enhances a
conglomerate‘s ability to offer multinational corporations promotional outlets more
efficiently. The nature of public goods, on the other hand, encourages the geographic
diversification of content products, as the incremental costs are minimal for such
expansions. Finally, because of the importance of cultural sensitivity and
understanding of the regulatory environment, global media conglomerates are more
30
inclined to diversify into related product/geographic markets to take advantage of the
acquired local knowledge and relationships. The dependency on local
communication/media infrastructure may also lead to a diversification strategy that is
geographically related, as regionally clustered countries are often at similar stages of
infrastructure development, and clusters of media systems may lead to cost/resource-
sharing benefits.
2.4 Competitive Advantage
Following on from Chan-Olmsted and Chung‘s (2003) analytical framework
influencing diversification model above, this section will now examine how, as
Rindova and Fombrun (1999; 691) have asserted, competitive advantage develops as
firms like Vodacom and MTN and constituents strategically target each other in the
material and interpretational domains. Competitive advantage, they go on to add,
results both from actions initiated by firms and those taken by constituents in
response. Rindova and Fombrun (1999) see these actions as multidimensional in that
they affect outcomes in all four domains; they are also interconnected in that they
form multiple cycles of activities through which the four domains are continuously
constructed and reproduced. They therefore conclude that for these reasons,
competitive advantage is a systemic outcome, rather than an outcome of isolated
activities (Porter, 1985).
Competitive advantage, as Rindova and Fombrun (1999;693) further assert, derives
from activities that span the four domains of action described in Figure 2.2 These four
domains of the competitive terrain derive from two dimensions. The first dimension
distinguishes the material and interpretational domains. It contrasts the emphasis by
traditional strategy research on the role of material resources with the burgeoning
literature that highlights how individual, group, and industry-level interpretational
processes affect strategic interactions (Porac, Thomas, and Baden- Fuller, 1989;
Walsh, 1995). Cognitive simplification (Schwenk, 1984), competitive blindspots
(Zajac and Bazerman, 1991), competitive categorization (Porac and Thomas, 1990;
Reger and Huff, 1993; Lant and Baum, 1995), industry recipes (Spender, 1989),
industry mindsets (Phillips, 1994) are known to bias, constrain, channel, and
otherwise influence how managers perceive their environments and make strategic
choices
31
Figure 2 Sources of competitive advantage
(Source Rindova and Fombrun 1999)
In this view, the competitive terrain is defined (South Africa in Chapter 4 and Nigeria
in Chapter 5), not only by the resource conditions in various markets and potential
rents associated with them (Scherer and Ross, 1990; Barney, 1986b), but also by the
knowledge, expectations, and sensemaking of firms‘ managers and of constituents
that interact with firms in an industry. Sensemaking (Weick, 1995) (a term that MTN
and Vodacom interpreted differently as will be outlined in Chapter 6) in industries
comprises comprehending, understanding, explaining, attributing, extrapolating,
predicting (Starbuck and Milliken, 1988: 51) and—ultimately— deciding to engage in
exchanges and to allocate resources.
According to Rindova and Fombrun (1999) the second dimension divides the
competitive terrain into domains of action that fall either outside or inside a focal
firm. Resource-based theories, for instance, emphasize the importance of the internal
domain—firm-specific capabilities, knowledge, and assets—in creating competitive
advantage (Penrose, 1959) as was the case with Vodacom in South Africa and MTN
in Nigeria. Industrial economists point to external factors predominantly in a firm‘s
product market, such as product differentiation or market concentration (Scherer and
Ross, 1990). The external domain includes all constituents, who engage in exchanges
32
in product, factor, labour, and capital markets. It also includes institutional
intermediaries that transmit and magnify information about firms and constituents.
Competitors, like Vodacom and MTN in this case study, affect the construction of
competitive advantage by taking actions in the four domains and creating strategic
options for their shareholders.
Thus the rivalry between Vodacom and MTN manifested itself in the variety strategic
of options made available to them. The strategic choices that Vodacom and MTN
made among competitive offerings available to them, measure the relative success of
each of their strategies and the degree to which each has gained advantage. Insofar as
Vodacom and MTN interacted with the same constituents and vied for their attention,
approval, and resources, they were each other‘s competitors (Freeman and Hannan,
1983). Thus, the boundaries of an industry and a market are determined not only by
how Vodacom and MTN have defined their businesses (Abell, 1980) but also by how
constituents understand and choose among these businesses.
Figure 3 How firms build competitive advantage
(Source Rindova and Fombrun 1999)
Therefore, the external domains is better described not as an industry but as an
organizational field consisting of actors, like Vodacom and MTN, who interact
33
repeatedly, exchange information, form coalitions, and are aware of each other
(DiMaggio and Powell, 1984).
The two dimensions describe four domains of action in which Vodacom and MTN
and constituents interacted. The external–material domain consists of various
markets—principally the product, labour, factor, and capital markets—in which
Vodacom and MTN as well as constituents exchanged resources. In the internal–
material domain, Vodacom’s and MTN’s resources were deployed in the production
of goods and services. In the internal interpretational domain knowledge, values, and
beliefs moulded both Vodacom‘s and MTN‘s micro-culture. In the external–
interpretational domain expectations, performance standards, and evaluations of
Vodacom and MTN evolved and formed the industry‘s macro-culture.
Figure 4 How constituents affect a company’s competitive advantage
(Source Rindova and Fombrun 1999)
2.4.1 Micro-culture
In contrast to market and resource models that advance an economic rationale for the
existence of competitive advantage, cognitive research in this case study will
emphasizes the importance of Vodacom‘s as well as MTN‘s strategic decision-
34
makers and their interpretations of economic conditions (Daft and Weick, 1984; Porac
and Thomas, 1990; Zajac and Bazerman, 1991). Vodacom‘s and MTN‘s managers‘
interpretations were deductions from the world legitimated within the organization‘
(Weick, 1979a: 42), whether from their culture (Schein, 1985), knowledge base
(Spender, 1989), or identity (Albert and Whetten, 1985; Fiol, 1991). The term
‗micro-culture‘ to refers to the knowledge, values, and identity beliefs in Vodacom
and MTN that were consistent with a broad definition of culture as ‗the pattern of
shared beliefs and values that give the members of an institution meaning and provide
them with rules for behavior ‘ (Davis, 1984: 1).
Vodacom‘s and MTN‘s knowledge, values, and beliefs were resources that created
sustainable competitive advantage, in SA and in Nigeria (respectively), insofar as they
were valuable, rare, and difficult to imitate (Spender, 1993; Barney, 1986a; Fiol,
1991). In addition, knowledge, values, and beliefs created an advantage for Vodacom
in South Africa and MTN in Nigeria, through their influence on information
processing and behaviour (Ginsberg, 1994). As cognitive structures unique to both
Vodacom and MTN (Weick, 1979a), they enabled their strategists to make superior
evaluations of the rent-earning potential of their respective firm‘s resources relative to
each other (Penrose, 1959; Barney, 1986b). They also guided the actions of all
members of Vodacom and MTN and enabled them to enact a systematic strategic
direction (Meyer, 1982; Reger et al., 1994).
2.4.2 Macro-cultures
Researchers have also called attention to the importance of interpretations external to
a firm—to the ‗macro-culture‘ of its industry and the transactional network from
which it derives (Huff, 1982; Spender, 1989; Abrahamson and Fombrun, 1992, 1994).
A macro-culture arises from the interactions between firms and their constituents,
mediated by institutional intermediaries, such as the media, political, social and
economic environments and various specialized organizations like the regulatory
bodies, like ICASA in South Africa and the NCC in Nigeria (Hill and Jones, 1992;
Fombrun, 1996). As Vodacom and MTN interacted and exchanged information, they
constructed a web of interpretations characterized by: (1) a widespread exchange of
information and interpretations among themselves; (2) varying degrees of knowledge
35
and understanding about the industry and the their role inside it; (3) a multiplicity of
interpretations, many of which are of a persuasive, self-serving nature; (4) some
degree of agreement about standards of performance in the telecoms industry; and (5)
evaluations of both relative to these standards and each other that gave content to
their reputations. Insofar as the interpretations of constituents create preferences for
some firms (and their products, stocks, and the like) over others, favourable
interpretations are a source of advantage. The structure of the telecommunications
market in SA and Nigeria will be discussed in Chapters 4 and 5 respectively.
2.4.3 Process of Competitive Advantage
Rindova and Fombrun (1999) assert that each of the four domains described in the
previous section is associated with a more or less developed body of research.
However, observing and researching Vodacom‘s and MTN‘s activities in any single
domain is not sufficient to explain how a firm, like Vodacom, gained its competitive
advantage in South Africa and subsequently lost it on the African continent. As Astley
and Van de Ven, (1983: 267) have argued that, ‗To say that A causes B and B causes
A may be predictive, but intellectually sterile until one can explain the processes by
which the reciprocal relationship unfolds over time.‘ This research contends that
competitive advantage is a systemic outcome of six processes that connect these
domains. Furthermore, through these connecting processes the four domains
constitute and mutually produce each
other. For analytic purposes, each process will be examined separately; in the
subsequent sections to show their dynamic interconnectedness.
2.4.4 How firms build competitive Advantage
Rindova and Fombrun (1999) assert that firms, like Vodacom and MTN, construct
their distinctive strategic positions through three generic processes: (1) they pick
strategic investments, (2) they make strategic projections, and (3) they develop a
strategic plot. These processes will be described from the perspective of each of the
two firms in chapters 4 and 5. However, Vodacom and MTN represent the strategic
behaviour of all competing firms in an industry. To what degree and in what form
they have engaged in any of them is an empirical question. The similarity of the
36
competitors‘ actions in an industry varies with the degree of imitability (Lippman and
Rumelt, 1982) and isomorphism (DiMaggio and Powell, 1984). In turn, the conditions
of imitability and isomorphism are created through processes that are initiated by
constituents, and which we elaborate later in the paper. Figure 2.2 shows how the
processes initiated by firms span markets, firms‘ resources and micro-cultures, and
industry macro-cultures.
2.4.4.1 Strategic Investments
A firm‘s strategic investments create value for shareholders by providing them with
options that satisfy their interests. Shareholders exchange resources with firms whose
options they perceive to be of superior value. A given firm regularly makes
investments to build competitive advantage, whether by developing new products,
augmenting its distribution channels, or enhancing its production capability. The
fundamental purpose of strategic investments, that Vodacom and MTN have made,
was to create and exploit opportunities for positive economic rents (Rumelt, Schendel,
and Teece, 1991). Through investments competing firms, like Vodacom and MTN,
secure more favorable configurations of industry factors (Porter, 1980) and protect
those favorable positions from rivals (Caves and Porter, 1977; Bogner, Mahoney, and
Thomas, 1994). What drives strategic investments are the resources available to the
firm and the productive uses its top managers envision for them (Penrose, 1959).
Thus, strategic investments originate simultaneously in a firm‘s resource base and in
its culture. Traditional approaches to competitive advantage emphasize how resources
are used to gain positions better than those of competitors (Porter, 1980). In this
study, that author contends that investments build competitive advantage when they
create value for specific resource-holders. Kim and Mauborgne (1997), for example,
found that high growth companies did not focus on competitors but on customer
needs—an approach they termed ‗the logic of value innovation.‘ By not focusing on
competitors, value-innovators better distinguish the factors that deliver value from the
factors the industry competes on. They concentrate resources on investments that have
the highest impact on customer evaluations. They do so by eliminating product
features that the industry takes for granted or adding features that the industry has
ignored.
37
Similarly, a focus on suppliers‘ value may require strategic investments in developing
cooperative relationships, in contrast to a competitor focus that may require bidding
down suppliers‘ prices to outperform rivals on costs of inputs, like MTN‘s
cooperation with Erickson in the development of products. Kim and Mauborgne
(1997: 106) observed that ironically, value innovators do not set out to build
advantages over the competition, but they end up achieving the greatest advantages.‘
Strategic investments create value for constituents both by satisfying needs and by
creating needs. Otherwise, firms tend to over invest in existing customers (like
Vodacom and its investment in its network in SA see chap 4) and to ignore customers
in emergent markets (Christensen and Bower, 1996). By making investment choices
about customer groups, product functions, and the resources and technologies
necessary to serve them, a firm satisfies its constituents, as well as defines its business
and its competitors (Abell, 1980).
Thus, a firm‘s targeted investments to particular resource-holders also affect the
competitive conditions of its rivals; Vodacom‘s investment in SA influenced rival
MTN‘s choice of strategic investments. MTN, in turn, made strategic investments to
protect its position and relationships with resource-holders, through innovations,
acquisitions, or other strategic actions. Strategic investments can undermine the
competitive advantage of a firm when they are insufficient, misdirected, or their value
is not understood by shareholders. Inadequate investments not only fail to attract
resources in the material domain but also raise doubts about the strategic direction of
the firm and taint its overall reputation in the interpretational domain, as was the case
with Vodacom in Nigeria as will be examined in Chap 5.
2.4.4.2 Strategic projections
Even well-targeted investments may not contribute to competitive advantage if their
value is not apparent to constituents. To stimulate and enhance favourable
interpretations of their investments firms engage in strategic projections. Rindova and
Fombrun (1999) have defined strategic projections as controlled images projected in
social interaction through communication to secure favourable evaluations by others.
As such, they resemble the impression management tactics of individuals (Goffman,
38
1959; Tedeschi, 1981). Whereas strategic investments also may serve as signals and
indirectly convey information about a firm (Shapiro, 1983), strategic projections are
explicit communications about characteristics of the firm. They appear in a wide
range of forms including advertising, logo development, financial reports, and press
releases (Salancik and Meindl, 1984).
In general, through strategic projections competing firms, like Vodacom and MTN:
(1) provide more information about their strategic investments—information which
shareholders may use in making their decisions; (2) offer to shareholders ready-made
interpretations of their investments; and (3) impress desirable symbols in
shareholders‘ minds. In addition to influencing interpretations, strategic projections
contribute to the formation of firm-related schemata, such as corporate reputations,
‗cautions Vodacom‘ and ‗entrepreneurial MTN‘ (Formbrun, 1996; Rindova, 1997).
Specific interpretations and reputational schemata affect how constituents evaluate a
firm and how they choose to allocate the resources they control. Strategic projections,
therefore, affect both the interpretational domain and the material domain.
Like inadequate strategic investments, inadequate strategic projections may
undermine a firm‘s competitive advantage. This aspect will be explored further in
Chapter 5 with regards to Vodacom. Strategic projections that misrepresent a firm‘s
investments may have legal consequences (in Vodacom‘s case they faced a legal
challenge from an irate Econet Wireless International over Econet Wireless Nigeria)
or may destroy a firm‘s credibility and trustworthiness (in Nigeria, Vodacom‘s exit
was the butt of many jokes in the local media, with one newspaper making fun of it‘s
prepaid offering; ―Vodacome Vodago‖ (Fombrun, 1996). Further, because strategic
projections come in a variety of forms, they can easily convey disparate images of a
firm. The more consistent strategic projections are with one another and with a firm‘s
strategic investments, the more useful they are to constituents in making
interpretations and the more they contribute to the construction of competitive
advantage.
2.4.4.3 Strategic Plot
39
The process that accounts for the consistency between a firm‘s material resources and
its micro-culture, as well as between its strategic investments and projections, is the
formation of a strategic plot, according to Rindova and Fombrun (1999). A firm‘s
strategic plot reflects some continuity in its activities. It contributes to competitive
advantage by providing a long-term context, within which constituents can attribute
meaning to specific investments and projections. It reflects the firm‘s intended
strategy—its business definition (Abell, 1980) and generic type (Porter, 1980; Miles
and Snow, 1978), as well as emergent strategy—resulting from the co-evolution of
material resources and organizational culture. On one hand, the development of
strategic plots depends on managers‘ understandings of the resources the firm controls
and the potential combinations of these resources in productive services (Penrose,
1959). A belief system, such as a firm‘s ‗dominant logic‘ (Prahalad and Bettis, 1986),
guides a firm‘s strategic choices, and through them, the resources it seeks to acquire
and combine. On the other hand, the dominant logic of a firm grows out of managerial
experience with existing resources and reflects them (Mahoney and Pandian, 1992).
Micro-cultural elements develop to support current uses of resources. Leonard-Barton
(1992) found that high-tech organizations are culturally biased toward their
engineering staff and often give them privilege in decision-making.
Both a firm‘s micro-culture and its resource commitments determine the strategic plot
from which its investments and projections originate. Consistency among the three
processes initiated by a firm enhances its competitive advantage; inconsistencies can
cause one of the domains (either resources or culture) to lag behind and misfire, as
was the case with Vodacom and its abortive attempt to enter Nigeria. Strategic
projections not supported by investments can lead to loss of credibility; investments
not supported by strategic projections may fall short of realizing their value-creating
potential; and if both processes are not supported by the strategic plot of the firm, they
will lack the continuity to feed into a virtuous cycle that constructs competitive
advantage, this was what the Deputy CEO and Head of Vodacom International,
Andrew Mthembu came to know, albeit late, when he was fired from Vodacom in
2004. However, the processes initiated by a firm are only one side of the coin:
Vodacom‘s actions in SA where one side of the coin as outlined in Chapter 4. The
construction of competitive advantage also depends on how rival MTN in the
organizational field responded to and revised competitive conditions; MTN‘s
40
response to Vodacom‘s competitive advantage in SA will be examined in greater
detail in Chapter 5, as it sought to revise, redefine and shift the competitive arena
from South Africa to the African Continent and beyond.
2.4.5 How the actions of Vodacom influenced MTN’s competitive Advantage in
Nigeria
Shareholders alter competitive conditions and contribute to the construction of
competitive advantage through three processes: (1) resource allocations among firms;
(2) definitions of success; and (3) development of industry paradigms shared
understandings among constituents about how firms in an industry create value.
Figure 2.3 depicts these processes and shows how they interrelate the four domains of
action.
2.4.5.1 Resource Allocations
Rindova and Fombrun (1999) assert that shareholders, engage in interactions with
firms to further their own objectives: They allocate the resources that they control by
making buying and selling decisions, investment decisions, and employment
decisions. Each decision shifts resources to alternative uses and contributes to
determining which of their firms enjoy competitive advantage. Assessments of ‗better
value‘ depend partly on shareholders‘ own objectives, and partly on the strategic
investments and strategic projections that competing firms have made, this was the
case with Vodacom and MTN in South Africa and Nigeria respectively. Assessing the
value that firms offer is a complex task performed with incomplete information.
Cognitive limitations in perception and interpretation prevent shareholders from
making accurate assessments (Schwenk, 1984). Given limitations in evaluating firms
and industries, shareholders routinely rely on ready made interpretations in the
ambient macro-culture of the industry (Abrahamson and Fombrun, 1992, 1994).
Just as the strategic investments of firms originate both in their resource bases and
their micro-cultures, so are the resource allocations of constituents informed by the
macro-culture of the organizational field. Macro-cultures facilitate constituents‘
sensemaking. They do so by providing shareholders with industry paradigms and by
41
supplying them with definitions of success. For example, reputational ratings are an
element of a company‘s macro-culture that help reduce uncertainty about firms‘ likely
behaviours or future levels of performance (Weigelt and Camerer, 1988; Rao, 1994;
Formbrun, 1996), which was a very important consideration for both MTN and
Vodacom in Nigeria. Much as individual schemata encourage automatic information
processing and foster schema-consistent behaviour (Fiske and Taylor, 1990; Gioia,
1986), so do reputational schemata encourage shareholders to make resource
allocations and to sustain their allocations in reputation-consistent directions
(Wartick, 1992), Vodacom‘s reputation has since been associated with ‗caution‘ in
exploring ‗the dark continent‘, whereas MTN‘s has built a reputation of being
entrepreneurial as well as enterprising in emerging markets.
By individually channeling resources to favoured firms, shareholders create in
aggregate the various markets for firms‘ products and services. As shareholders shift
their resource allocations, they change market conditions and, through them, the
resources a firm has access to. Shareholders‘ choices gradually build the resource and
structural conditions of an industry. These choices support some firms and reject
others, convert some products and stocks into fads and fashions, and render others
obsolete. From the choices of shareholders, a restructured industry, and the relative
competitive positions of firms in the industry, emerges; this factor will be examined in
chapter 6.
2.4.5.2 Definitions of success
Shareholders express their judgments of firms, not only through their resource
allocations, but also through direct statements about the relative success of firms in
meeting their expectations. Rindova and Fombrun (1999) have also asserted that
definitions of success contribute to a firm‘s competitive advantage by affecting the
firm‘s overall position in the interpretational domain that surrounds an industry.
Vodacom‘s and MTN‘s shareholders, in this study, observed, interpreted, and made
sense of their firms and their actions; they also exchanged information, organized, and
even took collective action to influence their firms (Hill and Jones, 1992).
Shareholders compare their direct evaluations of firms against institutionally
transmitted information emanating from other shareholders and the media (Hill and
42
Jones, 1992; Fombrun and Shanley, 1990), and use this information to categorize
firms and judge their ability to deliver value.
Categorizing rivaling firms, like Vodacom and MTN, into strategic groups, rank-
ordering them in reputational rankings and featuring them as exemplars are common
ways through which shareholders provide firms with direct definitions of success.
Cognitive strategic groups result when observers perceive competing firms, like
Vodacom and MTN, to be more or less similar on important strategic dimensions
(Porac and Thomas, 1990; Lant and Baum, 1995; Reger and Huff, 1993). Cognitive
simplification and elaboration lead shareholders to develop categories to which they
assign firms; interaction and exchange of information among shareholders lead them
to share categorizations of firms (Reger and Huff, 1993).
Differential perceptions about firms act as mobility barriers that surround strategic
groups (Formbrun and Zajac, 1987; Reger and Huff, 1993). Category membership
itself is graded: Some firms come to represent the industry more than others and some
firms are more stable members of a group (Porac and Thomas, 1990). Over time, the
prototypical firm is equated with success and becomes the benchmark against which
all others are evaluated.
Reputational rankings are another manifestation of shareholders‘ differential
perceptions of firms that affect competitive advantage, Rindova and Fombrun (1999)
further assert. Whereas competitive categorizations reflect the map of the industry that
shareholders have constructed, reputational rankings reflect an ordering, a status
hierarchy with implications about the superiority and inferiority of its members.
Reputational rankings assess firms‘ performances on different criteria and directly
compare firms with one another. Reputational rankings incorporate the demands of
resource-holders, which may differ significantly and, as such, may generate
contradictory rankings. For instance, some companies top the lists of ‗best places to
work;‘ others are ranked ‗most environmentally responsible;‘ and others yet are
ranked as ‗most admired companies‘ overall. These lists regularly constructed by
institutional intermediaries define multiple success measures in an industry.
43
By placing firms at different levels in reputational rankings, shareholders not only
create exemplars and role models for competing firms, like Vodacom and MTN to
follow, but also collectively define the success criteria that firms seek to include in
their micro cultures (Formbrun, 1996). Business school deans report that these
competing firms ‗live and die‘ by the highly popular rankings of business schools
published by Business Week and U.S. News and World Report (Martins, 1998: 295).
Hall (1992) reported that the managers he surveyed considered company reputation
and product reputation to be the two most important intangible assets contributing to
their firms‘ success. Although research on the effects of reputational rankings on
firms‘ cultural practices is limited, social identity theory suggests that the definitions
of success used by external constituents influence a firm‘s identity.
Reputational rankings act like institutional mirrors: As competing firms like Vodacom
and MTN, observe their reflections in those institutional mirrors, they adjust their
micro-cultures and material resources to conform better to the definitions of success
set by constituents (Dutton and Dukerich, 1991). These mirrors, however, often
reflect the cumulative interpretations of observers rather than the current state of the
firm. This position of the firm in the interpretational domain serves as a confirmation
of its strategies and did not urge a company-wide overhaul of its micro-culture and
resources.
2.4.5.3 Industry paradigms
In order to allocate resources among firms in an industry, shareholders of competing
firms like Vodacom and MTN, try to understand the products, prospects, and
dynamics of the industry. They rely not only on information about firms‘ actions, but
also on interpretative frameworks that explain what those actions mean (Weick,
1995). Dosi (1982) suggests that industry members develop ‗technological paradigms‘
that guide the problems they work on and the kinds of solutions they propose to
address those problems. In similar ways, Vodacom‘s and MTN‘s shareholders, in an
organizational field develop shared understandings about such critical assessments as
what constitutes efficient allocation of resources in the industry; which products are
better; and how to assess risk/return trade-offs in the industry. These shared
understandings, along with the preferences of constituents they guide and the
44
advantageous positions of firms they confer constitute key elements of industry
paradigms.
Shared understandings arise both from the strategic projections of firms and from the
interpretations provided by institutional intermediaries, such as ‗buy–sell‘
recommendations of financial analysts or product evaluations by consumer
organizations. Key shareholders, of MTN and Vodacom, as well as institutional
intermediaries affect the development of the industry paradigm through their own
interpretations and resource allocations. As they interpret industry conditions,
investors, bankers, and analysts, for instance, confirm an industry paradigm by
authorizing flows of financial capital to perceived ‗winners‘ and denying funds to
perceived ‗losers.‘ In similar ways, customers affect the development of the industry
paradigm by purchasing the products of winners and ignoring those of losers. Their
resource allocations broadcast signals about the relative success of competing firms.
2.5 Competitive advantage as a systematic outcome
Having discussed debated the issues above, Rindova and Fombrun (1999) come to the
conclusion that competitive advantage develops as firms, such as Vodacom and MTN,
and constituents strategically target each other in the material and interpretational
domains. In this case study, competitive advantage resulted both from actions initiated
by Vodacom and those taken by MTN in response. These actions were
multidimensional in that they affected outcomes in all four domains; they are also
interconnected in that they form multiple cycles of activities through which the four
domains were continuously constructed and reproduced. For these reasons,
competitive advantage is a systemic outcome, rather than an outcome of isolated
activities (Porter, 1985). Figure 2.5 diagrams the interrelatedness of the six processes
of which competitive advantage is a systemic outcome.
Although the competitive interactions were divided into material and interpretational
domains for analytical purposes, these levels reciprocally determine each other:
Material cues originate in resource exchanges and affect interpretations;
interpretations in turn affect choice and execution of material activities (Porac et al.,
1989.) For example, constituents‘ definitions of success provide firms with an
45
interpretational context for understanding the resource allocations of constituents
across firms, as well as with input for adjusting their micro-cultural world-views. In
addition, they directly construct the material domain by guiding exchange—related
choices. As Porac et al. (1989: 399–400) observed:
material and cognitive aspects of business rivalry are thickly interwoven. Technical
transactions along the value chain provide an ongoing stream of cues that must be noticed
and interpreted by organizational decision-makers. Transactions are themselves partially
determined by the cognitive constructions of organizational decision makers. Beliefs about the
identity of competitors, suppliers, and customers focus the limited attentional resources of
decision-makers on some transactional partners to the exclusion of others
Although material and interpretational conditions produce each other, the
development of competitive advantage is not an automatic process. Competing firms
like Vodacom and MTN selectively invested and allocated resources, projected and
reflected images. Weick (1995: 81) describes the processes of selective perception
and action as enactment and extraction of cues:
Cues are enacted in the sense that each competitor( both MTN and Vodacom) made strategic
choices on the basis of its beliefs, and these choices put things out there that constrain the
information that the firms got back. What the firm got back (in Nigeria in particular) affected
the next round of choices.
In the model presented in Figure 2.5, Vodacom ‗put out there‘ technologies, products,
investments, and communications. MTN used the cues provided by Vodacom in their
own enactment cycle of resource allocations and communications. They ‗extracted‘
cues
in the sense that others see these enacted changes and extract them as cues of larger trends.
Thus, others (MTN) come to use the same cues for their strategic choices, as does the firm
(Vodacom) that first enacted those cues and made them available for extraction.
Figure 5 A systematic model of competitive advantage
46
(Source Rindova and Fombrun 1999)
In turn, firms read into constituents‘ allocations and definitions of success signals
about market trends that guide their subsequent investments and projections. Industry
features, such as dominant designs, industry concentration, mobility barriers, isolation
mechanisms, reputational orderings, exemplars, winners and losers, emerge and
crystallize from these processes. Thus, Vodacom and MTN externalized their strategic
choices in the material and interpretational domains through the processes of
investments, projections, allocations of resources, and definitions of success. They
also objectified and internalized the resulting pattern of interactions by forming
strategic plots and industry paradigms through which they adjusted beliefs and
behaviours in ways that reflected their objectified reality. Along the way, therefore,
Vodacom and MTN, as rival and competing firms, jointly constructed the competitive
reality that they came to inhabit
2.6 Conclusion
This section of the research has outlined the theoretical models that will be used for
analyzing how effective were the two protagonists locked up in a rival competitive
struggle to dominate the telecommunications market in South Africa and beyond. In
particular, it has demonstrated that competing firms have different strategic offerings
that their stakeholders can choose from in order to grow their businesses. The chapter
47
also demonstrated that geographical expansion improved the performance of an
organisation and that organisational integration improved the organisation‘s strategic
response and effectiveness to a competitive challenge. Thus competitive advantage
develops as firms and constituents strategically target each other in the material and
interpretational domains and gain competitive advantage by embarking on a
geographical expansion. Thus in this study MTN competitive advantage resulted both
from actions initiated by Vodacom and those taken by MTN in response. These
actions are multidimensional in that they affect outcomes in all four domains; they are
also interconnected in that they form multiple cycles of activities through which the
four domains are continuously constructed and reproduced. For these reasons,
competitive advantage is a systemic outcome, rather than an outcome of isolated
activities.
48
Chapter 3
Research Methodology
49
3.1 Introduction
This chapter will outline how this multi-disciplinary study required a range of
research data in order to gain a holistic perspective on the issues by using qualitative
data analysis. This research will then demonstrate how using the case study approach;
it sought to examine a number of factors in order to provide a holistic framework of
the key drivers and trends in the evolution of rivalry between Vodacom and MTN.
3.1.1 Research Process
Defining the problem is the first step in any research project and is also the most
important. Problem definition involves stating the research problem and identifying
its specific components (Malhotra, 1996:35). The tasks involved in formulating this
research problem included discussions with the key decision makers, interviews with
industry experts and other knowledgeable individuals, analysis of secondary data, and
qualitative research. These tasks helped the researcher understand the background to
the problem by analyzing the environmental context of the problem.
Problem formulation then resulted in a set of objectives and research questions. The
research objectives consist of the research question, the hypotheses, and the scope of
the research. Research questions are refined statements of the specific components of
the problem and, essentially, include questions such as What? Why? When? Where?
How? While hypotheses are possible answers to the research question, the scope of
the research defines the boundaries (Ali, 2003:295). It is only when the research
problem or opportunity has been identified clearly that the research may be designed
and conducted properly.
3.1.1.1 Elite interviews
To triangulate and add rigour to the research process, key individuals at MTN Nigeria
were interviewed by the author in 2003-4 in Nigeria using semi structured interviews
as well as key players in the telecoms industry, to incorporate the user experiences
from a number of perspectives. The process involved interviewing organizational
elites at MTN Nigeria that included, the members of staff that had been involved in
the start up of the operations in Nigeria, the Chief Marketing and Strategy Officer, the
Sales and Distribution Executive, the Regional Sales Executives in Port Harcourt,
50
Lagos and Abuja, the then CEO in 2003-4 as well as the new CEO who was also
MTN Group COO from 2004 and had been the MTN SA MD, as well as officials
from the Nigerian Communications Commission. The author also had access to the
MTN Innovation Center in Johannesburg and was also privy to confidential company
documentation
However Delaney (2007) points out the elite technique also presents the dilemma of
access and the researcher could not have access to Vodacom given that at the time he
was a contract employee of MTN International. Thus the researcher had no direct
access and had to rely on secondary data, subsequent requests to Vodacom‘s Chief
Information Officer for information and interviews not successful and the researcher
was referred to the Vodacom website. Delaney (2007) goes on to point out that these
problems were mitigated and turned into an advantage leading to better quality
interview data. Interviewing MTN elites in this case study added an important
dimension to a topic as it allowed a more thorough understanding of the strategic
plots, strategic investments and strategic projections as well as motivations, interests
and perceptions of those with significant power and influence in the organization
particularly at the time that Vodacom was attempting to enter Nigeria which was just
about the same time that a robust looking Globacom was also challenging MTN.
Telecoms are often considered to be a key strategic advantage by most businesses. As
a result interviewees, particularly from Vodacom, were reluctant to divulge
commercially sensitive information. Exploring topics like the Nigerian venture, ideas
and engaging in conversation about Vodacom‘s strategy were more likely to reveal
information without threatening the interviewee. Aspects that were delved into with
the MTN team included understanding the importance of telecoms to businesses, their
strategy in South Africa, Nigeria and beyond, their relationship with the NCC, range
of services purchased and quality-of-service issues. In reporting the results of these
interviews, the respondents‘ names, will not be disclosed because of confidentiality
concerns.
51
3.2 Qualitative research methods
The fundamental characteristic of qualitative research attempts to view events,
actions, norms and values from the perspective of the people who are being studied.
This approach also entails a capacity to penetrate and understand the frame of
reference within which the research is being undertaken. Qualitative research is
assumed to generate concepts that are then able to form the building blocks of theory
(Bryman and Burgess, 1994:219). There is still significant debate about the extent of
the generalisability of the theory created as well as the degree to which theory is being
generated, however. (Glaser and Strauss, 1967:220) Qualitative research is situated
within a holistic context, so that the meanings ascribed are set within a context of
values, practices, underlying structures and multiple perceptions. Therefore, the
methodology involved multiple methods by which information was drawn from
various sources using different methods. The research incorporated a range of
methodologies, similar to the approach adopted by Krairit (2001).
3.3 Case Study Research Approach
3.3.1 Brief Historical Overview
Case study research is a long established methodology. Edwards (1990) stated that in
the past, it was considered somewhat unscientific. An inappropriate focus on a
quantitative nomothetic methodology modeled on physics pulled the psychology
profession away from ecological, naturalistic research approaches and also from
intensive study of single cases. However, the criticism that was directed at the
approach has become less regular in recent years. The reason for this has partly been
due to a greater requirement of all types of research to be practically applicable
(Foster, Gomm, & Hammersley, 2000). Researchers began to recognize the
importance of the case study approach and single case investigations for the
development of a knowledge base that is unobtainable through traditional group
designs in research (Edwards). A case study approach allowed this researcher to
conduct an in depth comparative analysis between two organizations, Vodacom and
MTN, which yielded relevant insight and results while looking at the individual or
organization in its entirety.
52
3.3.2 Definition of a case study
According to Yin (1994), a technical definition began with the scope of a case study
as set out in chapter 1 sec 1.3 which stipulated that this researcher would make use of
the case study method because they deliberately wanted to cover contextual
conditions that would be relevant to the case study. This involved studying an existing
phenomenon, of rivalry, within its real life context. An experiment, however, would
separate a phenomenon from its environment so the attention was focused on selected
variables. However, because phenomena and contexts are not always completely
distinguishable from each other, it was necessary to include other technical
characteristics within a definition, such as data collection (chaps 4 & 5) and data
analysis techniques (chapter 6).
Mitchell (1983) places an emphasis on the development of theory (outlined in chap 2)
and defines case study as a detailed examination of an event, in this case study it is the
rivalry between Vodacom and MTN, which the researcher believed exhibited the
operation of some identified theoretical principle, competitive advantage. Both these
definitions encompass different aspects of case studies and the combination of the
technical along with the theoretical components is the basis of this particular study.
3.3.3 Data Collection
The research approach combined data-gathering activities into qualitative methods
which included interviews, policy analysis and company annual reports and records
with data analysis which examined industry data like market shares, connectivity,
revenues, profitability and strategy in order to draw conclusions about the current
levels of competition and the structure of the market. The triangulated data-gathering
approach was used and includes primary and secondary sources such as policy-
makers, investors, service providers and users. This method was utilised to ensure that
a holistic picture of the South African market was analyzed. Throughout the data-
gathering process, the analysis framework outlined in chapter 2 was used to guide the
relevant issues and supporting data.
Quantitative data collection consisted of a process of collecting already available
secondary data that was published by reliable sources. The use of secondary research
53
sources was chosen as the sources below were believed to provide the most accurate
data available. It would have been impossible to conduct primary data collection
within this study, from Vodacom in particular, given the time and resource
constraints, as well as the commercial sensitivity of the information. The key data
sources for the quantitative aspect of the study were:
SA technology market research reports from BMI Technologies, Media
Africa, SAtoZ, Stats SA, Company Annual Reports, Nedlac, Analyst Reports,
Link Center, The Edge;
Policy and regulatory information from government gazettes, NCC Icasa,
media reports;
Technology market research company reports, i.e. International Data
Corporation,
Pyramid Research (Economist Intelligence Unit), Media Africa, BMI
Technologies, etc;
International data indicators from the ITU, OECD, World Bank, IMF;
Website market indicators from international regulators; and
Proprietary research to which the researcher had access.
The data set mainly contains information published by Telkom, Vodafone, Vodacom
and MTN, particularly annual reports, press releases, and information from additional
resources such as newspapers, and specialised journals which reported on business
events.
3.3.4 Data Analysis
Data analysis was done in conjunction with the literature review. Key issues arising
from the literature review were highlighted, e.g. key indicators of competition, policy
and regulatory structures, market structure, technology choices, strategy etc, and used
as the benchmark against which to compare the two rivals. The authors for the
literature review were chosen because they are generally regarded as leaders in
telecoms growth, telecoms rivalry, and telecoms policy and market liberalization as
well as on competitive advantage. In some cases, these justified the reasons for
departure from international experience in view of the unique South African
54
condition. In others, they highlighted problem areas, like policy and regulation and
potential future problems, like the growth of the African telecoms market and the
increasing interest in the sector from non-African operators.
Data gathered from the interviews and company records and annual reports was used
to summarize the perspectives of the various stakeholders, particularly in attempting
to characterize and understand the South African market. The data was then analyzed
in terms of key competition indicators such cumulative market share, subscriber
growth, profitability, geographic coverage, investment, technology used, execution of
strategy, network reliability, regulatory and impact on business. In the analysis, the
researcher tried to prioritize and rank some of the key issues of concern raised namely
(1) shareholding and strategy (2) entrepreneurial and enterprising management (3)
micro-culture and (4) organizational structuring for geographical expansion as well as
draw out common views and threads emerging from the various phases of analysis.
The analysis not only based on key competition indicators but also conducted a
comparative analysis that adhered to the following principles:
1. The analysis made use of all of the relevant evidence; that was done in chapter
6, a comparative analysis of Chapters 4 ( the factors that gave Vodacom
Competitive advantage in South Africa) and 5 (The factors that gave MTN
competitive advantage in Nigeria)
2. The analysis considered all of the major rival interpretations, and
explored each of them in turn (The analysis drew on the relevant factors in
both chapters 4 & 5)
3. The comparative analysis addressed the most significant aspect of the study as
detailed below:
(1) Shareholding and strategy
(2) Management
(3) Micro-culture
(4) Organising for geographical expansion
55
The comparative analysis drew on the researcher‘s prior expert knowledge in the area
of the case study, but in an unbiased and objective manner.
3.4. Writing the Study Report
Writing this study report was a daunting task, because at this point the researcher
needed to discriminate between what was to be included and the wealth of evidence
that would not appear in the report, but stay in the case study database. Effective
analysis of the results assisted in providing a structure. The task of writing this
dissertation appeared less overwhelming as the researcher observed the advice to all
researchers which was to write up as the research proceeded. Drafts of literature
review and methodology sections were written in parallel with data collection. A key
factor in determining the coverage and presentation of the case study report was the
intended audience. This particular study was undertaken as part of the fulfillment of
the conditions for the Master of Business Administration Degree with the University
of Wales, Cardiff, UK. Thus for this dissertation, mastery of methodology, and an
understanding of the way that the research made a contribution to existing knowledge
were important considerations, in particular how effective were these two protagonists
in executing a geographical expansion and what lessons the experiences of Vodacom
and MTN have provided for corporate strategy and decision making
3.5 Conclusion:
The aims of this chapter were to give a brief outline of the theoretical bias of the
research process as well as to discuss the practical details of how the research was
conducted. The practical process and some of the problems encountered were
highlighted, particularly the issue of the element of bias as a result of the non-
responses from, Vodacom. As outlined secondary sources were used to corroborate
the data collected, namely the company annual reports, from Vodafone, Telkom as
well as MTN, NCC, Pyramid Research, Financial Mail the Link Centre at the
University of Wits in Johannesburg, and thus the element of bias was minimized. The
next two chapters will deal with the results of the survey, after analyzing as well as
interpreting them. The practical development of the case study
56
Chapter 4
The Evolution of Rivalry
57
4. Introduction
This chapter will trace the evolution of rivalry between Vodacom and MTN. It will
review the internal and external strategic choices influenced by their respective
shareholders who made decisions about geographical expansion. It will also trace how
Vodacom created and to sustained its competitive advantage in South Africa. The
chapter will also examine how MTN organized itself to challenge Vodacom‘s
competitive by choosing a different growth strategy that enabled it to acquire skills as
an emerging market player.
4.1 Background to the rivalry
Despite its political isolation, as far back as the late 1980s, Gillwald and Esselaar
(2004) believe that the technological and economic drivers of digitalization and
liberalization compelled the South African state to acknowledge that the monopoly
telecom utility, Telkom, was not meeting the needs of a modern economy. The late
1980s, South African Postal and Telecommunication Services (SAPTS) had been
beset by a number of problems common to many Public Telecommunications
Providers (PTP). The most notable being its enormous debt, which made expansion
impossible. A confluence of international and domestic pressures, including the trend
towards asymmetrical deregulation abroad and the pressure of the anti-apartheid
struggle at home resulted in the Department‘s commercialization in 1991. It would
have required significant levels of investment in the network that the state could no
longer provide to keep it afloat. Besides servicing less than 10% of the population,
despite waiting lists going back years, uneven and inefficient internal investments –
even after corporatisation in 1991 – had produced a gold-plated public operator. South
Africa began to pry open its market in the early 1990s, in line with global trends at the
time; towards the introduction of facilities-based competition aimed at shifting the
financial demands on the state for the provision of telecommunications on to the
private sector indebted network.
However, beyond structural changes affecting financial operations and corporate
governance, the locus of power and the mechanics of the monopoly remained
completely unchanged. The monopoly provider, Telkom SA Ltd fell to the control of
58
the Postmaster- General and the Minister who continued to determine tariffs and fees.
Telkom retained the power to prohibit others from offering any service without its
explicit authorization preserving a direct link through the Minister, between
government and the licensee. As The Sunday Times editorial aptly characterized it at
the time, "Whatever similarity exists between [Telkom‘s] stranglehold on telephonic
communications and private enterprise is in the imagination only of the government
which foisted it on the public".
Cohen (2002) believed that the second phase of liberalization and the opening up of
its fixed line market to competition took place in 1994. The democratically elected
government was facing the challenge of economic and social development created by
the ravages of apartheid, and thus required detailed government policy in every sector.
Telecommunications was no exception. Cohen further believed that, since the
promulgation of the 1996 Telecommunications Act, developmental objectives,
particularly universal service, the advancement of small and medium enterprises
(SMMEs) and the empowerment of historically disadvantaged individuals rivaled
more pedestrian sectoral reform goals often prioritized in other countries, such as the
promotion of innovation and competition.
4.1.2 Telecom reform 1992-2002
In 1994, the ANC government inherited a Telco that had largely failed to resolve its
legacy dilemmas, inefficiency and debts. Little had changed, except that the delivery
of telephone services to redress past inequality was now a stated government priority
linked to the broader developmental goals that had buttressed the ANC‘s election
platform. According to Cohen (2002) thus begun an historic consultation process,
somewhat distinctive in its inclusiveness where all sectoral stakeholders participated
in the development of a White Paper on telecoms policy which was ultimately to
become the blueprint for legislation and a future beacon for assessing how the
consultative policy product had been finally realized and, where appropriate, deviated
from. The White Paper articulated a commitment to the ideal that telecommunications
was not simply an aspect of development, but rather a precondition for its success.
Thus, under the oversight of an independent regulator, competition would be
59
gradually phased in while allowing a limited exclusivity for Telkom to concentrate on
the roll-out of service to the previously disadvantaged.
4.1.3 The Telecommunications Act 1996
The Telecommunications Act of 1996 laid out the process for developing policies and
regulations for the sector and envisioned detailed processes of consultation for
effecting major and minor changes in the policy and regulatory landscape. Horwitz
and Currie (2007) believe that the 1996 Telecommunications Act vested in the
Minister several of the powers the White Paper had reserved for the Regulator and
eliminated the White Paper‘s painstakingly achieved liberalization timetable in favor
of ministerial discretion regarding when and if various segments of the sector would
be opened to competition (Republic of South Africa 1996b). The changes not only
delayed the liberalization of the sector but created jurisdictional conflicts that were
easily exploited by an opportunistic incumbent network operator, resulting in the
effective doubling of the exclusivity period. Like most incumbent operators, Telkom,
managed by its savvy and almost congenitally litigious SBC equity partner, was bent
on maintaining its sectoral dominance and thwarting potential competitors to its
service offerings and profitability.
In assessing the South African Telecommunications reform, Melody (1999) noted that
countries with monopoly telcos must make a commitment to empowering regulators
to implement policies. Using SA as an example, he notes that ICASA – the
Independent Communications Authority of South Africa – is not truly independent,
nor does it have any real authority to impose its will. The over-riding challenge for
Africa, he says, is ―to create regulation that leads, rather than lags, technological and
market developments, providing a catalyst for investment and growth in e-
economies.‖ In this regard he strongly recommends the separation of telecoms
facilities and services, comparing this with what happened in the computer industry.
Since software was unbundled from hardware, the software market has grown very
much faster and now dwarfs the hardware market. Thus efforts to induce investment
through facilities-based competition were all-but scuttled by the lack of administrative
capacity, convoluted licensing process and accusations of political interference.
60
4.2 Policy and Regulatory Institutional Framework
The key stakeholders in the policy and regulatory debate included, as outlined in the
Telecommunications Act of 1996:
Cabinet and the Minister for Communications.
Parliamentary Select Committee on Communications.
Department of Communications.
The Independent Communications Authority of South Africa (ICASA), the
regulatory body established in 2000 to replace the South African
Telecommunications Regulatory Authority (SATRA) and the Independent
Broadcasting Authority (IBA) established by means of the ICASA Act dated
May 2000.
Figure 6 South Africa's Telecommunications Structure
61
Marcelle (2001) noted that the government had both a majority shareholding role in
Telkom SA and by default a shareholding in Vodacom and as well as a major role in
the development of the policy and regulatory framework. The Minister of Public
Enterprises had the responsibility for the restructuring state assets, while the Minister
of Communications was tasked with the responsibility for development of
telecommunications policy. Marcelle (2001) also noted that in addition to the above
mentioned arms of the legislative and executive arms of government, there were also
a number of other key decision making and lobbying bodies that influenced the
development of policy objectives for the sector, including:
Representatives of organised labour (part of the Consultative Forum).
South African Value Added Network Services (VANS) Association.
The African Telecommunications Forum recently renamed the South African
Telecommunications Forum.
The above section looked at the early period of reform in the SA telecoms industry,
the next section will deal with some of the consequences of the reforms that were
implemented by the newly elected ANC government.
4.2.1 Managed Liberalisation
The new government‘s chosen policy was one of managed liberalisation, which
followed a three stage process:
Partial Privatisation of Telkom in 1997 through the sale of 30% state to
Thintana Communications consisting of the US conglomerate South Western
Bell Company and Telekom Malaysia
The maximisation of state assets where the state‘s preoccupation shifted from
the initial private offering (IPO) to creating conditions that would maximise
Telkom‘s share price.
After the listing of Telkom on both the Johannesburg and New York Stork
Exchanges in 2003, Thintana Communications then sold its 30% stake in
2004.
However Horwitz and Currie (2007) believe that SBC strategy in this whole saga was
to maximise the value of Thintana Communications‘ investment during Telkom‘s 5
year exclusivity period and then exit quickly. After all, SBC had helped draft the
62
Telecommunications Act of 1996 and made sure that it comported to the company‘s
requirements. SBC had not only been the managing partner at MTN, but had also
participated in a similar process in the US, where the US Telecommunications Act
had also been passed in 1996.Thintana signed a ―Shareholders‘ Agreement‖ with the
South African Government in May 1997, which bound the Government to terms
rather favorable to the company. That document has never been released publicly – its
contents remain unknown even to the Regulator. The Shareholders‘ Agreement was
never made public because, according to Jim Myers (an executive at SBC), some of
its provisions bound the Government so stringently and gave Thintana
Communications so much control, that had they become public knowledge it would
have raised huge outcry. Clauses in the Shareholders‘ Agreement stipulated that once
the Telecommunications Act was in place neither Telkom nor Thintana
Communications would be compelled to follow any legislation that violated the
Shareholders‘ Agreement. This created strong incentive for Government to prevent
legislation that might violate – and make public – the Shareholders‘ Agreement.
4.2.2 Policy not conducive to growth and competition
The South African treasury may have benefited in the short run from the initial
privatization and the March 2003 sale of Government-held (share price sheltered)
Telkom stock. The latter sale represented South Africa‘s biggest attempt to spread
share ownership to the black majority through what was known as the Khulisa Share
Scheme. According to Horwitz and Currie (2007) in the view of most analysts, the
exchange of liberalization and competition for privatization was damaging to the
larger economy.
World Wide Worx MD Arthur Goldstuck recently unveiled its Cisco Internet Access
in South Africa 2008 report, showing a significant slowdown in Internet users in
South Africa during the 2001 to 2006 period when Telkom‘s monopoly was at its
strongest and most damaging. This, according to Goldstuck, was a clear indication
that Government‘s "managed liberalisation was a deeply flawed and damaging policy,
becoming a euphemism for maintaining the status quo". Goldstuck argued, however,
that communications minister Ivy Matsepe-Casaburri should not be blamed as she
was merely pursuing the officially cabinet-backed policy directives.
63
A recent column by Vodacom‘s ex-CEO Alan Knott-Craig, in the Financial Mail,
went one step further, saying that ―the telecommunications industry has been
fortunate to benefit from the light but firm touch of Communications Minister Ivy
Matsepe-Casaburri and her team." Knott-Craig also said that ―in SA, a predictable and
stable legislative environment had made the South African industry very attractive to
foreign investors. Proof of that was that one month after the biggest financial crisis in
decades, Vodacom‘s UK shareholder, Vodafone, said that it would invest R22,5
billion in SA to increase its share in Vodacom by 15%.‖ Many consumers, however,
argued that Vodacom was one of the biggest benefactors of the government‘s
managed liberalisation policies, making it easy for Knott-Craig to warm up to the
communications minister.
4.3. Growth of mobile phone penetration 1992-2001
Unlike its fixed-line telecommunications market, South Africa boasts a vibrant and
competitive mobile phone market that grew very quickly (Figure 4.3). Gillwald
(2004) believes that the mobile sector flourished largely because the eyes of
government and the regulator were focused on public switched telecom services.
Considerable investments in network expansion were made particularly by the
duopoly mobile operators, Vodacom and MTN, in South Africa and increasingly
across the continent .This market experienced rapid growth in the number of mobile
users increasing, as Gillwald and Kane (2003) observed, because the disappointing
performance generally in the fixed line sector had been compensated for by the
unanticipated exponential growth in the mobile sector. In their 2003 report, they
quoted the International Telecommunications Union (ITU) as saying that, from a base
of just under one million subscribers in 1996, the number of mobile subscribers in
South Africa overtook fixed line subscribers in 1999 (Table 4.2) and, according to the
figures from Cellular.co.za, stood at 8 million users in 2001, of which 80% were
estimated to be active (Table 4.2). Vodacom‘s subscribers stood at 5, 2 million
compared to MTN‘s 2, 7 million. Mobile phones have proven a far more efficient
technology in providing access to communications especially in the lower income as
well as previously disadvantaged population of South Africa (Cant & Machado,
2005:7).
64
Figure 7Growth of the SA Telecommunications Industry
Through its enabling indirect effects, telecommunications had become the most
important sector of the future economy. The sector reflected the application of
continuously improving technologies emanating from the telecommunication
equipment, computing hardware /software, and consumer electronics industries.
Integration of these technologies into the telecommunication network, and in terminal
devices connected to the network such as personal computers and mobile phones, had
provided the foundation for the continuous development of new electronic
information/communication services, including the Internet, referred to as Value-
Added Network Services (VANS), which were being applied throughout the entire
economy.
Gillwald (2007) goes on further to assert that the other reason offered for the success
of the mobile market, which collectively tripled the number of subscribers on the
fixed network, was the relatively low regulatory transaction costs since its inception
in 1993. Based on estimations of a couple of hundred thousand subscribers each in
their first five years, rather than the millions they reached, the duopoly mobile
licenses were sold in 1993 for a mere R100 million (US$ 31 million at 1993 rates).
65
Figure 8Mobile Teledensity in SA
For the third mobile license, Cell C paid nothing up-front but R100 million (US$14.7
million) over 12 equal installments beginning in the third year of commercial
operations or the equivalent of $2.2 per capita –a relatively small licence fee per
capita compared to Morocco‘s second mobile licence, which sold at $39.47 per capita,
and more in line with either smaller markets or where regulatory risk is generally
perceived to be higher. A per capita price of $2.44 was paid for the MTN‘s mobile
licence in Nigeria, $0.01 per capita by MTN in Uganda licence and Vodacom‘s $2.74
per capita by Vodacom in Tanzania .
Table 1Total number of Mobile subscribers
The mobile cellular market grew beyond all expectations, with over 30% of the total
voice telephony market share by 2001, and more than three times the number of
subscribers than the fixed network. Pre-paid services have been a key driver.
66
According to market research firm BMI-TechKnowledge, the pre-paid market in
South Africa made up 75% of cellular subscribers, and more than 90% of new
connections were pre-paid. Indeed, new entrant Cell C estimated that 98% of its
subscribers were pre-paid users. These figures were in line with the experience
throughout Africa where BMI-T estimated that between 90% and 95% of cellular
customers were pre-paid. However, while contract customers only made up 25% of
subscribers in South Africa, they generated around 70% of revenues due to their much
higher ARPU. Vodacom‘s financials were fairly typical for South Africa in this
respect, with post-paid ARPU standing at R547 per month, over five times the pre-
paid ARPU of R93.
Table 2 Operators ARUP
That disparity had required mobile operators in South Africa to develop a very
particular business model, which they have since exported to the rest of Africa
through MTN‘s and Vodacom‘s international operations. The model was quite
different from the Northern Hemisphere model where such marginal customers were
not generally brought on to the network, and certainly not as quickly after launch or in
such large numbers as have been seen in Africa. Understanding that model, in terms
of effective regulation and ensuring continued investment in network expansion, was
critical to the sustainability and growth of mobile operations in South Africa and
Africa. More generally, where there had been pressure on operators both to reduce
retail and wholesale rates. Operators argued that the current relatively low retail rates
could only be sustained by the relatively high termination charges on the mobile
networks. The success of the mobile market in South Africa had provided the two
dominant mobile companies with a launch pad to the rest of the continent. South
67
African telecommunications investment across the continent must be the most
significant investment by any single country in Africa.
Table 3 Cumulative Capex in SA and Africa
4.4 VODACOM GROUP (PTY) LTD
The Chairman of Telkom SA Ltd in the combined 1991-1993 Annual Report
announced that the company had been allowed to invest 50 % in one of the two
mobile licenses that had been issues in 1993. He went on to add that they had entered
into a joint venture with Vodafone PLC, of the UK one of the world‘s leading
providers of mobile telephone services and the Rembrandt Group to form Vodacom
Group (Pty) Ltd to operate in accordance with the license when allocated. He went on
to say that they, as Telkom, believed that the new venture would add a new dimension
to the telephone services in South Africa and that it would overcome some of the
problems Telkom had experienced in providing telephone services in areas with little
or no infrastructure. Vodafone‘s 1993 Annual report announced that, in June 2003 a
joint venture company, Vodacom, in which Vodafone had a 35% interest, had been
awarded one of two licenses to operate a GSM mobile telephone service in South
Africa. The report went on to say that commercial service commenced in April 1994
with strong initial uptake.
4.4.1 Vodacom Group’s ownership structure
Vodacom Group‘s shareholders include (See Figure 4.):
• Telkom SA Ltd (50%)
68
• Vodafone Group Plc (35%)
• (Rembrandt) Ventfin Ltd (15%)
Vodacom thus had two strong shareholders, the one a traditional mobile operator, in
Vodafone and the other a traditional fixed line operator, and incumbent, Telkom. In
terms of shareholding, in December 1995, Descarte Investments, a consortium
comprising of the National Union of Mineworkers and the South African Clothing
and Textile Workers Union, acquired an option to purchase 5% of equity in Vodacom
from Vodafone and Rembrandt. This option was exercised on October 1996.
Vodafone subsequently acquired the 15% stake in Vodacom for R16-billion, buying
out Ventfin, increasing its shareholding from 35% to 50%, thus giving it joint control
of the operator. Vodafone has also bought 15% of Telkom‘s 50% shareholding, to
now hold 65% of the Vodacom Group. That valued the whole of Vodacom at R107
billion (Mochiko in Business Report, 2005), a price that worked out to roughly
US$924 per subscriber.
4.4.1.2 Vodacom’s First Mover Advantage
As reported in the Telkom 1995 Annual report, the launch of cellular telephony was
among the fastest anywhere in the word. The report also noted that in no other
country, then, had a cellular system begun operation with 10 000 subscribers on the
first day. At the time of writing of the 1995 report the subscriber base had risen to 40
000. By then, Vodacom had set up 280 base stations for the transmission of the
cellular telephone signals in the Gauteng Province, Durban, Cape Town, Empangeni,
Richards Bay, East London, Hermanus, Port Elizabeth and Bloemfontein. The report
went on to add that Telkom was proud of the Joint Venture company: Vodacom‘s
extensive coverage nationally and internationally, what its network offered and the
fact that Vodacom users could use their phones in 19 overseas countries. By August
1994, four months after launch, Vodacom had covered every metropolitan area plus
more than 30 towns in South Africa and extended its coverage to include some 3000
km of national roads
69
Figure 9 Vodacom’s Organisational Structure
Voice Mail was also introduced in South Africa, in March 1995 and the local Voice
Mail system was already the biggest in the world handling about 60 000 calls a day.
Vodacom also introduced the fax and data services on 1st June 1994, making it the
first GSM network in the world to offer these services commercially. Telkom ‗were
very proud of the achievements of the joint venture company in the cellular industry.‘
Thus Vodacom grew fast in terms of revenues, profits, and subscribers. That was
largely attributed to the first-mover advantage it had when it commenced on April
70
1994 (Cant & Machado, 2005:4). Lieberman and Montgomery (1987) define first-
mover advantages in terms of the ability of a pioneering firm‘s ability to earn
economic profits (that is profits in excess of the cost of capital). They go further to
assert that first-mover advantages arose endogenously within a multistage process as
illustrated in Fig 4.5. In the first stage, some asymmetry was generated, enabling a
particular firm to get a head start over rivals. They further contended that, that first-
mover opportunity may occur because the firm possesses some unique resources, or
foresight or simply because of luck. They conclude by affirming that once that was
generated there were a variety of mechanisms that may enable a firm, like Vodacom,
to exploit its position; these mechanisms enhance the magnitude or durability (or
both) of first-mover profits.
First-mover advantages arise from three primary sources: (1) technological leadership,
(2) preemption of asserts and (3) buyer switching costs. Vodacom‘s access to
technology and capital from its parent company Vodafone and as well as from its
main 50% shareholder, Telkom, were what gave Vodacom key advantages when it
captured the market and established its competitive advantage. In order to deal with
technological development and increased competition incumbent Telkom had
organized itself into various self contained business units. The new technology
businesses were found in mobile telecommunications services, IP/Data solutions and
Internet Portals. Mobile telecommunications services were organized by the business
unit Vodacom. This enabled the rapid rollout of its network, a number of innovative
new products, services and technologies were introduced like Prepaid Vodago in
1996, the Community Services Phones as well as the 4U youth package in 2001.
These are some of the factors that enabled Vodacom to gain first mover advantages in
the South African mobile market.
Vodacom, Telkom‘s strategic investment started to create value for shareholders by
providing them with options that satisfy their interests. Shareholders exchange
resources with firms whose options they perceive to be of superior value. A given
firm regularly makes investments to build competitive advantage, whether by
developing new products, augmenting its distribution channels, or enhancing its
production capability.
71
Figure 10 First mover advantages
Source: Lieberman and Montgomery (1987)
72
The fundamental purpose of creating Vodacom was to create and exploit
opportunities for positive economic rents in South Africa primarily (Rumelt,
Schendel, and Teece, 1991). Through investments firms, like Telkom and Vodafone
secure more favorable configurations of industry factors (Porter, 1980) and protect
those favorable positions from rivals, like MTN (Caves and Porter, 1977; Bogner,
Mahoney, and Thomas, 1994). What drove strategic investments, in this case, were
the resources available to the firm, Vodacom, and the productive uses its top
managers envisioned for them (Penrose, 1959).
4.4.1.3 Vodacom Creating Value for Shareholders
Strategic investments originate simultaneously in a firm‘s resource base and in its
culture. Traditional approaches to competitive advantage emphasize how resources
are used to gain positions better than those of competitors (Porter, 1980). Vodacom
built its competitive advantage when it started to create value for specific resource-
holders, Telkom and Vodafone, in South Africa by realizing a positive cash-flow in
1998. Kim and Mauborgne (1997), for example, found that high growth companies
did not focus on competitors but on customer needs—an approach they termed ‗the
logic of value innovation.‘ By not focusing on competitors, value-innovators better
distinguish the factors that deliver value from the factors the industry competes on.
They concentrate resources on investments that have the highest impact on customer
evaluations. They do so by eliminating product features that the industry takes for
granted or adding features that the industry has ignored.
Similarly, a focus on suppliers‘ value may require strategic investments in developing
cooperative relationships, in contrast to a competitor focus that may require bidding
down suppliers‘ prices to outperform rivals on costs of inputs. Kim and Mauborgne
(1997: 106) observed that ironically, value innovators do not set out to build
advantages over the competition, but they end up achieving the greatest advantages.‘
Strategic investments create value for constituents both by satisfying needs and by
creating needs, which Vodacom did through the Community Services Program as well
as by introducing the Prepaid model in early 1996, as well as other products
mentioned above like fax and voice mail. By making investment choices about
customer groups, product functions, and the resources and technologies necessary to
73
serve them, Vodacom was able to satisfy its shareholders, as well as define its
business and its competitors (Abell, 1980). Thus, Vodacom‘s targeted investments to
particular resource-holders also affected the competitive conditions of its rivals, who
led by M-net and with SBC had invested in what later became MTN. MTN, in turn,
made strategic investments to protect its positions and relationships with its resource-
holders, through innovations, acquisitions as well as other strategic actions, as will be
outlined later in this chapter and in chapter 5
4.4.2 Vodacom’s Strategic Plot
The process that accounts for the consistency between a firm‘s material resources and
its micro culture, as well as between its strategic investments and projections, is the
formation of a strategic plot. Vodacom, as discussed above, was the dominant mobile
leader in the mobile communications industry and positioned itself as the ‗biggest and
the best‘ (Finnie, Lewis, Lonergan, Mendler & Northfield, 2003:145). Vodacom used
traditional incumbent tactics, exploiting its advantage in terms of distribution
channels to attract mass-market prepaid customers, and using its established
relationship with business customers to attract high-end postpaid users. Vodacom had
an estimated 70 percent of business postpaid customers, compared to 53 percent of the
total market. Thus Vodacom‘s strategic plot reflects some continuity in its activities.
It contributed to competitive advantage by providing a long-term context, within
which shareholders attributed meaning to specific investments and projections.
Vodacom‘s mission and objective in the short to medium term was to retain market
share and attract new customers through attractive products. Loyalty and retention
programmes played an integral role in achieving this objective. Vodacom also sought
to increase its contract customer base by migrating appropriate high-end prepaid
customers to contracts.
Vodacom‘s strategic plot reflected the firm‘s intended strategy—its business
definition (Abell, 1980) and generic type (Porter, 1980; Miles and Snow, 1978), as
well as emergent strategy—resulting from the co-evolution of material resources and
organizational culture. On one hand, the development of strategic plots depends on
managers‘ understandings of the resources the firm controls and the potential
combinations of these resources in productive services (Penrose, 1959). A belief
74
system, such as a firm‘s ‗dominant logic‘ (Prahalad and Bettis, 1986), guided a firm‘s
strategic choices in Vodacom‘s case ‗caution‘, and through them, the resources it
sought to acquire and combine. On the other hand, the dominant logic of a firm grows
out of managerial experience with existing resources and reflects them (Mahoney and
Pandian, 1992). Micro-cultural elements develop to support current uses of resources.
Leonard-Barton (1992) found that high-tech organizations are culturally biased
toward their engineering staff and often give them privilege in decision-making.
Both a firm‘s micro-culture and its resource commitments determine the strategic plot
from which its investments and projections originate. Consistency among the three
processes initiated by a firm enhances its competitive advantage; inconsistencies can
cause one of the domains (either resources or culture) to lag behind and misfire.
Strategic projections not supported by investments can lead to loss of credibility;
investments not supported by strategic projections may fall short of realizing their
value-creating potential; and if both processes are not supported by the strategic plot
of the firm, they will lack the continuity to feed into a virtuous cycle that constructs
competitive advantage. However, the processes initiated by Vodacom in South Africa,
were only one side of the coin: The construction of competitive advantage also
depended on how MTN in the organizational field responded to, revised and redefined
competitive conditions on the continent.
4.4.3 Vodacom’s market share
Vodacom retained its leadership in the highly competitive South African market from
inception in 1994 right through to 2001 but the strong competition in the market and
the sheer volume of gross connections inevitably resulted in a margin squeeze
(Vodacom, 2004). However, despite this margin squeeze, Vodacom recorded a strong
growth. As discussed above pioneering opportunities arise endogenously through the
process illustrated in Fig 4.5. Vodacom gained first-mover advantages through some
combinations of luck and proficiency. Although various types of proficiency may be
involved, in Vodacom‘s case this included technological foresight in Telkom‘s
partnering with the world‘s largest mobile company Vodafone, perceptive market
research (the majority of the population had no access to credit), as well as skillful
product and process development (as in the early introduction of the prepaid model).
75
By March the end of 1994, according to the Vodafone 1994 Annual Report Vodacom
had over 220000 subscribers accounting for 65% of the South African market. At the
end of March 1996 Vodacom had 355000 subscribers which was an increase of some
47% over the previous year
Table 4 Operators Market Share
At the end of 1996, as outlined in the Telkom 1997 Annual report, Vodacom had
approximately 60% market share and 553320 subscribers including 9700 community
service phones. According to Vodafone‘s 1996 annual report, Vodacom had 1.3 %
penetration of South Africa‘s 42 million population. Vodacom‘s ongoing expansition
in that year resulted in 79% coverage of the population on the 31st March 1997. It
also had an excellent year, with the subscriber base increasing by 65%, total revenue
increasing by 85% to R2.5 billion and attributable profit growing from R64 million to
R259 million. Capital expenditure for 1996/97 was R901 million bringing the total
investment on the network infrastructure then, to R2.6 billion and total investment by
Vodacom since inception to R3.2 billion.
Vodacom continued to enjoy spectacular growth in 1997. According to the Vodafone
Annual Report, it had 979000 customers, presenting an increase of 77% in the year
and a market share of 55%. The strong growth in the joint venture‘s customer base
76
was largely due to the success of the ‗Vodago‘ prepaid product which had a customer
base of 262000, which was 353% more than the previous year in March, 1996
emphasizing the importance of prepaid product in South Africa. In recognition of its
achievement in being the first GSM network in the world to launch a prepaid product
on an intelligent platform, Vodacom received the 1998 GSM MoU World Award for
Marketing Success. Revenue rose by 76% from R2.5 billion to R4.4 billion and
attributable profits increased R460 million, representing growth in excess of 78%.
Capital expenditure for the year amounted to R1 035 billion, bringing the cumulative
investment in Vodacom‘s infrastructure then to, R 3.6 billion. Network expansion was
ongoing and expenditure for the year 1998 exceeded R3 billion. The report added
that Vodacom was profitable and was cash flow positive during 1998. Vodafone
Group‘s twin commitments, the report added, to the community and the environment
had no better expression than in the continued provision of community services to the
less privileged and in the development of ecologically friendly base stations.
In the 1998/99 period Vodacom had another strong trading year and continued leading
the market. The prepaid service continued to be popular and customers opting for this
type of product which accounted for 55% of the 2 000 000 customer base, which had
grown by over 104% from the last financial year. Vodacom‘s market penetration
stood at 8.2% and the penetration added in 1998/89 was 3.6%. By 2000, Vodacom
had some 3.1 million customers and contributed R2.1 billion to group revenue which
was 39.5% higher than in 1998/99, Vodacom‘s contribution to operating profit rose
by 51.5%. By 2001, Vodacom had a market share of 59% of the mobile market in
South Africa, 79% of whom were prepaid and subscriber growth had grown by 69%
to 5.2 million subscribers. The South African mobile market then, was approximately
20% penetrated. Vodacom had then, over 4693 radio sites across South Africa. It
reported a turnover of R13.3 billion, which was an increase of 37% on 1999/2000,
EBITDA was up 24% to R4.2 million. Vodacom also reported that R2.3 billion was
invested in the network infrastructure against R1.6 billion the previous year, total
capex grew by 60% year on year to R3.2 billion and cumulative total capital
expenditure totaled then, R11.8 billion since 1994
77
Figure 11 Operators Market Share 1999-2003
Source: Sunday Times July 4 2003
.
78
4.4.4 Revenue Growth Driven by Subscriber Growth
The wireless segment delivered strong revenue growth of 22% to reach R8,2 billion
(before intercompany eliminations) for the year ended 31 March 2002. Growth in the
wireless segment resulted largely from the 22% growth in Vodacom‘s revenues to
R16, 2 billion (2001: R13, 3 billion) driven by the 32% increase in the total mobile
customer base to 6 862 976 (2001: 5 212 242). Vodacom‘s launch of the 4U package
in October 2001 drove strong prepaid customer growth by exceeding 1,3 million
subscribers within the first 6 months of launch. In March 2002, 4% of the contract
customer base and 16% of the prepaid customer base was inactive (not having made
or received a call for 3 months).
The change in the mobile subscriber mix, with prepaid subscribers now representing
83% (2001: 79%) of the total South African subscriber base, has resulted in a 13%
dilution of mobile ARPUs (monthly average revenue per user) for South African
subscribers to R182 (2001: R208) at year-end. However, contract ARPUs increased
by11% to R547 (2001: R492) and prepaid ARPUs decreased by 5% to R93 (2001:
R98).
Table 5 Revenue, Subscriber and EBITDA Growth
Vodacom focused on its contract customer relationships by revising its upgrade
policy and ensuring effective rollout of this through the distribution channel partners.
That resulted in contract churn reducing from 19% to 15%. Vodacom maintained its
leadership position, with an estimated market share of 60% despite the introduction of
the third mobile operator; Cell C. Vodacom was well positioned to expand its data
revenue stream once GPRS services were launched in the new financial year. Initial
79
data successes were in the meanwhile, evident in the continued growth in SMS text
messages. Mobile customers sent 941 million SMS text messages in 2002, a 93%
increase from the previous year.
Table 6 Mobile data revenues
The wireless segment saw a 50% increase in operating profits to R2, 0 billion
(2001: R1, 3 billion), before intercompany eliminations. The 41% growth in operating
profit of R3, 7 billion (2001: R2, 6 billion) reported by Vodacom differed from the
consolidated wireless segment operating profit growth of 50% largely due to the
inclusion of foreign exchange hedging income arising on the adoption of AC133 of
R315 million (2001: R2 million) in operating expenditure on consolidation as
opposed to the inclusion in net finance costs in Vodacom‘s financials.
Table 7 Vodacom’s revenue and EBITDA
80
4.4.5 Vodacom’s strategic investments
By far the largest investment that Vodacom has made has been in on its network in
South Africa, which has topped R15.9 billion of the R18.3 billion that it has spent on
networks (see table 4.3). This was a reflection of Vodacom‘s strategic plot to have
unrivalled dominance in its home market. Its shareholding agreement with Vodafone
had prevented it from expanding into the Northern half of Africa as aggressively as
MTN had also because its other shareholder, Vodafone also had a presence in Africa.
But Vodacom generated massive amounts of free cash flow that it has to use to
generate growth in some way. With the avenue into Africa partially closed, it has had
to adopt a strategy of continued high growth in its home market, South Africa. To
some extent, this was informed by Vodafone‘s own strategy to enhance its position in
present markets, experiment with and create new products while adding value to
existing products, and reduce competition by raising entry barriers and altering the
technological base of competition (Strategic Direction, 2004).
Vodacom has been at the forefront of technological innovation in the South African
market. It was the first operator in the Vodafone group to introduce HSDPA, which
allowed for download speeds of around 1.8 mbit/s – comparable to what Telkom was
offering on ADSL. Vodacom‘s strategy is based on Vodafone‘s intention to ―...
extend our reach into the home and the office to deliver richer business applications
and integrated fixed and mobile services, such as higher speed Internet access. We
will use technologies such as HSDPA, DSL and WiFi to do this‖ (Vodafone 2006b:
10).
Vodacom‘s other strategic investments in Africa where it has collectively spent R2.4
billion (see table 4.3), are in Lesotho, where it was awarded a license in 1995; in
Tanzania where it was awarded a license in1999, the Democratic Republic of Congo,
where it was awarded the license in 2001, as well as in Mozambique 2003. According
to ABI Research in 2004 Vodacom acquired 51% of Smart Call (a prepaid service
provider).
81
Vodacom‘s strategic projections helped it to recognized that the future of South
Africa is, to a great extent, intertwined with that of the African continent as a whole.
In this respect, Vodacom's construction of mobile networks throughout Africa is seen
as helping to realise the ideal of an African Renaissance (Vodacom, 2005). Thus
Vodacom made investments in Lesotho, Tanzania, the DRC and Mozambique..
4.5.1 Home market strategy
Vodacom was the dominant mobile leader in the South African mobile
communications industry in the period 1993 to 2001 and had positioned itself as the
‗biggest and the best‘ (Finnie, Lewis, Lonergan, Mendler & Northfield, 2003:145).
Vodacom used traditional incumbent tactics, exploiting its advantage in terms of
distribution channels to attract mass-market prepaid customers, and using its
established relationship with business customers to attract high-end postpaid users. At
the end of 2001, Vodacom had an estimated 70 percent of business postpaid
customers as well as 61 percent of the total market. The result is that Vodacom has a
higher postpaid average return per unit (ARPU) than MTN, but a lower prepaid
ARPU than MTN.
4.5.2 Geographical expansion curtailed
Chan-Olmsted and Jamison (2001) have asserted the drivers of growth in the mobile
telecommunications are both geography and products. By the year 2001, even though
Vodacom had grown and become a dominant force not only in South Africa and on
the African continent, its restrictive shareholding agreement curtailed the
geographical expansion. However, in order to achieve continued growth, Vodacom
need to continue to focus on expansion on the African continent, mainly in the
surrounding countries and was consistently evaluating new investment opportunities
(Vodacom Group Annual results, 2005:8).
Thus Vodacom‘s diversification strategy was to target product growth in the local
market and it then indentified four market segments, namely
82
• Corporate Market: services to corporations and enterprises
• Developed Market: services to customers in the higher income groups
• Developing Market: services to customers in under-serviced areas and lower income
groups, who increasingly participate in the economy; and
• Youth Market: services specifically designed for the needs of the youth.
(Telkom Highlights, 2005):
Vodacom was thus prospecting and developing new markets for its products and
services .
Figure 12 Vodacom’s market strategy
Source: Kotler 2003
Vodacom‘s mission and objective as outlined above in the short to medium term were
to retain market share and attract new customers through attractive products. Loyalty
and retention programmes played an integral role in achieving this objective.
Vodacom also sought to increase its contract customer base by migrating appropriate
high-end prepaid customers to contracts. According to Cant and Machado (2005:5)
Vodacom has redirected its strategy by pursuing technological advances in its quest to
maintain growth rates of the past. Vodacom has worked closely with Telkom, its main
83
shareholder, in the areas of wireless Internet and also testing the next generation of
mobile technology known as 3G.
4.6 MOBILE TELEPHONE NETWORKS (MTN) (PTY) LTD
.
The MTN Group Limited (formerly M-Cell Limited) was launched in 1994 and has
been a leading provider of cellular and communication services in Africa and listed on
the JSE Securities Exchange under the share code: "MTN". The group encompasses
MTN South Africa, MTN International and its Strategic Investments Division, which
hosts Orbicom, Airborn and MTN Network Solutions. The MTN Group had almost
seven million subscribers across the continent in 2006, where it provided cellular,
satellite and Internet access to 14 African countries. The group‘s other strategic
investments included six GSM cellular networks in Africa, including South Africa,
Swaziland, Rwanda, Uganda, Cameroon and Nigeria. MTN out-grew the original
vision for business and became one of South Africa‘s most valuable companies,
without having fully explored its potential. The MTN Group has been characterized
by the innovative use of technology and first world, first-class marketing concepts,
highly successful company offering, unique opportunities and challenges to both
employees and investors.
4.6.1 MTN’s ownership structure
.
MTN was started by pay TV M-Net with Cable and Wireless, Transnet and Fabcos.
M-Cell then held 72 per cent interest in MTN and negotiations continue for the
remaining 28 per cent interest in exchange for the ordinary M-Cell shares. MTN (M-
Cell) was a listed holding company controlling MTN South Africa, one of South
Africa‘s two mobile operators, along with operations in Uganda, Rwanda, Swaziland,
Cameroon and, then, Nigeria in 2001. Marcelle (2001) noted that the ownership
structure of MTN had changed many times as it had set out to own 100% of the
mobile operation, MTN Holdings. The structure shown in Fig.4.9 was as at 2001.
Marcelle (2001) went on to assert that MTN‘s telecommunications investments
included the 100% ownership of MTN, which took effect from June 16, 2000 after the
acquisition of the 23% interest in MTN Holdings held by the state-owned transport
company, Transnet, for R12 billion. This acquisition was settled through the issue of
84
366 million MTN shares at R33 per share. MTN also had 100% ownership of
Orbicom, a specialist satellite and signal distribution company with expertise in
multimedia technologies. The Newshelf Trust originally acquired the shares in MTN
from Transnet between December 2002 and March 2003 at an average price of
R13,90/share..
Figure 13: MTN Group Structure
The controlling shareholders of MTN then, Marcelle (2001) continued, were the two
listed companies in the Johnnic Group, Johnnic Holdings Limited and Johnnic
Communications Limited, which held 50.2% of the company. Transnet, black
empowerment investment companies and small minority shareholders held the
remaining shares. As shown in Figure 4.9, MTN was 100 percent owned by holding
85
company MTN Group in 2001. MTN has followed Vodacom in attracting foreign
investment. MCell then, Marcelle (2001) reported owned a 72 percent stake of
MTN, Transnet (the public transport utility) owned 23 percent, a variety of
empowerment groups own 3.5 percent and the National Empowerment fund owned a
1.5 percent share (Marine et al., 2001). In addition to its domestic operations, MTN
Group - through its MTN International subsidiary - had wireless subsidiaries in
Cameroon, Lesotho, Nigeria, Rwanda, Uganda and Swaziland whereas Vodacom has
wireless subsidiaries in Tanzania, Congo, Lesotho and Mozambique, Marcelle (2001)
concluded.
4.6.1.1 Strategy and management
Shareholder value has been the essential performance management and driving
objective for the company. MTN‘s mission has been to become a leading multi-
national partner of electronic communication service that rewarded and benefited all
shareholders and society. MTN had planned to take telecoms to every African country
on the continent and had built an infrastructure and made critical strategic agreements
with partners, thereby allowing previously unconnected communities to talk to each
other. In Rwanda, cellular telephony has changed a country that was recently in
deadly turmoil to one of a growing economy.
MTN has provided employees with opportunities in which they could operate as
entrepreneurs over specific projects and has allowed them to run each project almost
as a separate business. ―Customer service‖ and ―customer delight‖ were the mantras
throughout MTN.
4.6.2 MTN’s Subscriber Growth
Up until 31 March 2000 MTN had a strong subscriber growth driven by innovative
products, when it introduced the pre-paid option. From being a niche business user
provider, MTN, came from behind to make increasing gains in market share. MTN
took full advantage of the trend and developed a range of products, services and
unique technologies to service growing demand.
86
Table 8 MTN’s subscriber growth
Source; Operator records
Cell phones have evolved from being a businessperson‘s tool to a must have
socialite‘s tool, to an accessible consumer item for all market sectors of the market‘s
exceeding expectations. The projected number of uptake in the first year 1994-5 was
50 000 people. However by December 1999 there were 290 000 new subscribers. The
MTN network covered 65 000 square kilometres, in 2000, half of SA, providing
cellular telecoms access to 80 per cent of population with state of the art control
centre best in the world, with lowest congestion and dropped call rates. MTN was the
second service provider in South Africa but the first service provider in the world to
have a mobile coverage of 60 000km², obtain a mobile licence in Africa and launch
prepaid packages. MTN ‘s GSM network coverage in South Africa -exclusively
provided by Ericsson- embraces almost 90 000km² of land, consists of 4000 base-
stations, and has now around 9 million subscribers (African Cellular Statistics, 2005).
4.6.3 MTN’s market share
MTN has gradually seen its market share decrease since the beginning of 2000 from
41 percent to 33 percent despite its consistently increasing customer base. The decline
in MTN‘s market share was even more apparent in the fourth quarter of 2001 when
Cell C was first launched. Whilst Vodacom lost eight percentage points of market
share when Cell C entered the market, MTN has also suffered disproportionately at
the hands of this newcomer, losing six percentage points of market share to date
(Finnie et al., 2003:131). In 2005, MTN had approximately 35 percent of the market
share (Telkom Highlights, 2005:14).
87
The competitive terrain in SA, where Vodacom had a competitive advantage altered
the competitive terrain and MTN‘s response to that as espoused by its strategic
projection was to be the leading provider of communication services in Africa. To
realize this vision, the company pursued expansion both beyond its home market in
South Africa and, in businesses, outside mobile voice services. Its main operations by
2001 were in South Africa, and consisted of the mobile operator, MTN, a mobile
service provider company, M-Tel, and a satellite communications company, Orbicom.
Outside South Africa, MTN had strategic investments in four other African countries
through a wholly owned subsidiary, MTN Africa, which managed operations in
Uganda, Rwanda, Cameroon and Swaziland. By far the most important strategic
investment that MTN made was in January 19, 2001, when MTN won a 15-year
operating licence in Nigeria, by far Africa‘s largest mobile market, with a population
three times the size of its home market and with a teledensity of 4/1000.
By then MTN South Africa, the mobile network operator, was the leading contributor
to MTN‘s revenues and profits (contributing over 97% of group revenues and
EBITDA as at September 2000). Marcelle (2001) believed that it was important for
management attention to remain equally balanced between the core operations in
South Africa and the pursuit of pan-African strategy and diversification ambitions.
This was particularly true in the short term, she went on to say, when the pan-African
expansion was unlikely to yield significant financial rewards, while at the same time
competition in South Africa was intensifying
4.6.4 MTN’s strategic plot
4.6.4.1 Home market strategy
Due to the loss incurred during Cell C‘s entry into market in 2001 (see Table 4.8),
MTN had to revise/reinforce its home market strategy and not rely on the domestic
market for its long term growth. It had played second fiddle to Vodacom and it was
most likely that the entry of the third operator would affect MTN more than it would
Vodacom. MTN‘s strategy revolved around attracting high-value consumer users. As
illustrated in Figure 4.11, MTN‘ s main focus and objective was on the higher-end
prepaid and contract section of the market. Its success in targeting these sections of
88
the market was illustrated by its disproportionately high-contract market share, and
the fact that its prepaid ARPU was 20 percent higher than main rival Vodacom. As
shown in Figure 4.11, MTN‘s market position strategy was a combination of market
penetration and product development and innovation.
Figure 14MTN’s market strategy
Source Kotler (2003)
MTN placed a lot of emphasis on ongoing reward schemes as a customer retention
tool. With ―eBucks,‖ users receive reward points for incoming and outgoing calls and
sending text messages. Further points are also awarded based on subscriber longevity.
These could be exchanged for airtime or non-mobile goods and services. There were
even more loyalty schemes available for prepaid customers. The ―Big Bonus‖ plan
was an example of such a loyalty scheme and consists of two main parts (Finnie et al.,
2003:135):
• Daily Free SMS Bonus: users receive one free SMS for every chargeable call of over
one minute, although the SMS must be used on the same day;
• High Usage Bonus rewards: users with airtime for spending over R500 or R1000
per month will see their rewards ramping up the longer the subscriber stays with
MTN.
MTN had some success in adopting a ―services not technologies‖ approach to non-
voice applications. In promotional literature there is no mention of GPRS or HSCSD,
89
instead being substituted for brands such as MTNdataFAST and MTNdataLIVE. The
terms SMS (Short Message Service) and MMS (Multimedia Message Service) are
used, but these have already entered common parlance to a significant degree (Finnie
et al., 2003:136). The next section will look at how MTN‘s shareholders chose a
different growth strategy to Vodacom
4.6.4.2 Geographical expansion not curtailed
When MTN commenced its services a few months after Vodacom, it initially
followed a classic follower strategy (Cant & Machado, 2005:5). As outlined above,
Vodacom‘s dominance and its competitive advantage in SA‘s market led MTN to
follow a different growth strategy and focused more on an international growth
strategy. Whereas Vodacom strove to be the ‗biggest and the best‘ MTN on the other
hand had an African strategy since the start and implemented its vision of becoming
the leading telecoms operator on the continent. MTN focused on developing regional
hubs around which business clusters developed and from which they developed skills
in being a player in emerging markets and each of the hubs provided different sets of
skills which the company built upon. According to Marcelle (2001) MTN identified
three essential regional clusters, through tracking efficiencies, knowledge transfers,
skills sharing and mutual access to a pool of advanced and innovative technology.
These regions are the Great Lakes Region, Southern Africa and the Central/West
Africa. It extended its reach into Africa through broadening its extensive roaming
agreements and guiding established partnerships in Uganda, Rwanda, Swaziland and
Nigeria. MTN believed then in 2003 that the Nigerian telecoms market was expected
to grow to and according to its Marshal Plan it aimed to have increased its subscriber
base in Nigeria to 4 million by the end of the 2004/5 financial year, and that Nigeria
was a crucial market. According to Marcelle (2001) in the South African operations,
MTN completed its efficiency drive whereas outside the core operations, the focus
was on establishing management and decision making systems to support pan-African
expansion, as well as creating the management capacity and business relationships
necessary to support diversification of revenues. Senior management, she further
believed, with support from the Johnnic Group, continued to focus on positioning
MTN to assess, win and exploit strategic opportunities. Between 1997 and 1999 MTN
International expanded into Africa, acquiring licences in Uganda, Rwanda and
90
Swaziland, MTN International also acquired a National GSM 900 licence in
Cameroon in 2000.
4.6.5 MTN’s Strategic Investments
MTN South Africa, Marcelle (2001) noted, was restructuring its business operations
to focus more on the value end of the market by beefing up its corporate marketing
and sales effort. In line with this repositioning, the company was developing
competence to service and provide business solutions to corporate accounts. These
new areas of focus were intended to complement the expertise that MTN has
developed in mass marketing. MTN in South Africa also intended to increase
operational efficiency through staff reductions and the redeployment of existing staff
as historical growth rates slow. As part of this drive, Marcelle (2001) believed, the
company had restructured its regional operations from six to four super groups to
improve coordination and reap the benefits of increased efficiency.
4.6.5.1 Orbicom
Marcelle (2001) also noted that Orbicom was a satellite signal distribution company
whose primary line of business was the distribution of satellite-based traffic for
broadcasting companies. Orbicom‘s half-year turnover was reported to stand at R45.5
million in September 2000. Orbicom had a good technical reputation in satellite
communication and had been a leader in making the transition from analogue to
digital satellite signal distribution systems. The skills and competencies in Orbicom
had been built over a number of years and had the potential to provide a platform for
this company entering the digital terrestrial broadcasting market. Orbicom was also
positioning itself as a multimedia, value-added service provider and had been active
in seeking out business opportunities outside South Africa; Marcelle (2001) went on
further to report. Up to the time of the writing of her report, Marcelle (2001) observed
that Orbicom had been successful in securing a partnership with Lockheed Martin to
provide satellite delivered internet services across Africa. Orbicom had also been
successful in establishing an electronic funds transfer network for the banking
community in Ghana, and reports interest for similar services in other African
countries.
91
4.6.5.2 MTN Nigeria
The most important strategic investment by MTN International (which altered,
revised and redefined the competitive terrain with its arch rival Vodacom) was the of
National GSM 900 and GSM 1800 licences in Nigeria, at the cost of US$285 million
at the world‘s first spectrum auction held in Abuja Nigeria, and subsequent launch of
operations in August 2001. MTN Nigeria commenced with construction of
Y'helloBahn in 2002, a 3 400 kilometres-long countrywide microwave radio
transmission backbone. At the time of the issuing of the licence, Nigeria‘s tele-density
was .4 per 100 inhabitants.
4.7 Conclusion
The chapter focused on how Vodacom created and sustained its competitive
advantage over MTN in South Africa as well as how it was poised by 2001 to grow
and become a dominant force on the continent. MTN on the other hand responded to
Vodacom‘s dominance in SA by making specific strategic investments outside of
South Africa that enabled it to acquire skills as an emerging market player and those
skills included enabling its strategists to make assessments of the rent earning
potential of the Nigeria market. This aspect will be examined in detail in the next
chapter. There is no doubt that the African telecoms environment in 2001, where
Vodacom and MTN were competing, there were key variables that had a direct
influence on the participants in the telecoms industry. It was crucial for the
shareholders and management at both Vodacom and MTN to adapt to changes in the
Africa telecoms environment and make crucial decisions in order to steer their
businesses in the right path to prosperity and success.
92
Chapter 5
Geographical expansion into Nigeria
93
5.1 Introduction
This chapter will use the framework which advances several principles for building
competitive advantage, which are that competition takes place not only over material
resources, but over the interpretations of multiple constituents about how firms create
value in an industry. Firms develop superior industry positions from instrumental
actions that are intended, not only to defeat competitors, but to influence the
perceptions and actions of constituents. Also, firms and constituents enact the
competitive terrain on which competition in industry unfolds. Using this framework
this chapter will show how the actions MTN shifted the African telecommunications
competitive terrain in Nigeria, on which MTN ultimately flourished.
5.1.1 Nigeria and its telecommunications sector in 2000
In 2000, Nigeria‘s large population of 124 million, three times the size of SA‘s
population, made it the most populous country in Africa, representing approximately
one-sixth of the continent‘s population. The population was also growing very fast
and was young (the median age was 17.4 years). People were therefore more likely to
respond positively to new technologies. Furthermore, the telecommunications
infrastructure in 2000 served only a tiny fraction of the population and was of poor
quality. On the other hand, Nigeria‘s GDP per capita at USD473 (adjusted for relative
prices was USD853) was low and below sub-Saharan Africa as a whole (USD490 per
capita). However, Nigeria has been characterised by a very unequal distribution of
income; the richest 10% of the population account for 40.8% of the national income.
This meant that there were a significant number of people and businesses that could
potentially afford the technology, although ultimately teledensity was unlikely to be
as high as those in more developed countries for some considerable period.
Table 9 Africa’s tele-density comparison 1999
Country US-Dollar GDP per Capita Telecoms per 100 population
East Africa
Uganda 244 0.5
Kenya 278 1.0
West Africa
Nigeria 244 0.4
Cameroon 610 0.6
(Source The Sunday Times 23 June 2003)
94
An insight into the likely demand for mobile telephony services in Nigeria then, could
be gained by looking at Uganda in east Africa. Uganda with a population one-sixth
the size of Nigeria, had in most other respects a very similar demographic profile,
literacy structure and GDP per capita to Nigeria. Although Uganda had a monopoly
supplier of GSM services between December 1994 and October 1999, once the
market was opened to competition with the entry of MTN, subscribers grew
dramatically from around 30,000 to 150,000 by the end of 2000.21 As the Nigerian
GSM market featured competition from day one, if the operators offered similar
tariffs and coverage to those that were offered in Uganda in late 1999. GSM services
were launched in Nigeria in August 2001 and by November 2002 there were over 1.2
million subscribers.
5.1.2 Structure of Nigeria’s telecommunications sector
The main players in the Nigerian telecommunications sector are: the Federal
Government of Nigeria, the Ministry of Communications, the NCC, and the
telecommunications service providers. The Federal Government of Nigeria is
responsible for: giving overall direction for telecommunications development;
ensuring telecommunications policy is consistent with other national policies; and
enacting necessary laws and taking other measures in support of the National
Telecommunications Policy. The Ministry of Communications is responsible for
broad telecommunications policy, which includes proposing policy options and
recommending legislation to Government and monitoring the implementation of
government policy. The NCC is the independent regulator of the telecommunications
industry. It issues licences, assigns frequencies and regulates all licensees and service
providers. The NCC performs regulatory functions necessary to promote the
development of Nigerian communications. The effectiveness of the NCC in 2000 was
reduced by the fact that it was unable to regulate Nigerian Telecommunications
Limited (NITEL), the state-owned incumbent operator. This was because the decree
under which it operated specified that the NCC was to be the economic and technical
regulator of the privatised sector of the telecommunications industry. Therefore, the
operator with a monopoly over the local loop and domestic and international fixed
lines in 2000 was not under the regulatory control of the NCC.
95
NITEL was established in January 1985 following a merger between Nigerian
External Telecommunications Limited (previously responsible for external
communications) and the Telecommunications Division of the Department of Post
and Telecommunications (previously responsible for domestic telecommunications).
NITEL was commercialised in 1992, following the implementation of a program of
privatisation and commercialisation by the then Federal Military Government.
NITEL‘s Public Switched Telephony Network (PSTN) had a capacity of around
700,000 lines in 2000, of which about 500,000 were connected. It operated
approximately 1600 public payphones—or one payphone for every 77,500 in the
population.
With regard to cellular telecommunications, the state-owned company Nigerian
Mobile Telecommunications Limited (M-Tel, which was merged with NITEL in the
late 1990s, was the only national operator of cellular services in the country until the
beginning of August 2001. However, M-Tel‘s coverage was barely national as it
covered three cities (Lagos, Enugu and Abuja). M-Tel ran an analogue system with a
capacity of 210,000 lines, with around 40,000 of these connected to subscribers as at
July 2001. In addition to the two national operators, there were several small private
operators (e.g. Multi- Links Telecommunications Ltd., and Intercellular Nigeria Ltd.)
serving Lagos. These primarily deploy fixed wireless technologies and were used by
businesses and high net worth individuals. Some large companies (Shell is an
example) had constructed their own private radio communications networks.
Although in the run up to the auction there existed nine mobile (GSM) telephony
licensees, their failure to build out infrastructure and launch a commercial service
meant, according to the NCC, that they had violated the terms of their licences and
therefore were not permitted to operate a service. Furthermore, the new process meant
that their licences were not valid and de facto revoked. The issuing of new licences
effectively rendered worthless the licences issued under the military government and
the NCC returned to the licence holders their application fees. One of the companies,
Motophone, returned the funds to the NCC and mounted a legal challenge to stop the
auction process, which did not succeed.
96
5.1.3 World’s First Spectrum Auction Successful!
The use of an auction in Nigeria was motivated largely by the need for transparency
and objectivity. The then Nigerian President, Olusegun Obasanjo, was quoted in
THISDAY Newspaper (Vol 10, no 3425) as saying that his administration had
enhanced the investment climate in the country, making it one of the most rewarding
opportunities not only in Africa but also in the world. He had gone on to add that
reforms were being taken in all sectors of the economy in line with his
administration‘s policy of creating an enabling environment for attracting Foreign
Direct Investment (FDI). Noting that there was a correlation between the inflow of
FDI and transparency and accountability, he said that his administration had initiated
mechanisms to guide government procurement. Obasanjo concluded by saying that
the establishment of the Economic and Financial Crimes Commission (EFCC),
Independent Corrupt Practices and Other Related Offences Commission (ICPC) and
the Extractive Industries Transparency Initiative (EITI) had restored confidence in the
system.
The amount raised in the auction exceeded many analysts‘ expectations. At the
conclusion of the auction, the Nigerian government expected to raise USD855
million. In addition, the government was expecting to raise a further USD285 million
from NITEL. However, one of the successful bidders (CIL) subsequently defaulted.
Despite the default by CIL, many in Nigeria viewed the GSM auction as a resounding
success, largely because the transparency of the process was unprecedented. A well-
designed auction was deemed superior to alternative comparative selection methods,
the latter having failed previously due to alleged wrongdoing. While opinion may
differ as to the merits of auctions in awarding spectrum licences and other scarce
public resources, the experience in Nigeria highlights how they can be applied
successfully in the most challenging of circumstances
5.2 The growth of the telecommunications market
The pent-up demand for telephony services can be seen from the massive increase in
subscribers after mobile services were introduced (see Fig 5.2 below), despite very
high prices at the inception of services. Demand for mobile services had also resulted
97
in a proliferation of smaller entrepreneurs selling single calls to that section of the
general public who cannot afford a mobile service. Nigeria‘s single-call market, or
―umbrella operators‖ as they are commonly known, significantly changed the
boundaries of the call market by forcing operators to rethink their tariffs and introduce
cheaper call rates to accommodate bulk operators.
Table 10 The growth of mobile in Nigeria
In markets where initial connection fees are high and pre-paid airtime rates are out of
reach of most people, entrepreneurs arbitrate the market by purchasing either pre-paid
or post-paid contracts from mobile operators and reselling this airtime at rates slightly
above post-paid rates but lower than pre-paid rates. For mobile operators, this
approach increases network traffic and keeps the average revenue per user high. In
markets such as Nigeria and Cameroon, airtime resellers are estimated to account for
30% to 40% of the overall post-paid traffic (Pyramid, 2005). For consumers, it
expands the reach of mobile networks, provides an interim solution to affordability
issues, especially to users who cannot afford the initial connection fees. It also forces
prices down because mobile operators are no longer in control of pricing. Resellers
are extremely sensitive to price but are valuable to operators as high value customers.
Operators therefore vie to keep these customers through lower pricing; thus forcing
price-based competition which mobile operators are keen to avoid. An added benefit
is that it creates jobs in most markets, and in Nigeria this has become a viable sub-
industry. Although the legislation gives the regulator extensive powers over tariff
98
regulation, the current level of competition allows a shift from specific approval of the
tariffs of non-dominant operators to issuing guidelines and monitoring.
By 2003 Nigeria had become the fastest growing mobile market in Africa and one of
the fastest in the world. The connected lines had grown by an average of 10 000 lines
per annum in the 4 decades between independence and the end of 2000. Since August
2001 to March 2004, the average rate of growth was over 1 million lines per annum
and by March 2004 the total connected fixed lines stood at 888 854 and mobile lines
at 3 811 239 with the total number of lines at 4 700 093. The tele-density as at March
2004 stood at 3.92. Nigeria‘s ‗umbrella people‘ were doing a great job providing
access to many who could not own telephones or mobile phones. They provided a
major contribution to the access provided by mobile and fixed operators. The
ownership of mobile phones was democratised as artisans, students, taxi drivers,
market women etc now owned phones. Access to telecommunications was greatly
enhanced, with the explosion of telecenters/ cybercafés in all nooks and crannies of
the country where signals were receivable. This was because of the cheap set up costs
as well as the low overheads in the case of the ‗umbrella people‘ who only required a
table, an umbrella and a street corner (Ndukwe; 2004).
The Nigerian experience showed that liberalising before privatising was effective in
achieving development goals if appropriate licence approaches were used. In addition,
the government was able to recoup potential revenue from the privatisation through
the licence auctioning process as well as from forthcoming tax revenues from the
highly successful mobile companies. The GSM licences each sold for US$285m. The
Nigerian government granted a five-year tax holiday to new licensees, which attracted
investors. Competition, a large market with pent-up demand, innovative licensing
approaches and consumer vigilance combined to increase connectivity and access to
ICT and also drove down retail tariffs. The Nigerian experience highlighted the
significant variances from developed country approaches and the success of
innovative locally developed solutions for attracting investment and increasing access
to telecoms services.
99
5.2.1 The players in the Nigerian telecommunications
The PRL Research Telecom Vendor Ratings, an initiative of Polls and Ratings
Limited on the operations of the telecommunications operators in Nigeria, the results
of which were published in the Financial Standard, July 7 2003, in Lagos, rated the
GSM operators high, and cautioned most of the Private Telecoms Operators (PTOs).
The report highlighted clearly and concisely the vendors‘ overall rating and status
when it analysed the strategy, organization, product(s), technology, marketing,
coverage and support. The companies that were analysed and rated were, Intercellular,
Starcomms, VGC Comms, Reltel, Mobitel, Cellcom, EMIS, Multi-Links, Econet
Wireless Nigeria then (now V-Mobile), MTN, MTS First Wireless, Globacom and
Nitel.
5.2.1.1 MTN Nigeria – First Mover Advantage Implications
On May 16, 2001, MTN became the first GSM network to make a call following the
globally lauded Nigerian GSM auction conducted by the Nigerian Communications
Commission earlier in the year. Thereafter, the company launched full commercial
operations beginning with Lagos, Abuja and Port Harcourt the three main regional
capitals. MTN paid $285m for one of four GSM licenses in Nigeria in January 2001.
By 2003, in excess of US$1.8 billion had been invested building mobile
telecommunications infrastructure in Nigeria. Since launch in August 2001, MTN
steadily deployed its services across Nigeria. In 2003 it provided services in 223 cities
and towns; more than 10,000 villages and communities and a growing number of
highways across the country, spanning the 36 states of removed Nigeria and the
Federal Capital Territory, Abuja. Many of these villages and communities were being
connected to the world of telecommunications for the first time ever.
As outlined in figure 4.5, MTN‘s first mover advantage in Nigeria derived from, as
Lieberman and Montgomery (1987) pointed out, some asymmetry which was
generated, enabling MTN to get a head start over rivals. They further contend that this
first-mover opportunity may have occurred because the firm possessed some unique
resources, or foresight or simply because of luck. It was a question of both foresight
and luck. Foresight that Nigeria was the most populous country in Africa and had a
100
very low teledensity, luck in that Vodacom initially considered the Nigerian venture
risky. Lieberman and Montgomery (1987) concluded by affirming that once this was
generated, there were a variety of mechanisms that may have enabled MTN to exploit
its position. These mechanisms enhanced the magnitude or durability (or both) of
first-mover profits. First-mover advantages arise from three primary sources: (1)
technological leadership, (2) preemption of asserts and (3) buyer switching costs. But
it was also that MTN had developed proficiency in rapidly rolling out a network, in
the Ugandan market, which had almost the same demographics as Nigeria.
5.2.2 Ownership Structure
MTN teamed up with well-connected Nigerian partners, chiefs and business magnets
that represented a broad spectrum of Nigeria's ethnic and religious groups. The
Nigerian partners owned 37 per cent, and were individual heavyweights, such as
Pascal Edozie (7 per cent), Colonel Sani Bello (6 per cent), Chief Victor Odili (8 per
cent), Mr Gbenga Oyebode (7 per cent) Alhaji Ahmed Dasuki (6 per cent), Mr Tunde
Folawiyo (6 per cent), (MTN Nigeria Induction Booklet; 2003) while the company,
MTN Group, owned 60 per cent of MTN Nigeria and 3 per cent was set aside for an
employee scheme. MTN Nigeria expected to raise local shareholder ratio over the
next few year to decrease MTN International‘s exposure. Ashmee Dasuki, another
MTN Nigeria (MTNN) shareholder and a Muslim executive from the north, said that
MTNN went out of its way to find representatives from different regions for its
directors and shareholders. MTNN already employs 1300 Nigerians, and peak funding
was expected to reach US $1.4 billion in five years, of which 50% will be equity, 50%
through loan. This figure has since been revised to US$2.2 billion (MTN Nigeria
Induction Booklet 2004). The then MTN Nigeria‘s CEO, Adrian Wood, had extensive
telecoms experience with Telenor and Callahan and played a pivotal role in the
growth of MTN Nigeria‘s fortunes.
5.2.3 Expanding Footprint
The MTN Group had bedded down its Nigerian operation more quickly than
anticipated and benefited from expanding its footprint in eastern Africa, Melody
Horn, a telecoms analyst at Merrill Lynch, said in a report. MTN Nigeria also signed
an interconnect agreement with the second national operator and fourth global system
101
for mobile communications operator, Globacom. "The weakening Rand relative to the
dollar would benefit MTN upon conversion of its non-South African profit into
Rands," said Horn. She added that Johnnic Holdings offered a cheaper entry into the
MTN Group because of its proposed unbundling. Johnnic unbundled 526 million
shares in MTN in a deal worth R7 billion. The MTN operations expected to contribute
its growth include Nigeria, Swaziland, Uganda, Cameroon and South Africa
(Ginsberg and Chege, 2003).
MTN expected to benefit from robust operations in Nigeria when reported on
19/06/03. Seven analysts forecast a 99 per cent jump in headline earnings a share to
R1.42. Nigeria was the star performer of the group, which also had operations in
Lesotho, Swaziland, Uganda, Rwanda and Cameroon. Subscriber numbers in the
populous west-African country hit the 1 million mark in February 2003, pushing the
overall subscriber numbers to 6.66 million. This compared with Vodacom‘s 8 million
subscribers- 7,5 million of them in South Africa.
But MTN Nigeria battled with congestion on its lines due to huge uptake in services
there, and was forced to delay expansion, while it invests heavily in infrastructure – a
factor that analysts felt then, could delay or limit operating profit. At home, MTN
faces a maturing market and increased competition from newest rival Cell C; analysts
will be watching margins closely. ―Growth in South Africa is not really a problem.
The problem is cost pressure,‖ said another analyst. Yet another said, Cell C‘s entry in
November 2001 had put pressure on MTN and Vodacom and had raised subscriber
costs. News on MTN‘s debt position was keenly awaited in the wake of a
strengthening Rand. Its debt-to-equity ratio, excluding goodwill, stood at 76 percent at
the end of March 2002 and was set to rise due to expansion in Nigeria, the group said.
MTN rose 25c to end at R14 on Friday and Telkom added R1 to R34.
5.2.4 MTNN’s Strategic Plot
MTNN‘s strategy in Nigeria was primarily aimed at revising the competitive terrain
that had been defined by its major competitor Vodacom in the home market in South
Africa and also on the continent. Thus its strategic projections were supported by
strategic investments and both processes were supported by a strategic plot of the
102
firm. The strategic plot saw the deployment of a digital microwave transmission
backbone, the 3,400 Kilometre Y‘elloBahn which was commissioned by President
Olusegun Obasanjo in January 2003 and was reputed to be the most extensive digital
microwave transmission infrastructure in all of Africa. MTN‘s experiences in South
Africa where it had deployed a network, as well as in Uganda in partnership with
Ericsson had taught it valuable lessons about rapid network rollout, securing a larger
footprint in the market place as well about being a market leader. The Y‘helloBahn
significantly helped to enhance call quality on the MTN Network. The Company
subsisted on the core brand values of leadership, relationship, integrity, innovation
and ―can-do‖. It prided itself on its ability of making the impossible possible
(entrepreneurship), connecting people with friends, family and opportunities.
MTN Nigeria also expanded its network capacity to include a new numbering range
with the prefix 0806, making MTN the first GSM network in Nigeria to have adopted
an additional numbering system, having exhausted its initial subscriber numbering
range - 0803. In its resolve to enhance quality customer service, MTN Nigeria
introduced a self-help toll-free 181 customer-care line through which subscribers
could resolve their frequently asked questions free of charge. MTN‘s overriding
mission was to be a catalyst for Nigeria‘s economic growth and development, helping
to unleash Nigeria‘s strong developmental potential not only through the provision of
world class communications but also through innovative and sustainable corporate
social responsibility initiatives.
5.3 MTN’s market share
Years of playing catch up to Vodacom had influenced MTN‘s response to the
competitive terrain and taught it valuable lessons about being the first in the market
and it had also learnt that as the second mobile operator, the entry of another operator
in the market, as was the case of the entry of Cell C in the SA market in 2001, almost
always affected the second operator more than it did the market leader.
The table below shows its market share relative to that of V-Mobile/Econet, Nitel as
well as Globacom, since inception in August 2001. MTNN revolutionized the face of
telecommunications in Nigeria with its marketing strategies. The firm further
103
enhanced its investment readiness by deploying and commissioning the multi-million
dollar microwave infrastructure, Y‘helloBahn, to provide essential infrastructure
necessary for easy expansion of its services across the country. Based on specific
attributes, MTN Nigeria was the only network with the highest brand equity within
the telecoms segment, except on call tariffs. It was expected that this trend would
continue, especially as telecoms services were demand driven (Ndukwe: NCC May
2004).
5.3.1 Revenue Driven by subscriber growth
While MTN had lagged behind Vodacom both in revenue and profitability from 1993
to 2001, the Nigerian venture began to show dividends, two years after launch. In the
six months to September 30 2003, cellular operator MTN surged ahead of its rival
Vodacom in the profitability stakes for the first time in its nine-year history; posting a
net profit of R2, 1bn that dwarfed Vodacom's R1, 4bn. Both companies clocked up
similar revenues, with MTN's R11, 2bn a fraction behind Vodacom's R11, 3bn. But
MTN converted that into a larger profit by emphasizing cost cutting to run a leaner
operation, said CEO Phuthuma Nhleko. Vodacom remained supreme in SA, with a
55% market share compared to MTN's 39%, but MTN was king of the continent in
terms of profitability, he said.
What could have toppled MTN's African supremacy then was Vodacom's intention to
challenge it in the lucrative Nigerian market by taking over Nigeria's second cellular
operator, Econet. Vodacom's bid for Econet was mired in legal hitches, but it had
pledged to invest hundreds of millions of dollars if the deal went through. Nhleko had
declined to speculate on how fierce the clash could become if Vodacom entered
Nigeria
104
Figure 15 Market Share in Nigerian Telecoms
The Nigerian Telecomms Market
Figures (a), (b), (c) and (d): Mobile Market Share – August 2002, September 2003, December
2003 and March 2004. Source: Nigerian Communications Commission
NITEL GSM
11%
MTN
45%
ECONET
44%
MTN
59%
ECONET
32%
GLOBACOM
4%NITEL GSM
5%
NITEL GSM
4%
MTN
52%
ECONET
31%
GLOBACOM
13%
NITEL GSM
12%
MTN
45%
ECONET
25%
GLOBACOM
18%
a) August 2002b) September 2003
c) December 2003d) March 2004
Despite the threat, MTN was already assessing opportunities in other countries. MTN
issued a cautionary notice to coincide with its results, and for the first time, Nhleko
said it might no longer limit itself to African expansion. "We are continually looking
and we are now in a far better shape because our debt-to-equity ratio is down to 8 per
cent and we are generating significant cash flows (from Nigeria)."
Expansion would preferably come by entering virgin territory, but a good acquisition
would also be attractive. "In the short term it will be African opportunities because
that is our logical footprint, but if there are interesting opportunities outside we'd
consider them," he said. MTN's results were topped by an impressive 102 per cent
growth in headline earnings a share to 123c, up from 61c. Nhleko said the
105
performance in SA was a highlight, as MTN had arrested a previous decline in profit
margins caused by stiff competition. Operating capital had been tightly controlled and
its subscriber base had grown by 537000 in six months. "Our performance in SA has
been stronger than our expectations but it has been a lot of hard work."
5.3.2 MTN Nigeria cash cow
MTN Nigeria became the cash cow for the MTN Group, as it made significant
contribution to the group‘s R2.13 billion (N42.287 billion) profit for the six months
ended September 30 2003. The Group announced that it had recorded a 168 per cent
jump in its profit after tax to R2.13 in its six months interim result. The South African
cellular operator announced in Johannesburg, that it‘s revenue outside South Africa,
with emphasis on Nigeria, jumped by 39 per cent to R4.12 billion (N81.794 billion)
while its domestic revenue grew by 26 per cent to R7.11 billion (N141.154 billion).
The announcement was made the same day that its per second billing and marginal
tariff reductions took effect in Nigeria.
Also for the first time, MTN was able to exceed the profit after tax of rival operator,
Vodacom that recorded R1.37 billion (N27.198 billion). This was the first time that its
after tax profit has exceeded that of rival operator Vodacom, although its revenue was
still marginally smaller. Vodacom‘s revenue was R11.29 billion (N224.139 billion). .
Nigeria has been the star performer of the group, which also operates in Lesotho,
Swaziland, Uganda, Rwanda and Cameroon. Subscriber numbers in the populous
west-African country hit the 1 million mark in February, pushing the overall
subscriber numbers to 6.66 million. This compared with Vodacom‘s 8 million
subscribers- 7,5 million of them in South Africa.
Despite the impressive performance of MTN Nigeria, CEO, Adrian Wood insisted
that Nigeria remained one of the most difficult terrains for the GSM operators. He
noted that the major hurdles in the operating environment then, included the
following; political turbulence surrounding the 2003 elections; regulatory uncertainty
and intervention and competitor market disruption, which continued to pose threat to
MTN Nigeria‘s operations.
106
Mr. Phuthuma Nhleko, CEO, MTN Group, said that MTN Nigeria had experienced
strong demand for its services, that required a controlled sign-up of new subscribers to
match the available network capacity while the accelerated network rollout continued.
As at the end of September 2003, MTN Nigeria had increased its base stations in
Nigeria to 652 from 378 sited in March 2003. Nhleko added that MTN N‘s subscriber
base had increased 127 per cent to 1.38 million, with the average revenue of $55 per
user. The South Africa base also showed improvement, rising by 25 per cent to 5.36
million, with the average revenue of R207 per user. MTN had, by the end of
September 2003, 7.89 million subscribers across its African operations. Nhleko
pointed out that assuming current market conditions, the group was confident that the
South African operation would continue its strong free cash flow generation, while
international operations were expected to maintain subscriber growth. Nhleko added
that, the group was ―now deriving an increasing proportion of its earnings from
outside South Africa‖ and as a result was ―becoming more susceptible to foreign
exchange movements.‖
5.3.3 Strategic Investments in Nigeria
MTN Nigeria CEO, Adrian Wood, had said that the company had plans to spend its
$1.4 billion budget and other telecom investments of $3.1 billion in the Nigerian
market where it held an estimated 59 per cent of the market. According to him, 98 per
cent of MTNN‘s 1.3 million subscribers were on the prepaid package Pay-As-You-
Go. He went on to say that the executive arm of the government was enthusiastic
about attracting foreign direct investment, but that it remained low, although the
government was putting an effort into generating such interest. However, the general
lack of infrastructure was an inhibitor. The other problem was that although Nigerian
market was large with a total population of around 128 million people, it was difficult
to measure. The gross domestic product of the country was low at around $400 per
head, with a cash economy predominating with little or no consumer credit available.
Inflation, by the end of September 2003 was high, at 19 per cent per annum, which
impacted on the cost of capital.
Wood also pointed out to the researcher in an interview, MTN was not finding that it
was not only building a GSM network, but having to put in a transmission and power
107
network as well. That included having 1400 generators that consumed 1.5million
litres of diesel per month. The full network would have 12000 generators in place,
requiring 12 million litres of diesel per month, meaning that 240 tanker trucks would
have to be deployed every day of the week, making the network susceptible to oil
price fluctuations. Security was also highlighted as a major concern, with 1400 guards
and supervisors employed on the premises, and CCTV and perimeter surveillance in
place, Wood revealed that security costs around $290 000.00 per month, and that
MTN Nigeria‘s coverage had grown to link 55 cities, 992 towns, and villages and six
geo-political zones by October 2003, compared with 22 cities and five geo-political
zones in September 2002.
5.3.4 MTN more profitable than Vodacom- March 2004
When Phuthuma Nhleko, the Chief Executive of MTN, presented the financial results
in June 2004, the results showed that MTN had overtaken Vodacom in both revenue
and profitability in the year to March 2004. MTN‘s subscriber numbers had grown by
42 per cent to over 9.5 million against Vodacom‘s 29 per cent to 11.2 million. MTN‘s
revenue was up 23 per cent to R23.9 billion while Vodacom‘s rose 18.7 per cent to
R23.5 billion. MTN‘s taxed profits jumped by 94 per cent to R3.3 billion against
Vodacom‘s 36.9 per cent increase to R3-billion, while MTN continued to grow
strongly in Nigeria, For MTN, Nigeria continued to produce excellent returns. Its
subscriber base there grew 90 per cent to almost 2 million. It grew to four million in
2005, according to MTN Nigeria‘s Marshal Plan. (Sunday Times, 4th
July 2004 M
Klein) MTN had some exciting opportunities ahead. It was no longer hampered by the
massive debts it racked up in the early days of setting up its Nigerian network, and
was now enjoying the rewards of that bold entrepreneurial investment in the form of
some serious profit.
It has also gained the skills and experience necessary to be a world-class player. Nor
does MTN have any shareholders who might inhibit its international expansion. Its
rival Vodacom, by contrast was 35 per cent owned by the UK-based Vodafone, which
has already claimed several other African countries as its own. That pretty much
limited Vodacom's expansion to neighbouring African nations. So it was no surprise
then, that MTN's CE Phuthuma Nhleko, also an MTN shareholder through Newshelf,
was assessing opportunities in other African countries and, potentially, further afield.
108
Its results for the six months ended September 30 showed revenue of R11, 2bn, and
an after-tax profit of R2, 1bn and net debt down to a manageable R700m. Its South
African operations earned 46 per cent of its profit, and of the other 54 per cent,
Nigeria contributes 80 per cent.
Pyramid Research (2004) had then posed the question of where could MTN go to
replicate that success. No other African nations had the size of population, the
undercurrent of informal wealth and the bubbling demand for cell phone services that
entrepreneurial Nigeria offered. Which meant investments in other countries may be
sound, but not spectacular. MTN, the Pyramid Report continued, could do better
looking to the east by tackling the massive Chinese market, perhaps, where the large
population was taking cellular services to heart. At the same time, it could not take its
eye off the ball in SA despite having performed better than expected in the face of
tough competition and an increasingly mature market.
Meanwhile, since becoming CEO, Nhleko had continued to build MTN‘s presence in
Nigeria, tried for a number of licences and solidified the company‘s position locally.
The group‘s empowerment credentials were enhanced through the management buy-
in of almost R4.3 billion. Investors were looking to him to prove that MTN could
continue to grow. MTN announced at the beginning of the week of the 4th
of July
2004 that it had submitted a bid for licence in Saudi Arabia. Nhleko concluded by
saying that, ―If we don‘t create shareholder value in new markets, we will become a
cash cow and that is not our intention. Our intention is to keep growing our footprint,‖
hinting that it was not their intentions to be cautious- like Vodacom.
5.4 Vodacom’s cautious strategic plot
Vodacom‘s response to the revised, redefined competitive terrain in 2003 derived
from its micro culture that bounded its strategic projections and undermined the
effectiveness of its strategic investments, particularly when it came to the Nigerian
market. Rindova and Fombrun (1999) define micro-culture as the knowledge, values
and identity beliefs in a firm consistent with a broad definition of culture as the
pattern of shared beliefs and values that give members of an institution meaning and
provide them with rules for behaviour. They go on to add that knowledge, values and
beliefs were the resources that had enabled Vodacom to create, in SA, sustainable
109
competitive advantage, in so far as they were valuable, rare and difficult to imitate. In
addition, they further asserted that, knowledge, values and beliefs create an advantage
for the firm through their influence on information processing and behaviour. As
cognitive structures unique to Vodacom then, they had enabled its strategists to make
superior evaluations of the rent earning potential, in new markets, like Nigeria of the
firm‘s resources relative to that of MTN. These structures also guided the actions of
all members of Vodacom to enable them to enact a systematic ‗cautious‘ strategic
direction in response to the revised and redefined competitive terrain created by
MTN.
5.4.1 Challenging rival MTN
Vodacom‘s cognitive structures in 2003 enabled its strategists to determine that the
competitive terrain had been revised and redefined and that if it needed to maintain its
position as the largest operator in Africa it needed to challenge rival MTN on the
African Continent, in Nigeria in particular, and make international business 30 per
cent of group operating profit by 2004. Vodacom's only operations outside South
Africa were Lesotho, Mozambique, Congo and Tanzania, but it was also considering
also targeting Namibia, Zambia, Zimbabwe and the DRC Perceptions of strife in the
DRC were incorrect according to Andrew Mthembu, Vodacom Group Deputy CEO
and MD of Vodacom International, much of the economy was well away from the
troubled northeast. There were 60 000 telephones for 60 million people. Vodacom
also had a management contract with Congolese Wireless Network; the cash strapped
operator in Southern DRC.
Together with Telkom SA its majority shareholder, Vodacom would identify fixed
line and mobile opportunities in Africa, as Mthembu did not have the carte blanche to
tackle Africa. Mthembu, then, saw ―excellent opportunities‖ in Africa. He also had
pointed out at the time that telecoms in Africa had grown by 50 per cent in 2000 to
reach a penetration of 10 per cent and also to the fact that Africans spent 5-15 per
cent of their disposable income compared to just 1 per cent in Europe. Mthembu went
on to add that Vodacom wanted to find a few more Tanzanians so that their African
income represented 30 per cent of group operating profit by 2004. Nevertheless,
Vodacom shareholders, Telkom, Vodafone of the UK, Ventfin and Hosken
110
Consolidated Investments were likely to stay cautious. About 200 million people lived
in the countries targeted by Vodacom; contrast this with the 128 million in Nigeria at
the time with a very low teledensity of 4/1000.
However, while MTN had launched its network in Nigeria in 2001, Vodacom had
chosen, initially, not to get involved in Nigeria as its shareholders Telkom and
Vodafone, were wary of the Nigerian market, but more because of the shareholders
agreement with Vodafone that had prevented Vodacom from expanding north of the
Limpopo. However with a strong balance sheet, Vodacom was in a position to make
an impact on the continent. Mthembu had then admitted that Vodacom had lacked a
clear strategic plot for Africa. With the South African market nearing saturation, the
arrival of Cell C in the South African market in 2001, as well as the phenomenal
returns that MTN was generating out of Nigeria in 2003 and 2004 as outlined above,
the Vodacom Board with the approval of Telkom the majority shareholder and
Vodafone, finally had agreed to target emerging markets in Africa and elsewhere, but
they were likely to be cautious.
5.4.1.1 Vodacom’s Strategy in Nigeria
For a long time, Vodacom lacked a clear strategic plot when it came to strategic
investments in Africa with investments only Lesotho, Tanzania DRC and
Mozambique, it had lagged behind rival MTN in forging into the continent, probably
because Vodafone, the fifty percent shareholder, already had a larger footprint in
Africa, as well as the fact that the shareholder‘s agreement between Vodacom and
Vodafone, prevented, until 2006, Vodacom from pursuing investment opportunities
north of the Equator.
However, with South Africa‘s market maturing and the rest of Africa untapped,
Vodacom shareholders eventually gave Mthembu the go ahead to tackle deepest
Africa. The board had initially turned down plans to tender for a Nigerian cell phone
license, because they felt then the cost and risks of investing in a risky and relatively
untried market with untested regulatory processes were simply unpalatable.
According to Vodacom‘s shareholders, Nigeria then lacked a strong administrative
tradition, the ability to undertake commitments that endured from one government to
111
the next, and a judiciary that was impartial, immune to government and political
pressures and able to make enforceable decisions; even though as outlined above the
auction process was transparent. Political and economic instability, a lack of telecom
policies tradition and independent regulatory frameworks, red tape and corruption
were also complex problems that the shareholders, Vodafone and Telkom, had also
identified.
Vodafone then being a European operator and a major investor in Vodacom, was
wary of unstable developing countries governments preferring to invest former British
colonies like Kenya, Egypt and South Africa which up that time to the were relatively
stable emerging market democracies and besides Vodafone had also been involved in
the 3G saga with other operators and was saddled with a lot of debt. Telkom on the
other hand had just listed on both the Johannesburg and New York Stock Exchanges
in 2003 as part of its privatisation program as well as part of governments stated
policy the of the maximisation of state asserts and was likely to be wary of risky
ventures; this was not with standing the SA government‘s commitments to SADC‘s
protocol on ICT development that encouraged cross-border investments in ICT.
However, with the Nigerian government keen to invite credible operators with good
corporate governance to invest in the country, risks could have been hedged by
identifying the right people to open doors and provide political insurance.
5.4.1.2 Shareholders uncomfortable with Nigerian Investment
The Vodacom shareholders were uncomfortable with the Nigerian strategic
investment, even though it was the largest market on the continent, having a
population of 120 million then in 2001 but with the lowest teledensity of 0.4 per 100
in the whole continent. The shareholders who had the final say, in determining which
strategic investments would earn them a healthy return, feared then that an investment
in Nigeria then could have wiped out everything that Vodacom had built up over the
past eight years if the business did not perform for whatever reason. According to
Chan-Olmsted and Jamison (2001), Vodacom‘s shareholders viewed the new market
opportunity in Nigeria as being in a developing country that lacked strong, stable and
112
regulatory institutions and with business practices that were unfamiliar in most
developed countries, as was the experience of Vodafone.
5.4.1.3 Late entrant into Nigerian market
As a result, Chan-Olmsted and Jamison (2001) go on further to assert, Vodacom, as a
late entrant into the market, would have had to adopt an entry strategy that would
have allowed them to acquire local expertise and decreased the probability and cost of
expropriation of investment, given Nigeria‘s notorious history of military coups.
Vodacom‘s strategic plot in Nigeria was therefore limited to entering the Nigerian
market by selecting a project with a fast payback period, selecting well connected
local partners and entering the market through an alliance rather than through direct
investment. Vodacom‘s cautious risk-averse strategy may have cost the company a
big deal, losing its position as the largest network in Africa, in 2004. It was anxious
and wanted to change that and according to Ball (1999:434) although Vodacom
management believed strong competition from MTN would have made a profitable
operation difficult to attain a but Vodacom management‘s change of strategy in 2003
was being influenced by management‘s decision of being present a strategy of being
where the its global competitors MTN was and probably believed that entering
MTN‘s foreign market would distract MTN‘s attention from its home market, which
was already reaching saturation.
Figure 16Entering a Competitors Cell
Source Kyrylov et al (2001)
113
According to Kyrylov et al (2001) a firm like Vodacom decided to enter a
competitor‘s cell, MTN‘s cell in Nigeria, but the timing of such actions, as outlined in
this case study, was important. With the market expansion, economies of scale and
scope are important considerations. They go on to add that when entering a new
market, like Vodacom was entering Nigeria in 2004, the marginal cost of offering one
more unit of say service A, decreases the size of the company. If the company also
offers service B, using almost the same technology (like ADSL TV, which is heavily
reusing the Internet Access ADSL technology), the marginal cost of offering service
B significantly decreases.
In addition, Vodacom could also have entered the market for a different product, e.g.
fixed line communications which it did attempt with Telkom in 2005 but also later
abandoned. However in the longer run, all market players in Nigeria were to
maximize profit, in the shorter run, depending on their current position, on the market;
Vodacom and MTN may have been pursuing different goals by referring to different
performance indicators. These indicators were territory coverage, market share,
cumulative cash flow, customer loyalty, risk factor. In this case, Vodacom on entering
the Nigeria market would have had to be an aggressive risk seeker more concerned
with gaining more market share and neglecting increased risk and relatively short
term low profits. While MTNN with a larger market share were expected to be risk
averse and to most likely, to be more concerned with generating more profit.
However, given Vodacom‘s shareholders lack of stomach for risky ventures, it was
unlikely that Vodacom would have the stomach to stay in Nigeria.
5.4.2 Vodacom’s unsuccessful bid for Econet Wireless Nigeria
The opportunity to enter the Nigerian market formally presented itself for Vodacom
of South Africa when substantial capital inflows were required by the Econet Wireless
Nigeria, which it needed to expand its network, as it had to compete with the market
leader, MTN Nigeria, and meet the expected challenge of a robust looking Globacom
as well as a reinvigorated Nigerian Telecommunications Limited (NITEL).
Vodacom, the largest mobile phone operator in South Africa and Africa at the time,
was in fierce competition with MTN South Africa, the majority owner of MTN
114
Nigeria. Although Vodacom had reduced its cash position by around $200 million
when it repaid a shareholder loan and paid out a dividend in 2003. However, South
African financial analysts believed then that Vodacom could have easily borrowed
enough money to take up a stake in Econet Nigeria.
5.4.2.1 Other suitors for Econet Wireless Nigeria
However Vodacom was not the only operator interested in Econet Wireless Nigeria,
Egypt's Orascom had also expressed interest while existing operator, Econet Wireless
International of Zimbabwe (EWI) made moves to checkmate new entrants in order to
protect its brand name and position as technical managers of the network. It put
together a $150 million offer along with Autopage and Altech, two South African
companies who were also backed by South Africa's Absa Bank and Industrial
Development Bank (IDC), to gain a dominant position before new entrants like
Vodacom and Orascom were considered. EWI managing director, Mr. Strive
Musiyiwa also told THISDAY in South Africa that: Econet Wireless International had
concluded a new 5-year management contract (for Econet Nigeria) and that their
interest was to increase their stake from its current level. Musiyiwa said it was a
matter of public record that the company EWI, was trying to raise capital for the
Nigerian operation and that speculations of a buy-out were inevitable in such a
situation. He declined to disclose how much capital Econet was seeking, how it
planned to raise the money or what stake the international Econet group held in
Econet Nigeria. ―We are raising capital for the development of our business and we
have competitors, therefore we keep competitive information close to our chests," he
had said then. Musiyiwa also confirmed that his company had a long-term interest in
the Nigerian market and would not be looking to exit Econet Nigeria in the
foreseeable future.
Officials of Vodacom that had exchanged letters with Econet Nigeria last week of
July 2003, in South Africa were due in Nigeria in the first week of August 2003 to
carry out a due diligence on Econet before making its final offer. Vodacom's change
of mind about investing in Nigeria, according to a report in THISDAY newspaper in
Lagos, was as a result of the robust performance of its competitor, MTN Nigeria
Communications Limited, in the country.
115
The South African mobile company had few years ago ignored the Nigerian market
but given MTN's performance, it had now realised its mistakes and was changing
strategies if it was to retain its position as continental market leaders. According to
statistics, MTN's impressive growth in Nigeria was threatening Vodacom's claim as
the largest network in Africa and since the game was about market share, Vodacom
was not ready to lose its dominance on the continent.
A reliable telecom analyst had told THISDAY that MTN Nigeria's contribution to the
larger MTN Group performance had brought the group neck-to-neck with Vodacom
and was about to overtake Vodacom if MTN was left alone to explore the depth and
challenge of the Nigerian market. However, Vodacom's movement into Nigeria was
not going to be as easy as it looked as the Econet Wireless Nigeria board was
considering other options. Chairman of Econet Nigeria, Mr. Oba Otudeko confirmed
to THISDAY newspaper that the board had authorized both Vodacom and Orascom to
come and carry out due diligence on the company in August 2003 after receiving their
expressions of interest.
According to him, the telecom business was a highly capital intensive one and they
were willing, as Econet Wireless Nigeria, to consider offers that would broaden
access of shareholders to capital. The more capital for the company the better and that
"even if shareholder's existing interests are diluted, it would only lessen their capital
constraints in the overall interest of the company". But some directors of the company
are not too keen on the EWI consortium's offer of $150 million as it was seen to fall
short of the Vodacom's offer that may give it 51 per cent of Econet Nigeria. For these
directors, the name, depth and technical competence of Vodacom would be an added
advantage
Also, these directors were of the opinion that with Vodacom taking such large
interest, the company would be able to take on the existing competition from MTN as
well as the potential competition from Globacom and Nitel/Mtel. Globacom's access
to funds was viewed as a serious threat especially given its chairman, Dr. Mike
Adenuga's Conoil‘s oil resources according to MTNN‘s Chief Marketing and Strategy
Officer as interviewed by the researcher in Port Harcourt in 2003. But Otudeko
116
believed that investment from existing operators as well as from any other who have
expressed interest would be welcomed in order to broaden the company's network and
in respect of the large capital required to furnish the extensive market place with
quality GSM service and enable Econet to excel in the challenging and highly
competitive Nigerian telephony market
5.4.2.2. EWN board accepts Vodacom’s offer,
Meanwhile, rival MTN Nigeria roared ahead in its network expansion. MTN had
doubled the coverage and also had more than 1,3m subscribers, compared with
EWN's 850 000. Things however went from bad to worse; despite Musiyiwa claims to
have pre-emptive rights on increasing his stake in EWN, the Nigerian board accepted
an offer from SA's Vodacom to buy 51 per cent of the company. The issue reached
boiling point when the EWN board announced it was removing Musiyiwa as deputy
chairman, firing his most senior staff and terminating EWI's management contract,
worth 3 per cent of gross EWN revenue. Musiyiwa contested the moves as unlawful
and was fighting back. The troubles, he shad said then, started in May, when the
Nigerian board entered into an agreement stating that EWL could increase its equity
stake to 33 per cent for an investment of US$150m. Musiyiwa says that during this
period Vodacom made an offer to buy 50 per cent plus one share of the company
through an intermediary, Legacy Holdings, chaired by Bart Dorrestein. (Dorrestein is
well known in SA as the former head of Stocks & Stocks.)
Vodacom CEO Alan Knott-Craig however, denied Vodacom made the first move.
―We were invited to make a bid by the EWN board on July 22 and then made an offer
to them on August 28," he says. Another problem says Musiyiwa, is that "EWL
advised Vodacom of the existing offer, but Vodacom proceeded to make an offer for
the same shares at the same price, plus an additional offer to buy 20m shares at
$4/share from any existing shareholder who wanted to sell". The Nigerian
shareholders accepted the Vodacom offer, amounting to $230m.
Vodacom announced to the EWN board at the next shareholder meeting on December
19 whether it would take control. The opportunity was enticing and so far no
irregularities had been found in Vodacom's due diligence of EWN, said Knott-Craig.
He pointed out that with an estimated 130m people; the market had hardly been
117
tapped. The strong rand and MTN's success mean the opportunity was less risky than
initially perceived. Also, despite the cash problems, EWN was profitable and most of
the $230m investment would go into working capital, after having paid back loans.
"We have been assisting in terms of an interim management agreement for two
months," said Knott-Craig. He said at the time that independent counsel concurred
that none of the existing EWN shareholders (including EWI) had pre-emptive rights
for more shares. Musiyiwa says that was for the panel to decide.
Knott-Craig countered by saying that: "It would appear that EWI has run the Nigerian
network badly and overpaid for infrastructure. The Nigerians need cash and want
Vodacom to enter as the majority shareholder."
5.4.2.3 Vodacom terminates agreement with VEE Networks
However even though the deal had been signed with Econet Nigeria and the name had
changed to Vodacom Nigeria, on the eve of the transfer, it was discovered that some
money had been paid out to brokers who had helped Econet to secure funding. The
Vodacom Board viewed this as very irregular and decided to withdraw from the
Nigerian operation. This was primarily because Vodacom‘s shareholders, Vodafone
and Telkom were listed on the New York Stock exchange, the Securities commission
would have been interested in getting to know the details of the deal, and the
shareholders stood to lose a lot. In the US, the Foreign Corrupt Practices Act of
1977, prohibits US companies, as well as companies listed on the New York Stock
Exchange, from making ―corrupt‖ payments to obtain or retain business and the
payments were viewed by the Vodacom board as falling under this category. Besides,
according to newspaper reports, there were also some massive transfers of shares just
before the deal was signed, even though the Vodacom board had put a restriction on
that.
5.4.2.4 Management shake-up at Vodacom
Clearly the shareholders were concerned not only about the debacle at Vodacom
Nigeria, but also the ensuing threat of legal action by Strive Musiyiwa CE of Econet
Wireless International, who had a history of litigation and had won against ‗Bob‘ as
Zimbabwe‘s President Mugabe was known. So serious were concerns at Vodacom
118
that some directors, particularly Mthembu, who had been the Deputy CEO and
Managing Director of Vodacom International which was responsible of Vodacom‘s
forays into Africa, particularly in Nigeria, lost their positions in a massive shake-up in
2004.
In summing up the Nigerian issue, Vodacom‘s Group CEO Alan Knott-Craig in the
Group CEO‘s 2004 Annual Report had this to say:
―Our attempts to gain a foothold in the Nigerian market have been much publicized and
drawn out. We have been proceeding with a process designed to minimize our risks which
included extensive due diligence carried out by reputable international experts in this field.
Effective April 1, 2004 Vodacom International Mauritius entered into a five year management
agreement with VEE Networks Limited (formerly Econet Wireless Nigeria Limited), subject to
the right of termination in favor of each of the parties. In terms of the agreement, Vodacom
International Mauritius would have managed VEE Networks’ cellular network operations in
Nigeria for a fee which is based on VEE Networks’ turnover. VEE Networks would have been
allowed to use the Vodacom logo and brand name. Vodacom International Mauritius also
had the intention to acquire an equity stake in the business of VEE Networks.
However, on May 31, 2004, Vodacom International Mauritius and VEE Networks mutually
agreed to terminate the management agreement entered into on April 1, 2004. Vodacom
International Mauritius will continue to provide technical support to VEE Networks for a
period of up to six months. Vodacom International Mauritius has also decided not to pursue
an equity stake in the business of VEE Networks. Despite not being able to enter the Nigerian
market, our African operations grew at a healthy rate, with total customers in other African
countries increasing by 93.0% to 1,492,000 (2003: 773,000).
More tellingly on how costly it had been for Andrew Mthembu as well as the head of
strategy was the statement to the effect that:
The final element of success continues to be our strong management teams across the various
companies. These teams have recently been enhanced by new appointments which reflect our
commitment to employment equity. There have also been strategic changes to the
management structure to leverage operational efficiencies across the Group. The changes,
which took effect on April 1, 2004 will see Pieter Uys head up all the operational aspects of
the whole of the Vodacom Group including the African operations as Group Chief Operating
119
Officer. These have been well received in the company, and the improved focus is already
showing encouraging signs.
Pieter Uys, was not an employment equity appointment, he had just replaced one,
Mthembu.
5.4.2.5 Econet Wireless International suing Vodacom
Besides, Econet Wireless International was suing Vodacom for inducing the Econet
Nigeria to scupper the deal with Econet Wireless International. Vodacom announced a
pullout from the Nigerian operations, but many of its employees were still working
with the company. An interesting twist to this tale was that the then Chairman, Oba
Otudeko, was forced to resign. He had been instrumental in the transfer of funds saga
that had led to Vodacom‘s pullout. Maybe there is method in Vodacom‘s madness in
pulling out of the lucrative Nigerian market.
On other matters the Vodacom Group 2005 annual report summarized Nigerian saga
as follows:
The Group is further also a defendant in certain legal proceedings related to its activities in
Nigeria. The outcome or extent of any claims against the Group, should the Group not be
successful in defending these claims, is unknown.
The directors are not aware of any other matter or circumstance since the financial year end
and the data of this report, not otherwise dealt with in the financial statements, which
significantly affects the financial position of the Group and the results of its operations.
5.4.2.6 Vodacome Vodago
Vodacom‘s micro-cultural elements particularly its shareholding, with Telkom on the
one hand who was controlled by the strategic equity partner, SBC, (who had been a
shareholder at MTN as well) and by Vodafone, who already had an even larger
footprint on the continent, contributed to some of the inconsistencies in the strategic
plot, strategic projections and strategic investments that it was to make in Nigeria.
Rindova and Fombrun (1999) assert that both a firm‘s micro culture and its resource
commitments determine the strategic plot from which its investments and projections
originate. They go on to assert that consistency among the three processes, namely,
strategic projections, strategic investments as well as the strategic plot, enhances a
firm‘s competitive advantage; inconsistencies, like the one Vodacom experienced in
120
Nigeria, caused both domains resources and culture to lag behind and misfire. They
go on to add that strategic projections not supported by investments can lead to loss of
credibility.
Vodacom became the butt of jokes in the local media with one of the papers labeling
its Nigerian fiasco as ―Vodacome, Vodago‖ a pun based on Vodacom‘s prepaid
model; the paper lamented Vodacom‘s exist as a lost opportunity, then, for they had
hoped for Vodacom to challenge MTN‘s stranglehold on the market. The article
outlined the reasons why, now V-mobile, formerly known as Vodacom Nigeria,
formerly known as Econet Nigeria, was having partnership/shareholder problems.
Investments not supported by strategic projections may fall short of realising their true
value-creating potential; and if both processes are not supported by the strategic plot
of the firm, as seems to be the case with Vodacom‘s foray into Nigeria, they lacked
the continuity to feed into a vicious circle that would have constructed Vodacom‘s
new competitive advantage. However the processes initiated by Vodacom in Nigeria,
were only one side of the coin, the construction of competitive advantage would have
depended on how MTN Nigeria would have responded and revised the competitive
conditions in that market.
5.4.2.7 Belated lift of ban
As of November 2006, Vodacom‘s restriction on aggressively expanding north was
eventually lifted by Vodafone. The only problem then was that most countries in
Africa and the Middle East already had competition, making Vodacom‘s choices
either a very expensive regional purchase or continued investment in converged
services. In contrast, MTN was spending more money outside of South Africa. That
has meant that Vodacom more than doubled MTN‘s cumulative capital expenditure
since 2002 in South Africa. ―Vodafone will not stand in our way in pursuing
opportunities in Africa, and they have encouraged us to go forth and conquer. I don‘t
think there is much we couldn‘t afford‖ (Knott- Craig quoted in Stones, 2006: 21).
With the delay that Vodacom faced in its restrictive shareholder agreement, the other
operators rapidly expanded and there are now few small mobile companies available
to purchase. The added pressure of having to compete in Africa against, France
Telecom, Orascom, (MTC) Zain and MTN meant that Vodacom might have to look to
purchase a regional player.
121
5.5 Conclusion
This chapter sought to trace the rivalry between MTN and Vodacom and how it
subsequently played itself out in the Nigerian market. That MTN has been a runaway
success is an open secret, as the financial figures continue to tumble out of Nigeria
and how they have since used that as a spring board to seek new markets in the
Middle East. The saga at V-Mobile with Econet Wireless was resolved with
MTC/Celtel acquisition. Meanwhile in the entire furore, Glo-mobile was quietly
making inroads into the Nigerian Telecoms sector; the one person that is benefiting
from all this is the consumer who has seen the cost of making a call come tumbling
down. Vodacom came into the Nigerian market lat and they had problems. It has
been suggested that Vodafone and Vodacom could not afford to not to be in the
growing markets and that Vodacom might make a bid for Globacom, that has not
happened, infact Globacom made an offer for the 15% stake that Vodafone acquired
from Telkom, but this was not seemingly been considered at the time. That Celtel had
approached Vodacom in 2004 and then Vodacom had spurned the offer to purchase
brings into question what Vodacom‘s strategic plot with regards emerging markets
was. It certainly was not because of lack of money, for Vodacom was cash awash.
With the continent attracting more players it remains to be seen what options
Vodacom will opt to choose, in the unfinished story of the rivalry of these two SA
mobile operators. But what remains clear is that Vodacom‘s cautious strategy in
emerging markets like Nigeria was a failure. Using the analytical framework
influencing diversification Fig 2.1, the next chapter will conduct a comparative
analysis of the two operators to determine the measure of MTN‘s effectiveness in
pursuing a diversification strategy.
122
Chapter 6
Comparative Analysis
123
6.1 Introduction
This chapter will conduct a comparative analysis of why Vodacom was successful in
South Africa but more importantly why MTN was subsequently more successful in
Nigeria and on the African continent. In this chapter we will use the framework
presented in Figure 2.5 a systematic model of competitive advantage, to show how the
actions of Vodacom in South Africa and MTN‘s response to Vodacom‘s dominance
shifted the competitive terrain to Nigeria where Vodacom ultimately floundered. Fig
2.1 an analytical framework influencing diversification will provide the basis for
drawing conclusions about the effectiveness of MTN‘s geographical expansion
strategy as well as what lessons can be drawn for corporate strategy formulation and
decision making.
Sources of competitive advantage
As outlined in Chapter 2, competitive advantage derives from activities that span the
four domains of action, the first dimension comprises of the material and
interpretational domains; the second dimension divides the competitive terrain into
domains that fall either inside or outside of a focal firm. Competitors affect the
construction of competitive advantage by taking actions in the four domains and
creating options for constituents. The telecoms competitive terrain, that MTN and
Vodacom inhabited in 1994-2001 as well as between 2001-2004, can be defined not
only by the resource conditions in various markets and potential rents associated with
them (Scherer and Ross, 1990; Barney, 1986b), but also by the knowledge,
expectations, and sensemaking of their respective firms‘ managers and of
shareholders that interacted with the two firms in the telecommunications industry.
Sensemaking (Weick, 1995) in the African telecoms industry comprised
comprehending, understanding, explaining, attributing, extrapolating, predicting
(Starbuck and Milliken, 1988: 51) and—ultimately— deciding to allocate resources
and. embark on a geographical expansion.
Vodacom‘s and MTN‘s rivalry manifested itself in the variety of options made
available to its shareholders both in South Africa and in other markets that included
Nigeria. The choices that Vodacom and MTN shareholders made among the
124
competitive offerings that they faced in South Africa and in Nigeria in particular,
subsequently measured the relative success of each of their strategies and the degree
to which either gained or lost competitive advantage on the redefined African
telecommunications competitive terrain in 2001. Insofar as Vodacom and MTN
interacted with the same constituents and vied for their approval and resources they
were each other‘s competitor (Freeman and Hannan, 1983). Thus the boundaries of
the telecoms industry and markets were determined not only how Vodacom and MTN
defined their business (Abell, 1980) but also by how their shareholders understood
and chose among these competitive offerings. Therefore the African
telecommunications domain is better described not as an industry but as an
organisational field consisting of actors, Vodacom and MTN, amongst others, who
interacted repeatedly, exchanged information, formed coalitions and were aware of
each other (DiMaggio and Powell, 1984).
The two dimensions described above are the four domains of action in which
Vodacom and MTN interacted. The external–material domain consisted of various
markets—principally the product, labour, factor, and capital markets—in which they
exchanged resources. In the internal–material domain both Vodacom‘s and MTN
resources were deployed in the production of goods and services. In the internal–
interpretational domain knowledge, values, and beliefs moulded both Vodacom‘s and
MTN‘s micro-culture. In the external–interpretational domain expectations,
performance standards, and evaluations of firms evolved and formed the telecoms
industry‘s macro-culture.
SWOT analysis of Vodacom and MTN (1993-2001)
According to Du Plessis, Jooste & Strydom (2001) as well as Cronje, Du Toit, Marais
& Motlatla (2004) a SWOT analysis is an approach that can be used to provide a
structured framework for evaluating the strategic positioning of business
organisations by identifying their strengths, weaknesses, opportunities and threats. As
illustrated in Table 6.1 below, Vodacom‘s carefully controlled strategic projections
portrayed the company as a dominant and powerful brand, this position was
emphasised by every commercial that ‗was packed with the power of Vodacom‘,
especially the ―Yebo Gogo Adverts‖ and its strong, gruffy and commanding male
125
voice over in the ―Professor and the Clown,‖ adverts particularly. All the other
advertisements also reinforced the image that complemented Vodacom‘s dominant
position in the market but also projected it as not only a company but a national
resource and tried to position its products as essential ingredients for national
economic growth.
MTN‘s adverts were more subtle, poking fun at times at the ‗Big Brother,‘ with
jingles and their pay offline was ―The better connection.‖ MTN projected itself as an
entrepreneurial, enterprising and innovative youthful company with a can do attitude.
Vodacom‘s main weakness lay in the fact that its overall ARPU was lower than that
of MTN‘s. With the South African market nearing saturation and both operators faced
the threat of losing market share with the entry of Cell C in 2001, Vodacom‘s market
share dropped from the highs of the early 1990s 60% (1999), 59% (2000), 61%
(2001), 61% (2002), to 59% in (2003). In the year 2003, in which it was meant to be
seriously considering challenging MTN in Nigeria, Vodacom‘s management hands
were tied as the major shareholder, Telkom, was on the verge of listing on the New
York and London Exchanges and Vodacom‘s expansion plans took a back seat; the
other shareholder Vodafone was also a player in the African telecoms markets with
operations in Egypt and Kenya, had a shareholders clause prohibiting Vodacom from
expanding north of the Limpopo River.
As the second operator MTN had felt the impact of Cell C‘s entry into the market,
more than Vodacom had, as its market share dropped from the highs of 40% (1999),
41% (2000), 39% (2001), 36% (2002), to 35% in (2003). However, MTN‘s response
to Vodacom‘s dominance was a strategic plot to diversify geographically and it began
to pay dividends when they reduced their reliance on their home market, South
Africa. By 2001 Nigeria had come on stream and started making significant
contributions to group turnover by 2003. While both operators were feeling the effects
of the entry of Cell C and had lost considerable market share and needed to find new
sources of revenue, fortunately for MTN its Nigerian investments had begun to
contribute significant revenues by 2003.
126
Table 11 Swot Analysis of Vodacom and MTN
POTENTIAL STRENGTHS POTENTIAL OPPORTUNITIES VODACOM
Retained 50% market share in SA market
Retained largest share of high-end
postpaid and business users
Was best placed to extract further value
from existing customers through
advanced data services
Dominant and powerful brand
Extensive coverage and distribution
channels
Benefited from its shareholders Telkom
and Vodafone, source of competitive
advantage
First Mover advantages
Strong cash flows
VODACOM
Operations outside of South Africa
in other African countries will
become increasingly important as
the SA market matures
Had projected to earn 30% of
revenues outside of South Africa
Expansion in SA market by
introducing new products like those
targeted at low-end users
Developing sub-brand aimed at
prepaid market
MTN
Played second fiddle to Vodacom
retained an average of 40% of in the
post-paid market in SA
High ARPU targeting high-end users and
focused on new innovative services
Well defined position in the SA market
MTN
Has over 40 % of new post-paid
customers
Maintaining its strong showing amongst
the low-spending contract customers,
picking up higher percentage of future
prepaid customers
Increasing presence in other African
countries, with revenues set to
increasingly come from these operations.
POTENTIAL WEAKNESSES POTENTIAL THREATS
VODACOM
Overall ARPU lower than MTN
Over reliance on post-paid exposing it to
price competition with the entry of Cell
C in 2001
15 year roaming agreement with Cell C
that started operations in 2001
VODACOM
The shareholders agreement
prohibits Vodacom from expanding
north of Limpopo
Will face increasing competition
from MTN outside South Africa
Political, regulatory and currency
risks
Entry of Cell C into the market will
result in loss of market share
Entry of second fixed line operator
will place pressure on Telkom and
which in turn would impact on
Vodacom and introduce competition
MTN
Lost six percentage market share when
Cell C was launched
MTN
Price war sparked by Cell C in 2001
Aggressive price tactics could
significantly reduce MTN‘s ARPU
MTN would go into defensive price
reduction if Cell C decided to target
MTN‘s Core demographics
Source: Author
127
Vodacom was a different story, though. As Porac et al. (1989: 399–400) observed the
material and cognitive aspects of Vodacom and MTN‘s business rivalry in 2001 were
thickly interwoven technical transactions along the value chain that provided an
ongoing stream of cues that had to be noticed and interpreted by organizational
decision-makers, particularly their respective shareholders. These transactions were
themselves partially determined by the cognitive constructions of Vodacom‘s and
MTN‘s organizational decision makers. Beliefs about the identity of competitors,
suppliers, and customers focussed the limited attentional resources of decision-makers
on some transactional partners to the exclusion of others. Although material and
interpretational conditions in the telecoms industry in South Africa had produced each
other, the development of Vodacom‘s competitive advantage was not an automatic
process.
Both MTN and Vodacom had selectively invested and allocated resources, projected
and reflected images in their quest for dominance in the SA market between 1993-
2001. Weick (1995: 81) describes the processes of selective perception and action as
enactment and extraction of cues: Vodacom and MTN had enacted cues in the sense
that each competitor made strategic choices on the basis of its beliefs, and these
choices put things out there that constrained the information that each of the firms got
back. What the firms got back affected their next round of choices as was the case
with the geographical expansion into Nigeria. In the model presented in Figure 2.5,
Vodacom and MTN ‗put out there‘ technologies, products, investments, and
communications. Their respective shareholders then used the cues provided by the
respective firms in their own enactment cycle of resource allocations and
communications. Both sets of shareholders by 2001 had ‗extracted‘ cues about
Nigeria, in the sense that others saw these enacted changes and extract them as cues of
larger trends. Thus, the shareholders come to use the same cues for their strategic
choices, as does the firm that first enacted those cues and made them available for
extraction. This aspect was important in so far as Vodacom was concerned; its
strategic choices about Nigeria were based on the cues that MTN was projecting
about the Nigerian market.
Post 2001 – geographic expansion
Thus as Chan-Olmsted and Jamison (2001) have outlined both operators needed to be
aware that growth would not only be in the home market through introducing new
128
products but that they also needed to expand geographically. In turn, both Vodacom
and MTN‘s shareholders read into each other‘s allocations of resources and
definitions of success signals about market trends that guided their subsequent
investments and projections in the post 2001 period. Industry features, such as
dominant designs, industry concentration, mobility barriers, isolation mechanisms,
reputational orderings, exemplars, winners and losers, emerged and crystallized from
these processes. Thus, Vodacom and MTN externalized their strategic choices in the
material and interpretational domains through the processes of investments,
projections, allocations of resources, and definitions of success. They also objectified
and internalized the resulting pattern of interactions by forming strategic plots and
industry paradigms through which they adjusted beliefs and behaviours in ways that
reflected their respective objectified reality. Along the way, therefore, Vodacom and
MTN jointly constructed the competitive reality that they come to inhabit after 2001
Table 12 Comparative Summary of Key Financial Indicators 2001-2004
VODACOM MTN
Number of subscribers 2001 5.2 million 2.7 million
Average market share growth 55% 35%
Annual growth 20% 22%
Revenue 2001 R13, 3 billion R8,3 billion
Profits 2001 R2,6 billion R1,1 billion
Revenue 2003 R11, 3bn R11, 2bn
Profits 2003 R1, 4bn R2, 1bn
Revenue 2004 R23.5 billion R23.9 billion
Profits 2004 R3-billion R3.3 billion
As can be deduced from the above indicators, Vodacom had 5.2 million subscribers
by 2001, which was almost double the number of subscribers than MTN‘s 2.7 million,
subscribers. Vodacom had averaged an annual market share growth of 55% compared
to MTN‘s 35% and had enjoyed an annual growth was 20% compared to MTN‘s
22%. Its revenues, influenced by subscriber growth, particularly the growth of prepaid
subscribers in 2001 were R15.4 billion compared to MTN‘s R10 billion. Vodacom‘s
shareholders, Telkom SA LTD and Vodafone had enabled it in South Africa, to gain
competitive advantage and first-mover advantages in SA. Its relationship with Telkom
129
was also instrumental in its realization of profits through favorable interconnection
agreements
However as table 6.2 above shows, MTN shifted the competitive terrain from 1997
and in 2001 in particular, through carefully planned geographical expansion strategy
and targeted strategic investments that enabled it to acquire skills as an emerging
market player in its regional hubs, but particularly in Uganda and Cameroon. Thus its
strategists were able to make accurate projections about Nigeria’s rent earning
potential as they had operations in West Africa, in Cameroon, which enhanced
its reputation as entrepreneurial, enterprising and innovative.
Vodacom acted ‗as a venture capitalist‘ and focussed on investing in its home market.
In so doing, the firm accelerated its growth in its home market but radically departed
from its strategic plot as the biggest and the best. Most observers questioned
Vodacom‘s neglect of the Nigerian market, others attributed its neglect to its well-
established reputation in the macro-culture of the organizational field of having
dominance in the home market and its reputation gave impetus to the development of
a new telecoms industry paradigm, regional expansionism, which encouraged MTN
expand and shift resources to other markets, particularly Nigeria. In the years between
1994 and 2001 Vodacom the company topped Financial Mail’s reputational rankings
of most admired companies and its market value reached a record high. By 2003,
however, Vodacom‘s dominance in the African telecoms was actually beginning to
dissipate. MTN, according to Marcelle (2001), made more strategic investments in
cost reduction and product innovation. A new industry paradigm with a high premium
on innovation, flexibility, and adaptability—all Vodacom weaknesses emerged. Many
elements of Vodacom‘s corporate culture, such as emphasis on fighting for market
share in its home market rather than opening new markets, were not well suited to the
fast changing telecommunications market.
The new industry paradigm in African telecoms industry included a different set of
success measures than those Vodacom had mastered. They included: organisational
integration, geographical expansion, continuous innovation, commodity prices,
organisational integration and declining brand loyalty. Thus, a new industry
paradigm, a different pattern of resource allocations, and a changing macro culture of
130
the organizational field characterized Vodacom‘s competitive environment. At
Vodacom however, the changes were few. Although Vodacom had been the first
company to expand geographically when it entered new markets in Lesotho in 1995,
then Tanzania 1999, the DRC 2001 and Mozambique in 2003. The demographics of
these countries, particularly their teledensity, were unlike the large Nigeria market
however with the avenue to the north of Africa closed, cash awash Vodacom invested
in a set of investments that departed from its traditional resource base and micro-
culture. When the Nigerian market opened up in 2001, it had not built sufficient
knowledge about the West African markets as it did not have any operations in West
Africa and could not sufficiently understand the West African culture like MTN had
with its Cameroon operation. Thus Vodacom entered and exited that market and
applied its traditional competitive tactics (high growth in the home market) rooted as
they were in its micro-culture and resource strengths. According to a competitor: In
the first eight years of their operation in SA, and accumulation of resources what did
Vodacom do with them? They laid the biggest goose egg for a golden goose
opportunity but did not do anything with it.
It was all sales and distribution and marketing and advertising—and The Professor
and the Clown in the ―Yebo Gogo adverts.‖ Vodacom was locked into a ‗Big Brother
mentality‘ born of the old telecoms industry paradigm: It confidently assumed that it
was going to maintain its dominance on the continent by using a focus strategy that
meant massive investment in its home market. The result was a lack of strategic
investments and projections that could successfully give it economies of scale and
scope as well as skills to compete as an emerging market player and subsequently add
value to its stock. Lack of added value encouraged constituents to shift their resource
allocations to rivals, like MTN.
At Vodacom, it took drop in profits as well as declining earnings estimates as
compared to MTN in 2003 and 2004 (see table 6.2) before the company announced a
long-overdue change in its strategic plot. The business press reported it as Vodacom
undergoing its ‗toughest self-scrutiny in years‘ (Sunday Times 4 July, Business Times
2003). However, in the process of re-evaluating its strategic plot, Vodacom took
actions consistent with its extant resource base and micro-culture, rather than with the
changes in the industry. In an industry driven by innovation Vodacom chose to follow
131
caution in new markets and to challenge its main rival in the biggest market in Africa
Vodacom‘s long-standing cultural and resource biases continued to affect its strategic
choices throughout the period. They limited Vodacom‘s ability to create value in
ways consistent with the expectations formed in the new industry macro-culture.
In contrast, rival MTN invested heavily in new markets, new product development,
organisational integration, organisational learning and capacity building through the
rapidly deployment of network that climaxed with the entry into Nigeria a market that
provided the company with economies of scale and scope that positively affected its
performance. It also produced some of the most sophisticated strategic projections in
the industry, including a famous ad alluding to Vodacom as ‗The Big Brother‘
(Orwell, 1982). Indeed, for a long time Vodacom continued to behave as if the
combined actions of its entrepreneurial rivals, sophisticated users, and savvy investors
that were looking at the opportunities on the continent had not changed the African
telecoms industry conditions. Barr, Stimpert, and Huff (1992) provide evidence of a
similar process in the railroad industry. In their study, one firm failed to adapt to the
changing conditions in the industry, not because it failed to notice the changes, but
because it failed to change its interpretations of how those changes would affect its
performance. Lazonick and West (1995) also point out how in a similar manner
American companies did not respond more quickly and effectively to the Japanese
competitive challenge. In remarkably similar ways, lack of change in the internal
interpretational domain of Vodacom led to lack of actions that would have enabled it
to sustain its advantage.
Most analysts, however, attributed Vodacom‘s loss of competitive advantage to its
focus strategy that emphasised over investment in rapidly saturated home market, thus
minimizing the effects of scale and scope in its investment. As Pyramid Research
(2004) put it: ―Vodacom and Vodafone could not reasonably have decided to stay out
of the Nigerian market.‖ But the way it plunged in was a historic blunder. Its
disinvestment in Nigeria opened the industry to a range of new entrants, like Zain.
The market exploded and MTN became the Africa‘s biggest network operator. This
explanation suggests that Vodacom lost its advantage when it lost its quasi-
monopolistic dominance in the market. Vodacom lost its advantage because it was not
quick and effective enough in its response to MTN‘s competitive challenge. Its
132
structure was such that it could not reinvent the strategic plot that aligned its resources
and micro-culture, and so could not respond to the new definitions of success and
resource allocations of its rivals. Overall, Vodacom‘s loss of competitive advantage in
the African telecoms market reflected the firm‘s failure to see how competitive
advantage had emerged from the combination of its actions and those of their rivals,
MTN, in both material and interpretational domains. Vodacom‘s structures and
strategies were not sufficiently integrated to mount an effective and quick response to
MTN‘s challenge.
6.2 Comparative Analysis
This section of the research will involve a comparative analysis that focuses of on
specific issues namely (1) shareholding and strategy (2) entrepreneurial and
enterprising management (3) micro-culture and (4) organizational structuring for
geographical expansion. Table 6.3 presents a summary analysis of these key factors.
6.2.1 Shareholding and Strategy
When the mobile networks rolled out in 1994, Vodacom‘s shareholding structure was
an asset. Its shareholding consisted of 50% by incumbent Telkom, a fixed line
operator (whose majority shareholder was the government that was pursuing a policy
of managed liberalisation and the maximisation of state assets) and 35 % by Vodafone
PLC, the world's largest mobile operator. This shareholding structure provided
Vodacom with access to funding, technology and skills that enabled it to gain
competitive advantage in its home market. As Chan-Olmsted and Jamison (2001)
have asserted that the drivers of growth for the telecommunications industry are the
expansions both of its products and geography. By quickly rolling out its network,
after launch in April 1994 Vodacom took the lead. By August 1994 Vodacom had
covered every metropolitan area plus more than 30 towns in South Africa and
extended its coverage to include some 3000 km of national roads. This first mover
advantage enabled Vodacom to gain the lead in the SA market. However the existence
of two dominant shareholders created a huge problem in so far as the company was
not able to resolve which strategy, fixed line or mobile would be the focus of
expansion of the business.
133
Telkom and Vodafone had enabled Vodacom to construct its distinctive strategic
positions through three generic processes: (1) they picked strategic a investment,
which was the Vodacom Group in South Africa, (2) they made strategic projections,
and (3) they developed a strategic plot, derived from Vodafone‘s own mission, which
was through Vodacom, to have total dominance in the markets in which they
operated.
Table 13 Summary Analysis of Key Factors
Indicator Vodacom MTN
Shareholding and Strategy Had conflicts which led to
curtailed expansion north of the
Limpopo, no clearly articulated
strategy
More coherent
Entrepreneurial and
enterprising Management
Did not have Had
Enabling Micro Culture Did not have Had
Organisational structure for
geographical expansion
Not well organised Had clearly identified
regional hubs; Great Lakes
Region, Southern Africa
and the Central/West Africa
When the apartheid regime dubiously issued only two mobile licences in 1993 and the
newly elected ANC government took over in 1994, it chose instead to pursue a policy
of managed liberalisation as well as the privatisation of state assets, the new
government created an environment where by the value of Telkom increased as its
revenues increased primarily on the back of the expansion of the mobile industry and
Vodacom in particular. The new government, while pursuing a policy of managed
liberalisation and opening up the sector not only to Black Economic Empowerment
but also for the provision of universal access, did not alter the competitive conditions
that had been set by the previous regime, namely, issuing only two mobile licences
and creating competition as was the intention of the White paper on ICT as Cohen
(2002), Gillward (2004) as well as Horwitz and Currie (2007) observed. This focus on
the home market compromised Vodacom‘s ability to expand.
134
Vodacom has however been seriously hamstrung in Africa. Evidence of this is
provided in the comparative performance of other operators. MTN Group had 80,7m
subscribers (in the quarter to September 2008 see Table 6.4 below) (FM Tech 2008).
It grew its West and Central Africa and Middle East and North Africa operations by
10% each (to 35m and 22,6m, respectively). These are big numbers, especially when
considering that Vodacom's group wide subscriber base increased by only 13% at the
interim stage to (just) 35,7m. Future growth is not going to come from South Africa,
although both MTN and Vodacom realise that (MTN understood that a good number
of years ago see table 6.5 below). MTN estimated there would be 240m addressable
subscribers in Africa and the Middle East by 2012
Table 14 Vodacom and MTN subscriber growth Sept 08
Vodacom Group subscriber growth (1H 2008
to September)
MTN Group subscriber growth (Q3 2008 to
September)
South Africa up 8,4% to 25,2m South and East Africa 7% (to 22,3m)
Tanzania up 34,1% to 4,9m West and Central Africa 10% (to 35m)
DRC up 18,8% to 3,8m
Middle East and North Africa 10% (to 22,6m) Lesotho up 35,5% to 450 000
Mozambique up 19,3% to 1,3m
Source: FM Tech (Sept 26 2008)
This lack of clarity has meant that Vodacom‘s main shareholder Telkom has
expanded into Africa, with investments in Africa-Online an internet service provider
with presence in 9 African countries, Telkom acquired the company in order to
expand ISP services in the rest of Africa together with Telkom Media. Telkom also
acquired 75% of Multilinks, a Private Telecommunications Provider, in Nigeria, with
a Unified Access Licence, allowing fixed, mobile, long distance and international
communications services. Clearly the fixed line shareholder was pursuing a growth
strategy that they had denied its mobile wing Vodacom.
Other operators in these markets like Zain and France Telecom also got it (Zain
Africa is aiming for 110m subscribers by 2011, up from 56,3m in September). These
operators have steadily built their presence in Africa since 2003, while Vodacom has
been ‗cautious‘ about expansion into Africa. The other headache that Vodacom has is
that its other shareholder Vodafone already has a presence in Africa (see Table 6.5
above and Table 6.6 below).
135
Table 15 Selected mobile operator presence in Africa 2005/12/31
Mobile
Operator
Home
Country
Countries
2003/12/31
Countries
2004/12/31
Countries
2005/12/31
No of
subscribers
(mil)
Vodacom South Africa 5 5 5 20,1
MTN South Africa 6 6 6 18,29
Zain( MTC) Kuwait 0 0 14 5,33
France
Telecom
France 10 10 10 5,55
Vodafone UK 3 3 3 11,33
In 2008, Vodafone completed the purchase of 70% of Ghana Telecom (GT) for
$900m. Ironically, it was competing against Vodacom in the sale process; again this
highlights conflicting strategies with its shareholder, Vodafone. None of the twenty
investors in an auction in 2007 were willing to pay over $500m for the stake, which
meant that Vodafone overpaid for GT. Ghana Telecom may end up reporting to
London, another market off limits to Vodacom, thus denying it the opportunity it
badly needed to further enhance its knowledge of the West African market.
Vodacom‘s shareholders lacked an appetite for risk. However, as Ball (1999:434)
contended Vodacom‘s shareholders needed to have been aware that strong
competitors like MTN would have made a profitable operation difficult to attain in
Nigeria, unless Vodacom‘s shareholders were following a strategy of being present
where its global competitors were. In this case, Vodacom on entering the Nigeria
market and any other market for that matter would have had to be an aggressive risk
seeker more concerned with gaining more market share and neglecting increased risk
and relatively short term low profits. Vodacom‘s shareholders would had to have
stomach for taking risk and realise that ‗caution‘ had them playing second fiddle to
MTN. Vodacom is now "officially" Vodafone's entry point into investing in sub-
Saharan Africa, however there are a number of messy loose ends that need tying up.
Vodafone's operation in Kenya, Safaricom (of which it and partners own 40%),
should (in theory at least) be brought into the Vodacom Group fold somehow.
MTN‘s shareholders were TV M-Net, Transnet and Fabcos. M-Cell then held 72 per
cent interest in MTN and negotiations continued for the remaining 28 per cent interest
in exchange for the ordinary M-Cell shares. Marcelle (2001) noted then that this
structure had changed over time and that at the time Johnnic Holdings had seconded
136
its executives to MTN. Most notable in its shareholding was the lack of government
involvement as the shares that were held by Transnet were subsequently acquired by
the managers. Thus there were no conflicting shareholders at MTN unlike with
Vodacom. The financial re-engineering allowed for management to become
shareholders in the company and this provided them with vested interest in increasing
the value of the business. There was also clearly articulated geographical strategy that
was developed in response to Vodacom‘s dominance in the local market
The influence of the government
As Marcelle (2001) noted the government had a very significant role in the telecoms
industry both in terms of regulation of the industry but also as a player, as the major
shareholder particularly in Telkom and by default a share holder in Vodacom. As such
Vodacom became entangled in governments drive to shelter Telkom from competition
and maximise the value of the enterprise prior to listing in 2003. This came at a time
when Vodacom should have been expanding geographically fighting MTN for market
share in Nigeria. Vodacom‘s strategy to enter Nigeria became secondary to Telkom‘s
listing on the Johannesburg and New York Stock Exchanges and Vodacom lost a
valuable opportunity to challenge MTN effectively. As illustrated in Chapter 4 the
value on Telkom‘s shares appreciated on the back of Vodacom‘s revenues in South
Africa. Thus once again the shareholder‘s influence affected the strategic direction of
Vodacom, a mobile operator, by rendering its expansion strategy subservient to
Telkom‘s prospects.
Telkom SA was owned by the SA Government and Thintana Communications. The
Shareholders Agreement on this basis of SBC‘s investment Thintana bound the
Government to terms rather favourable to the SBC. The Shareholders‘ Agreement was
never made public because, according to Jim Myers (an executive at SBC), some of
its provisions bound the Government so stringently and gave Thintana
Communications so much control, that had they become public knowledge it would
have raised huge outcry. According to Horwitz and Currie (2007) clauses in the
Shareholders‘ Agreement stipulated that once the Telecommunications Act was in
place neither Telkom (also Vodacom) nor Thintana Communications would be
compelled to follow any legislation that violated the Shareholders‘ Agreement. This
137
created strong incentive for Government to prevent legislation that might violate –
and make public – the Shareholders‘ Agreement. Vodacom was caught up in this
battle and could not be seen to be acting in a manner that would jeopardise SBC‘s
investment by embarking on risky ventures in territories that had unproven regulatory
processes.
MTN on the other had was freer of government‘s direct interference, having divested
itself of government‘s influence earlier on in its corporate life when its management
bought off Transnet‘s shares in the business. This left MTN freer to pursue a growth
strategy that was not hampered by being part of government‘s drive to increase the
value of Telkom‘s shares.
While both Vodacom and MTN benefited though from government‘s influence at
macro level with the signing of the SADC ICT Protocol as well as the governments
signing of the WTO Telecoms Agreement, but at a micro-level, where it mattered
most, government‘s influence at shareholder level did not influence the fortunes of
MTN. Instead government‘s role as a player and regulator in the telecoms sector had a
negative impact on the fortunes of Vodacom, while it may have contributed to
Vodacom‘s dominance in South Africa, in the fast changing terrain of African
telecoms, it was more of an anchor that produced drag on Vodacom‘s ability to react
to newly defined environment that its rivals were taking advantage of.
Thus in as far as the shareholding and strategy aspect was concerned Vodacom had
issues with its shareholders whereas MTN seemingly was clear about what strategy to
follow in its growth and was able to follow up this in its eventual entry into Nigeria.
The MTN Group CEO Phuthuma Nhleko and his executive made the decisions,
whereas at Vodacom, Group CEO Alan Knott-Craig had to refer to his main
shareholders Telekom and Vodafone about what strategies they were to follow in
which markets.
6.2.2 Entrepreneurial and enterprising management
Vodacom‘s management culture derived mainly from it major shareholders, Telkom
and Vodafone. As a result of government‘s preoccupation with increasing the value of
138
Telkom in preparation for its listing in 2003, the shares in Vodacom were also by
proxy a national asset. Thus Vodacom‘s executive managers, who in the main were
white, could not reasonably have expected to purchase shares in a company whose
other shareholder was actively pursuing a BEE policy as Horwitz and Currie (2007)
noted. Thus although the managers may have had good intentions in terms of where
they wanted the company to go as was illustrated by Vodacom Group CEO Allan
Knott-Craig‘s lament of the shareholders‘ lack of stomach for risk in Nigeria, he
could only watch in frustration as he was ordered to hold back from entering Nigeria,
particularly at a time when MTN was racking millions, all in order to protect
Telkom‘s listing on the Johannesburg and New York Stock Exchanges, in May 2003.
This was at a time when they should have been aggressively challenging MTN in
Nigeria. The government of South Africa considered Vodacom as a national asset that
could not be risked on the shores of an unstable environment like Nigeria. There was
a limit to what management could do at Vodacom, while they could only make
recommendations, ultimately the decision making rested with the shareholders, whose
perceptions of risk and return affected every decision that they made regarding the
geographical expansion and the strategic investments of the organization. Vodacom
was in the spotlight because of government‘s interest in the value of Telkom.
MTN on the other hand had an entrepreneurial culture and evidence of this was
provided by the financial restructuring of the company, a very enterprising and
entrepreneurial management team used the Newshelf Company to buy Transnet stake.
On completion of the transaction the PIC housed them, with the result that Newshelf
holds 13,06% of MTN. Newshelf‘s shares are held by the Alpine Trust on behalf of
both managers and eligible employees. The trustees are MTN Group CEO Phuthuma
Nhleko, COO Sifiso Dabwenga, Paul Jenkins, Wendy Lucas-Bull, Zakhele Sithole
and former MTN director Irene Charnley. Newshelf originally acquired the shares in
MTN from Transnet between December 2002 and March 2003 at an average price of
R13, 90/share. If debt repayments and other costs are removed from the equation, the
value of the investment has appreciated by nearly 600% in six years - and that‘s after
MTN‘s share price pulled back sharply in the wake of the group‘s failure to make an
acquisition in India in 2008 and the subsequent turmoil in world financial markets.
When MTN‘s share price peaked at R160 on May 5, Newshelf was worth R39bn.
139
Even with the decline in the share price over the past six months of 2008, the
Newshelf 664/Alpine Trust structure has proved to be one of the most financially
successful empowerment schemes in post-apartheid SA. It has proved controversial,
though, since some senior white staff have also benefited. However, according to
MTN the trust aims to allocate 75% of the benefits to black staff.
The structure at MTN allowed the management team to work knowing that they were
not only creating value for the firm, but that in the long run they were also creating
value for themselves in the asset that was their company. That MTN was not in the
spotlight like Vodacom also meant that its managers were not under as much scrutiny.
Financial reengineering such as the purchase of shares from Transnet, has allowed
MTN management to realize that they were not only managers, but also decision
makers, the buck stopped with them, they did not have to refer their decisions to
shareholders, because they were shareholders themselves. They could interpret the
changing market conditions in both the material and interpretational domains as well
as in the competitive terrains both inside and outside of the firm. They could also
assess the resource conditions in the various markets and potential rents associated
with them, as they had had the knowledge of operating in the these markets from their
operations in the three regional hubs, the Southern African hub, the Great Lakes
Region as well as the Central/West African region. They could thus reasonably fulfill
the expectations of their customers and their sensemaking enabled them to make
decisions that enhanced the value of the firm. Sensemaking for the MTN managers
comprised of them comprehending, understanding, explaining, attributing,
extrapolating, predicting and –ultimately, unlike their counterparts at Vodacom –
deciding to engage in exchanges and to allocate resources
In this instance the entrepreneurial and enterprising nature of management at MTN
played a pivotal role ultimately in the success of the enterprise. Vodacom‘s managers
on the other hand despite their competence and the sterling work that they did to make
Vodacom the dominant force that it was in the telecommunications industry in SA
and Africa, they could only comprehend, understand, explain, attribute, extrapolate
predict but they ultimately, unlike their counterparts at MTN, they could not decide to
engage in exchanges and to allocate resources.
140
6.2.3. Micro-culture
As shown in chapter 2, micro-culture refers to the knowledge, values and identity
beliefs in a firm consistent with a broad definition of culture as ‗pattern of shared
beliefs and values that give members of the institution meaning and provide them
with rules for behaviour‘ (Davies 1994). Vodacom‘s knowledge (deriving from
Vodafone and Telkom), values (Vodacom is a winning company, Vodacom is a
respected company) and beliefs (Vodacom is a caring company, Vodacom believes
that it can, Vodacom seeks out the impossible to do) were resources that created
competitive advantage. These resources were valuable, rare and rather difficult to
imitate in the South African telecoms environment. In addition, knowledge, values
and beliefs created and advantage for Vodacom through their influence on
information processing and behaviour. As cognitive structures unique to Vodacom
then, they enabled its strategists to make superior evaluations of the rent-earning
potential of the firm‘s resources relative to MTN‘s. They also guided the actions of all
Vodacom members and enabled them to enact a systematic strategic direction, ‗in
everything we do we will always make sure that our shareholders remain happy and
proud of their investment in Vodacom‘ (Vodacom 2003)
Conversely at MTN whose management held the view that the firm was ‗a leading
private sector, black controlled telecommunications group‘ (MTN: 2001) pursued
knowledge of the African environment as a first priority. This was demonstrated by its
investments in the regional hubs of Southern Africa, Great Lakes Region and the
Central/ West. This enabled MTN to ‗exploit the opportunities presented by
deregulation‘ (MTN 2001), not only in South Africa where it had built its network in
a very competitive South African environment and where it had played second fiddle
to Vodacom, but also on the continent and beyond. Having been part of SBC, MTN‘s
organizational culture has been largely influenced by an American corporate culture
influence, hence open neck shirts and chinos were the corporate dress code unlike the
jacket and tie at Vodacom, were the British corporate influence of Vodafone was
present. Besides describing the company as a leading private sector black controlled
telecommunications group well poised to take advantage of opportunities presented
by deregulation, MTN‘s ‗Living the Brand‘ project became an integral part of the
‗Live-Work-Play‘ campaign whose objective was to connect all employees to the
141
MTN culture where the brand values of integrity, innovation, friendliness, simplicity
and can-do were shared amongst all staff. The Group saw itself competing in two
markets, one for customers and the other for talented individuals. With this focus, the
Group transformed itself to truly become a talent focused and empowered
organisation. According to the then Chairperson, Irene Charnely, the Group had a
strategy to attract the best talent into the Group by developing a strong employer
brand image. MTN, for example, was awarded second place in 2001 in the ―Best
company to work for in South Africa‖ survey. (MTN 2001)
MTN‘s knowledge, values and beliefs were well suited to the competitive terrain to
Nigeria. MTN‘s strategists through their influence on information processing and
behaviour that had been sharpened in jungles of Uganda as well as Cameroon had
enabled its managers to accurately assess the potential of the Nigerian market. As
cognitive structures unique to MTN then, they enabled its strategists to make superior
evaluations of the rent-earning potential of the firm‘s resources in Nigeria and
beyond, relative to Vodacom‘s. They also guided the actions of all MTN‘s members
and enabled them to enact a systematic strategic direction. According to the then out
going chairperson ‗over the next two years, the funding of new ventures as well as
normal start up losses will affect the overall earnings of the Group, but we remain
fairly optimistic that significant cash flows will continue to be generated from the
South African operations. Prospects for the African operations are excellent.
Cameroon is now up and running well, and Nigeria, with a population estimated at
120 million, offers significant potential for the Group. We expect positive cash flows
within the next three to five years from these new operations.‘ (MTN 2001)
Thus MTN‘s micro-culture played a key role in the way its strategists made superior
evaluations of the rent-earning potential of the firm‘s resources relative to Vodacom‘s
in the Nigerian market and beyond. They also guided the actions of all MTN members
and enabled them to enact a systematic strategic direction of being enterprising and
entrepreneurial.
6.2.4 Organising for geographical expansion
Vodacom managers, may have comprehended, understood, the competitive
environment that they were operating in and then tried to explain, attribute,
142
extrapolate, predict what they had understood to their shareholders, their hands were
tied particularly by the shareholders agreement with Vodafone that prevented
Vodacom expanding north of the Limpopo as aggressively as MTN did. This was also
in part because Vodafone had a presence in Africa. So even though the competitive
terrain shifted and the macro-environment required that Vodacom act in a different
manner it just could not. The theoretical perspective in this case study suggests that
Vodacom lost its competitive advantage, given the restrictions of its shareholders,
because it‘s managers could not reinvent the strategic plot that its resources and
micro-culture had enabled it to gain competitive advantage in SA, and so it could not
respond to the new definitions of success and resource allocations of like its rival
MTN. Over all Vodacom‘s loss of competitive advantage reflected the firm‘s failure
to see how competitive advantage had emerged from the combination of its own
actions and those of its rivals, MTN in both material and interpretational domains.
Table 16MTN vision
Source MTN Annual Report 2006
MTN on the other had organised its operations into three regional hubs that comprised
of the Great Lakes Region; the Southern African Region as well as the Central/West
143
African Regions It extended its reach into Africa through broadening its extensive
roaming agreements and guiding established partnerships in Uganda, Rwanda,
Swaziland and Nigeria. MTN believed then in 2003 that the Nigerian telecoms market
was expected to grow to and according to its Marshal Plan it aimed to have increased
its subscriber base in Nigeria to 4 million by the end of the 2004/5 financial year, and
that Nigeria was a crucial market. As illustrated below this strategy involved MTN
becoming a national player, then a regional player and then an emerging market
player (see fig 6.1). They were aware that this strategy would involve risk taking and
militated against that risk by acquiring the skills that they would need to operate in
emerging markets with their technological partners Ericsson. According to Curwen
and Whalley (2008) just over one-half of MTN‘s subscribers were to be found in
South Africa at the end of 2005 (compared to two-thirds one year previously), but as
the company was growing relatively rapidly in Nigeria, easily its second-largest
market accounting for one-third of its subscribers in 2005, that dependency on a
single market was rapidly being reduced.
MTN‘s geographical expansion has not been without its flaws, it struggled to expand
since it failed to acquire either Celtel or half of Atlantique Te´ le´com in 2005; failed
to win 51% of Nigeria‘s Nitel/M-Tel in December 2005; failed to buy 35% of Tunisie
Te´ le´com in March 2006; failed to buy 34% of Namibia‘s MTC in March 2006 and
failed to win a licence in Egypt. However, in early May 2006 it appeared to have put
these disappointments behind it when it bid successfully (subject to a raft of
regulatory approvals) to take over Investcom—there were no overlaps in their
respective country coverage—receiving an irrevocable acceptance for an initial 70.6%
stake. It was also interested in taking a stake in Zimbabwe. The irony was that
Investcom had just been declared to be the provisional highest bidder for Millicom
International which had put itself up for sale in early 2006. Not surprisingly,
Investcom withdrew its offer and it remained to be seen who would acquire Millicom,
although the clear favourite was China Mobile. However, discussions broke down and
Millicom decided to remain independent. It subsequently held back from pursuing any
further interests in Africa.
After the announcement of the historic 2004 results, when MTN were ‗crowned‘
kings of the continent Nhleko said it might no longer limit itself to African expansion.
144
"We are continually looking and we are now in a far better shape because our debt-to-
equity ratio is down to 8 per cent and we are generating significant cash flows."
Expansion would preferably come by entering virgin territory, but a good acquisition
would also be attractive. "In the short term it will be African opportunities because
that is our logical footprint, but if there are interesting opportunities outside we'd
consider them,"
Nhleko pointed out that assuming current market conditions, the group was confident
that the South African operation would continue its strong free cash flow generation,
while international operations were expected to maintain subscriber growth. Nhleko
added that, the group was ―now deriving an increasing proportion of its earnings from
outside South Africa‖ and as a result was ―becoming more susceptible to foreign
exchange movements.‖
At the time Pyramid Research had wondered where MTN could go to replicate the
Nigerian success. No other African nations had the size of population (despite
Mthembu‘s claim of the 200 million subscribers in their portfolio), the undercurrent
of informal wealth and the bubbling demand for cell phone services that
entrepreneurial Nigeria offered. Which meant strategic investments in other countries
may be sound, but not spectacular. MTN may do better looking to the east by tackling
the massive Chinese market, perhaps, where the large population is taking cellular
services to heart. At the same time, Pyramid Research went on to add, MTN could not
take its eye off the ball in SA despite having performed better than expected in the
face of tough competition and an increasingly mature market.
6.3 CONCLUSION
The case study began by looking at the challenge that rival firms face in when
embarking on a geographical expansion. This study then analysed the effectiveness of
geographical expansion by of two large South African telecommunications companies
in Nigeria; conducting a comparative analysis as was shown by these indicators
namely (1) shareholding and strategy (2) entrepreneurial and enterprising
management (3) micro-culture and (4) organizational structuring for geographical
145
expansion The analysis has provided lessons for corporate strategy and decision
making.
As outlined in the SWOT analysis, both Vodacom and MTN by 2001 were aware that
they needed to do that to maintain their market share and growth after the entry of
Cell C into the market. Thus they need to find growth by pursuing both a product and
geographic diversification strategy. To that end, Vodacom had not only been the first
operator to diversify in terms of product diversification as in 1997 they offered the
prepaid model, it was also the first of the two network operators then to embark on a
geographical expansion when it won a licence in 1995 in Lesotho. This was followed
by a licence in Tanzania in 1999, then Democratic Republic of the Congo in 2001 and
Mozambique in 2003. These were, in the main, operations in Vodacom‘s
neighbourhood, stable democracies. There was not much diversity from its main
operation in South Africa in terms of culture, terrain, etc. Furthermore, although
Vodacom had considerable competitive advantage in South Africa by 2001, its
geographical expansion was severely handicapped by the shareholders agreement
with Vodafone that prevented it from pursuing operations north of the Limpopo.
By contrast, MTN shareholders actively pursued geographic expansion two years
after Vodacom, when MTN International expanded into Africa, acquiring licences in
Uganda, Rwanda and Swaziland between 1997 and 1999. MTN International also
acquired a National GSM 900 licence in Cameroon in 2000. MTN focused on
developing regional hubs in the Great Lakes Region, Southern Africa and the
Central/West Africa around which business clusters developed and from which they
developed skills of being an emerging market player and each of the hubs provided
different sets of skills which the company built upon. MTN identified three essential
regional clusters, through tracking efficiencies, knowledge transfers, skills sharing
and mutual access to a pool of advanced and innovative technology. MTN‘s
diversification exploited economies of scope, product knowledge, and other relevant
experience, thus reducing transaction costs and improving performance (Grant, 1988;
Williamson, 1981).
Thus Vodacom‘s and MTN‘s geographic market diversification was horizontally and
vertically integrated across different national submarkets (Hisey & Caves, 1985).
146
However the benefits of MTN‘s geographical diversification, particularly in Nigeria,
originated from two sources—greater opportunities for higher returns and lower
correlations of assets across countries (Cavaglia, Melas, & Tsouderos, 2000).
Geographical diversification provided MTN, especially in Nigeria, with significant
advantages, including better firm performance (Hitt, Hoskisson, & Ireland, 1994;
Tallman& Li, 1996).
6.3.1 Measuring International Diversification
In measuring the extent or multiplicity of foreign markets in which the two telecoms
firms operated , the study examined the relative importance of international markets
by reviewing Vodacom‘s and MTN‘s share of sales revenues from foreign markets,
especially Nigeria, the biggest market in Africa. The study then investigated the
numbers of countries the firms entered since 1995 in their pursuits of Merger and
Acquisition transactions (as an acquirer). Vodacom operates from only five countries
including it home market, by contrast MTN now operates in 15 African countries. The
case study used this measure instead of the number of countries where either might
have established operations because of the complex and inconsistent definitions for
international branches each conglomerate has adopted, which may include
subsidiaries as well as affiliates and non-affiliated licensees, and the discrepancies in
the numbers of reported countries entered by different divisions of each conglomerate.
In terms of measuring the conglomerates‘ mode and direction/relatedness of
international diversification, the study looked at the number of countries and regions
that each of the firms had entered since 1995 years as an acquirer in M&A
transactions. MNDS, as a measurement of geographical relatedness, is also calculated
by dividing the total number of countries a conglomerate entered by the number of
regions it entered. The study further examined the M&A transactions occurring during
the period in each region to investigate the core regions of international diversification
for each firm. It should be noted that the classification of the regions was based on the
considerations of cultural, economic and physical geographic divisions and adopted
from the Economic Growth Regional Classification framework (Economic Growth
Center, 2002). MTN‘s strategy by far outclassed Vodacom‘s, in that it had three
regional hubs and operated from 15 countries compared to Vodacom‘s 5.
147
Strategic Investments
Constituents engage in interactions with firms to further their own objectives: They
allocate the resources that they control by making buying and selling decisions,
investment decisions, and employment decisions. Each decision shifts resources to
alternative uses and contributes to determining which firms enjoy competitive
advantage. Assessments of ‗better value‘ depend partly on constituents‘ own
objectives and partly on the strategic investments and strategic projections that
competing firms have made. Assessing the value that firms offer is a complex task
performed with incomplete information. Cognitive limitations in perception and
interpretation prevent constituents from making accurate assessments (Schwenk,
1984). Given limitations in evaluating firms and industries, constituents routinely rely
on ready-made interpretations in the ambient macro-culture of the industry
(Abrahamson and Fombrun, 1992, 1994). Just as the strategic investments of firms
originate both in their resource bases and their micro-cultures, so are the resource
allocations of constituents informed by the macro-culture of the organizational field.
Macro-cultures facilitate constituents‘ sensemaking. They do so by providing
constituents with industry paradigms and by supplying them with definitions of
success. For example, reputational ratings are an element of a company‘s macro-
culture that help reduce uncertainty about firms‘ likely behaviours or future levels of
performance (Weigelt and Camerer, 1988; Rao, 1994; Fombrun, 1996). Much as
individual schemata encourage automatic information processing and foster schema-
consistent behaviour (Fiske and Taylor, 1990; Gioia, 1986), so do reputational
schemata encourage constituents to make resource allocations and to sustain their
allocations in reputation-consistent directions (Wartick, 1992).
In Vodacom‘s case it was clear that by 2001 it needed to make investments outside of
its network in SA if it was to maintain its competitive advantage, however as
described above, even though Vodacom was in a much stronger financial position
than MTN, its shareholders constrained its expansion strategy so much so that the
massive amounts of money that it was generating in SA were in the first instance used
to pay off a shareholders loan in 2001 and the rest reinvested again as it sought to
have total dominance in its home market.
148
As can be seen from the table 6.7 on proportionate subscribers, Vodacom’s
domestic subscribers as a percentage of total was 81.5% of total subscribers by
the end of 31st December 2005 and this figure has not changed much. Compared
to other operators in Africa including its major shareholder Vodafone as well as
arch rival MTN, Vodacom is still very heavily reliant on its maturing domestic
market.
For it to have a commanding presence in Africa, it would have to resolve its
relationship with Vodafone. Perhaps the other strategy that it could adopt will be
for it to enter emerging markets where Vodafone does not seem to have a
presence, like in the Middle East as well as Central and South America as they
have acquired the necessary skills of operating in emerging markets.
Table 17 Proportionate Subscribers
Company Total no of
subscriber
s
(millions)
Domesti
c as %
of total
Wester
n
Europe
Easter
n
Europe
Middl
e East
Asi
a
Central
and
South
Americ
a
North
Americ
a
Afric
a
Vodacom 20,1 81.5 100
MTN 18,9 51.9 100
Zain(MTC
)
9,3 15.4 42.9 57.1
France
Telecom
71,4 31.4 80.0 9.7 0.4 0.1 2.1 7.7
Vodafone 179,3 9.1 60.6 3.8 16.6 12.7 6.3
Source: Curwen and Whalley
6.3.2 Measuring Performance
The study used various performance measures to determine the effectiveness of the
geographical expansion of the two competitive rivals. Averaged total revenues were
used to show the Vodacom‘s and MTN‘s relative positions in the market especially in
the period 2001-2004, while the averaged revenue growth rate was evaluated to see
the growth potential of each of the firms. Earnings before interest, taxes, depreciation,
and amortization was used to evaluate the rivals‘ profitability, and Return on Assets,
Return on Investment, and Return on Equity, which are measures of the effectiveness
and efficiency of top management rather than investors‘ expectations about future
profits such as in the case of stock price (Qian, 1997), were also examined. The
149
results are included in the annextures. Once again using this measure of performance
MTN‘s revenues and profits overtook Vodacom‘s in the years 2003 and 2004,
effectively establishing MTN as the Telecommunications ‗Kings of the Continent.‘
As can be noted from fig 6.2 as well as the financial analysis in the annexure, MTN‘s
actual growth was unanticipated. Thus it can be extrapolated from the financial
analysis (in the annexture) that MTN‘s geographical expansion strategy was more
effective than Vodacom
Table 18 MTN’s Growth
Source: Naidoo (2006)
6.3.2.1 MTN’s Critical Success Factors
This case study has shown that MTN succeeded in its geographic expansion strategy
because of the following critical success factors (1) Organizational Integration (2)
Management/ Leadership (3) Managing strategic change (4) Cultural change as well
as the fact MTN is a (5) Learning Organisation and had set itself up for Technological
Capacity Building and Innovation (Marcelle 2005) By contrast, Vodacom did not
build on its lead in South Africa because of its rigid management structure that chose
a focus strategy in a local market that was getting saturated. Subsequently its
arrogance created a blind spot and blunted its ability to respond to the changing
competitive terrain. Its ability to respond to the changing competitive terrain was
further hampered by the fact that it did not possess the skills that it needed to compete
in the redefined terrain. These critical success factors will be examined below in
detail.
150
Table 19 MTN’s Critical Success Factors
MTN Vodacom
Organizational Integration Adaptable Rigid
Leadership Dynamic and
Entrepreneurial
Managing strategic change Ability to interpret market
conditions and respond
Did not respond to the
changing market
conditions
Cultural change Core skill requirement in
global market place
Monopoly power in SA
created blind-spot
Learning organisation-
Technological Capacity
Building
Valuable lessons from
being 2nd
Network
operator
Dominance created
arrogance
Source: Author
6.3.2.1.1 Organizational Integration
Lazonick and West (1995) define organisational integration as a set of ongoing
relationships that socialises participants in a complex division of labour to apply their
skills and efforts to the achievement of organisational goals. They go on to contend
that the foundation of the socialised process that achieves organisational integration is
‗membership;‘ the inclusion of the individual or group into the organisation with all
the rights and responsibilities that membership entails. In a business organisation a
fundamental right of membership is employment security, and a fundamental
responsibility is to ensure that the pursuit of one‘s individual goal is consistent with
that of the organisation. They argue that competitive advantage depends on the
strategies and the structures of the business enterprises. They further argue that, over
time, to gain competitive advantage businesses, in the US and elsewhere, had to have
achieved increasingly higher degrees of ‗organisational integration.‘
Organisational integration provided MTN with the capability to learn as an enterprise
in their battle against Vodacom in the SA market and gave MTN the ability to be have
151
a quicker and effective strategic responses to Vodacom‘s dominance. It also provided
MTN the capability to learn as an enterprise and the potential to innovate in market
competition. The building of the relationships that constituted MTN‘s organizational
integration was strategic. MTN involved its employees in the process of planned
coordination, investing in their skills and extending them the options of being
shareholders. Secondly they developed long term relationships with firms that
supplied them with inputs, particularly Ericsson (their equipment supplier), and
distributed their outputs, Panelpina (logistics) and that these firms, as with their
employees and managers, enabled these firms to participate in an organizationally
integrated learning process. Thus MTN, gained competitive advantage over Vodacom
by becoming more organizationally integrated than its rival, its managerial structure
(including technical specialists) was critical for innovation but also in which the
evolution process technology with Ericsson, made the employees (who were also
shareholders), suppliers (Ericsson) and distributors (Panelpina) of central importance
for process innovation.
MTN‘s strategic response to Vodacom‘s competitive challenge in terms of qualitative
type and speed of response meant that it embarked on an innovative strategy which
entailed investments, like Nigeria, that enhanced the productive capability of the new
combination of inputs, thus making possible the generation of higher revenues, lower
inputs costs. MTN‘s innovative strategy depended on whether the upgrading and
recombination of inputs yielded sufficient increases in quality and decreases in cost to
make the enterprise‘s products competitive. The organisational integration hypothesis
argues that an important determinant of the difference between Vodacom and MTN
was the qualitative and the effectiveness of MTN‘s strategic response to Vodacom‘s
dominance in the local market, particularly its geographical expansion into Nigeria.
Even though MTN started operations in South Africa and in Africa after Vodacom
had been in the market the distinguishing factor from Vodacom was that MTN was
clear about what business it was in, the mobile telecommunications market and thus
all its business units were integrated into the provision of mobile telecommunications
in converging telecommunications market. That awareness subsequently influenced
MTN‘s strategic choices in terms of how it would pursue growth in response to
Vodacom‘s dominance not only in the local market but also in Africa. Vodacom was
not clear what strategy it had to follow, this derived from the fact that its main
152
shareholder was the incumbent, Telkom a fixed line operator, as well as Vodafone a
mobile operator. There was no organizational integration that would have allowed
Vodacom to build on its competitive advantage in SA.
6.3.2.1.2 Leadership
Gandossy and Guarnieri (2008) observed in a global study on Top Companies for
Leaders that in these top companies:
Leaders lead the way; leadership development is at the top of the CEO‘s and
senior management agenda; it is an area in which they invest substantial
amounts of time and energy.
A focus on talent; top companies do more to identify, develop and reward top
talent; differentiation of top talent is a given
Practical and Aligned programs and practices; leadership development,
performance management, succession planning and recruiting all work
together to help people in the business to achieve their goals
Leadership as discipline that reaches a critical “tipping point,” when a
company has commitment to leadership, it becomes integrated with business
planning and woven into the culture of the organisation.
In short they contend, top companies make leadership a way of life. They make
deliberate decisions to reinforce leadership expectations, through top-down
communications, promotion decisions and variable pay. In big and small ways, top
companies let it be known what they expect from their leaders and are relentless in
creating an environment that fosters the development of leadership.
Taking the above criteria into consideration it will be noted from the comments of the
then out going Chairman Irene Charnely in 2001 MTN‘s ‗Living the Brand‘ project
became an integral part of the ‗Live-Work-Play‘ campaign whose objective was to
connect all employees to the MTN culture where the brand values of integrity,
innovation, friendliness, simplicity and can-do were shared amongst all staff. The
Group saw itself competing in two markets, one for customers and the other for
talented individuals. With this focus, the Group transformed itself to truly become a
talent focused and empowered organisation. She went on to add that the Group had a
strategy to attract the best talent into the Group by developing a strong employer
153
brand image. MTN, for example, was awarded second place in 2001 in the ―Best
company to work for in South Africa‖ survey. (MTN 2001). Vodacom‘s focus on the
other hand was its preoccupation with pursing its dominance of the local market and
while leadership development and employee may have been a focus as per the Skills
Development Act, it was not as intense or interwoven into the fabric of the
organisation as much as it was at MTN.
6.3.2.1.3 Managing strategic change
Managing strategic change for Vodacom and MTN required the raising questions
about the fundamental nature of organizations: What business(es) should they be in?
Who should reap what benefits from the organization? What should be the values and
norms of organizational members? For MTN it was a simple process, as they were
able to clearly define who they were ‗a leading private sector, black controlled
telecommunications group poised to exploit the opportunities presented by
deregulation‘ (MTN: 2001). They were also able to define who should reap what
benefits from the organisation; Newshelf‘s shares are held by the Alpine Trust on
behalf of both managers and eligible employees. MTN‘s ‗Living the Brand‘ project
became an integral part of the ‗Live-Work-Play‘ campaign whose objective was to
connect all employees to the MTN culture where the brand values of integrity,
innovation, friendliness, simplicity and can-do were shared amongst all staff.
Vodacom‘s shareholders by contrast could not decide what strategy Vodacom was to
follow, fixed-line or mobile and this indecision paralyzed any actions that its
management may have had in challenging MTN in Nigeria. Management‘s inability
to act in the Nigerian saga can be deduced from the companies values which state that
‗in everything we do we will always make sure that our shareholders remain happy
and proud of their investment in Vodacom‘ (Vodacom 2003), even if this meant
acting against their better judgement and not challenging MTN in Nigeria because
their shareholders did not have a stomach for risk.
6.3.2.1.4 Cultural change
Cultural change is a form of organizational transformation, that is, radical and
fundamental form of change. Cultural change involves changing the basic values,
154
norms, beliefs, etc., among members of the organization in order to improve
organizational performance. It involves lasting and structural and social settings
within organisation as well as lasting changes to the shared ways of thinking, beliefs,
values, procedures and relationships of the stakeholders. MTN in particular, in light of
Vodacom‘s dominance needed to provide a positive orientation to Technological
Capacity Building (Marcelle 2002), technical developments in the telecoms industry
instigated the need for new skills in the organisation. Skills and awareness would have
required constant updating and so new approaches to training were adopted, in view
of the stated organizational goals new roles and new attitudes would have been
required of both managers and employees. As the study has shown, for MTN to
effective challenge Vodacom‘s documents they needed to have had a vision of the
organisation, even though at the time it was conceived none of the managers and
employees were guaranteed what the outcome would have been, it took the courage
and convictions of the leadership to lead the organisation in the periods of uncertainty.
In contrast, Vodacom‘s dominance created some form of lethargy within the
organisation that dulled its responses in the changing African telecoms market. When
it eventually decided to try and challenge MTN in Nigeria, it was too little too late
and did not have the organizational integration to make the challenge effective and
lasting.
6.3.2.1.5 Learning organisation- TCB and Innovation
Lazonick and West (1995) argue further that a competitive challenge entails
innovation and that MTN needed to have an innovative response for it to have gained
sustainable competitive advantage. They go on to add that the sustainable competitive
advantage that MTN required was one that did not rely on permanently reducing
returns to productive factors or living off the company‘s existing resources. Thus the
timing of MTN‘s strategic response to Vodacom‘s dominance, particularly its
investment in Nigeria, was critical because of the need to argument the productive
capabilities of its resources. The innovation process that was set in motion by MTN‘s
innovative strategy was a developmental process that took time. In order to generate
higher quality, lower costs products and processes that brought about competitive
advantage, Lazonick and West (1995) argue that MTN had to have an organisational
155
structure to implement the innovative strategy to develop and utilize technology,
which Ericsson provided. Thus their organizational structure hypothesis focuses on
the social structure of MTN‘s enterprise as a determinant of competitive advantage.
They go on to add that putting this organisational structure, in place to sustain the
learning process that MTN‘s organisational structure needed to generate, required its
strategic decision makers to have access to what they call ‗financial commitment‘ and
shareholders, MTN‘s strategic decision makers had no problem accessing this
financial commitment. A necessary condition for innovation, Lazonick and West
(1995) further contend was that those who controlled financial resources, at MTN,
choose innovative investment strategies rather than adoptive investment strategies like
at Vodacom. They needed, moreover, to keep financial resources committed to the
innovation strategy until the products and processes were sufficiently developed and
utilized to generate returns. In MTN‘s case, keeping money committed to the
innovative strategy and in particular the Nigerian operation, its shareholders needed to
have intimate knowledge of the problems and possibilities of their investment
strategy.
MTN‘s competitive advantage required a learning process that resulted in the
generation, over time, of higher quality and /or lower cost products. The general
attributes of this learning process was that it had to be concentrated, continuous,
cumulative and collective and management‘s role was to ensure the concentration
continuity, cumulatively of the learning process. Meanwhile Marcelle (2002) in her
study ‗How African Telecoms Build Capacity‘ defines the process of Technological
Capacity Building (TCB) as an investment process in which firms learn to accumulate
technological capabilities under conditions of uncertainty. She adds that TCB effort is
not linear, sequential and orderly, nor is it guaranteed to succeed without sustained,
purposive co-ordination. She contends that ―to be effective at TCB, firms must
acquire basic organizational capabilities, specific functional capabilities and the
ability to manage complex change. Firms that are successful in technological learning
are likely to overcome the challenge of reconciling tensions between activities that
may stimulate innovation, but reduce short-term productivity gains, and must have the
ability to simultaneously update old ways of knowing and doing while acquiring new
technological knowledge. Thus, in order to be successful, TCB firms must also be
able to manage complex change effectively (Pettigrew & Whipp, 1991 It is suggested
156
that for firms‘ TCB efforts to be effective, they require a system consisting of five
critical components, which include three internal processes: (1) allocating financial
resources to TCB effort; (2) management practices, systems and decision making
rules that implement and support the TCB effort; and (3) practices to establish and
maintain an organizational culture in which the TCB effort is exercised with
committed and skilled leadership; and two boundary processes: (4) accessing external
TC resources from suppliers; and (5) accessing external TC resources from the
innovation system (local and global).‖
The innovation process that was set in motion by MTN‘s innovation strategy was a
developmental process that took time, effort and sustained financial resources. In
putting the integrated organizational structure in place and in sustaining the learning
process that MTN‘s organizational structure had to generate required, its strategic
decision makers to had have access to ‗financial commitment‘ and as most of the
shareholders were also the executive team this was not an issue. Financial
commitment represented the willingness of those who controlled the resources to
commit to financing the high fixed costs of developmental investments in Nigeria in
2001, which because of innovation, promised uncertain returns. Financial
commitment, for MTN, thus played a critical role in its innovation process, because
its shareholders, who were also managers, chose what strategy the enterprise was to
pursue. MTN‘s innovative strategy inherently entailed fixed costs because
investments, like Nigeria in particular, had to be made in physical (Y‘helloBhaan) and
human capital (expatriates) with a time lag before the receipt of returns. These fixed
costs were high in Nigeria, because of not only the scale of the investments but also
the developmental period had to occur before the investments that entailed fixed cost
could generate returns.
This was a very important differentiator between Vodacom and MTN which
ultimately led to MTN‘s competitive advantage. As outlined in Chapter 4, Vodacom
had been the first organisation to launch in SA and subsequently to have competitive
advantage over MTN. To all intents and purposes, MTN was going to have to play
catch up to Vodacom, especially when Vodacom had been also the first company to
embark on geographical expansion in 1995 when it won a licence in Lesotho. It
therefore required that MTN organize itself in such a way that it would effectively
157
challenge and ultimately succeed in overcoming that dominance. Creating a learning
organisation was one such response and MTN also has an Innovation Centre. The key
therefore to MTN‘s organizational learning and Innovation was in the integration of
the three cultures ―the operator culture‖ the internal culture based on its operational
success; ‗engineering culture‘ which involved the designers and the technocrats who
drove its core technologies, Ericsson as well as its ‗executive culture‘ that included
the executive management, the CEO and his immediate subordinates. Schlein (1996)
argues that the three cultures are not often aligned with each other and it was this lack
of alignment at Vodacom that caused failures of organizational learning as this study
has demonstrated. It was MTN‘s ability to create new organizational forms and
processes, to innovate in both the technical and organizational arenas that were crucial
to them attaining competitive advantage over Vodacom in the dynamic African
telecommunications environment.
6.3.3 Lessons for corporate strategy and decision making
In concluding, this analysis provides insights for firms executing geographic
expansion strategies and shows that the following are important success factors(1)
Organizational Integration (2) Management/ Leadership (3) Managing strategic
change (4) Cultural change as well as the fact MTN is a (5) Learning Organisation
and had set itself up for Technological Capacity Building and Innovation outlined as
critical to MTN‘s success above. Furthermore, to strategists, the systemic framework
presented in chapter two fig 2.5 in this case study shows that MTN‘s competitive
advantage did not derive from any single source—be it industry conditions or
corporate culture. Rather, advantage was an outcome of a cycle of processes. Weick
(1979b: 52) warned that managers get into trouble because they forget to think in
circles.‘ In part it is because organizational structures inhibit thinking in cyclical
terms: Each process in the cycle is typically managed by a separate function and level
in the organization. Moreover, different professionals normally manage the
knowledge base associated with each domain. For example, economists are generally
charged with forecasting market behaviours; line managers with developing
investment proposals; human resource specialists with managing the systems that
support the firm‘s micro-culture; and marketing and public relations staffs with
158
monitoring and maintaining the macro-culture. Differentiation along these lines
makes cyclical thinking difficult to achieve.
The results presented in this case study appear to validate this theoretical proposition.
As such, it is recommended that a firm‘s strategists should recognize the disparity
created by their internal structures and actively exploit the interdependencies
according to the systemic logic of competitive advantage. To attain and sustain
competitive advantage, strategies in one domain must be consistent with strategies
developed in another; and strategies coordinated across domains will achieve better
results. Many researchers have suggested that interpretations about firms are more
actively constructed in the early life of a firm (Aldrich and Fiol, 1994; Suchman,
1995). The systemic model calls attention to the fact that industry paradigms emerge
from interactions between firms and constituents and reflects the legitimacy of
technologies, individual firms, and even strategic groups. When the industry paradigm
changes it undermines the legitimacy of established firms. Therefore, the acquisition
of legitimacy may be a strategic activity that occurs, not only at the beginning of a
firm‘s life, but every time its competitive terrain shifts.
Finally, interpretational variables introduce a new set of time lags into models of
competitive interaction. Since interpretations such as corporate reputations are
inertial, a firm may be able to continue to attract resources for a period of time even
when its strategy is no longer viable, as the case of Vodacom shows. Such a firm may
be misled into believing that it enjoys actual advantage when it is using up
accumulated goodwill. When constituents find out that their reputation-based
expectations are not met, they may have extreme negative reactions. Projecting an
image leads to social expectations that amount to obligations to behave in ways
consistent with the image (Schlenker, 1980). Violating these obligations can have
grave social consequences. At the firm level these social consequences have profound
implications for the firm‘s economic performance. Ultimately, the systemic model
that the case study uses makes it very clear why control over resources alone is not
enough to reproduce competitive success. Even firms with exceptional resource bases
can fall with astonishing speed when they lose the confidence of resource-holders.
Therefore, firms need to audit their reputational base as well as their market positions,
their cultural compatibility with constituents as well as their resource adequacy.
159
160
References
Abell, D. F. (1980). Defining the Business: The starting point of strategic planning.
Upper Saddle River, N.J, Prentice Hall.
ABI Research.(2005). "An Overview of the Vodafone Group."
Africa and Middle East Communications Report June 2003, Detailed Overview of the
wireless of Africa, Middle East, Arab World An EMC Publication
Albert, S. and D. Whetten (1985). ‗Organizational identity‘. In L. L. Cummings and
B. M. Staw (eds.), Research in Organizational Behaviour, Vol. 7. JAI Press,
Greenwich, CT, pp. 263–295.
Aldrich, H. and M. Fiol (1994). ‗Fools rush in? The institutional context of industry
creation‘, Academy of Management Review, 19, pp. 645–670.
Abrahamson, E. and C. Fombrun (1992). ‗Forging the iron cage: Interorganizational
networks and the production of macro-culture‘, Journal of Management Studies, 29,
pp. 175–194.
Abrahamson, E. and C. Fombrun (1994). ‗Macrocultures: Determinants and
consequences‘, Academy of Management Review, 19, pp. 728–755.
Adeya, C. N. (2005). "Wireless Technologies and Development in Africa (Draft)."
Aihe, O. (5 July 2004). Adrian Wood: Exit of a Y'hello Man. Vanguard. Lagos.
Ambary, R. and Hand., B (1990). International and Product Diversification strategies
of U.S MNCs and their relationship to foreign and overall performance. Academy of
International Business, Toronto.
Amit, R. and P. Schoemaker (1993). ‗Strategic assets and organizational rent‘,
Strategic Management Journal, 14(1), pp. 33–46.
Analysys Report, (2003) Roadmaps for success in telecoms liberalisation: issues and
best practice. OECD.
161
Anderson, M. and. Tsagkalias.L. (2000). "Impacts from business environment and
corporate strategy on financial structure; A historical perspective of the three Swedish
multinationals."
Andrews, K. R. (1980). The Concept of Corporate Strategy. Homewood, Ill, Erwin.
Ankisola, O. S. H., M.E and Jacobs, S.J (2005). "ICT Provision to disadvantaged
communities in South Africa and Nigeria." Tshwane University of Technology
Ansoff, H. I. (1958). A model for diversification. Management Science, 4, 392–414.
Antonelli, C. (1997). "Technological change and multinational growth in International
Communication Services."
Ashkok, A. (2000). "Towards a design framework for ICT Projects in the Developing
World." School of Informatics
Aslani, B (1990) ―Business Strategy and Computer Simulation Model‖ The cal Poly
Pomona Journal of interdisciplinary Studies. Fall 1999, pp 195-202
http://www.csupomona.edu/~/jis/1999/aslani.pdf
Astley, W. G. and A. Van de Ven (1983). ‗Central perspectives and debates in
organization theory‘ Administrative Science Quarterly, 28, pp. 245–273.
Aykut, D. and Goldstein, A. ( December 2006). "Developing country Multinationals:
South-South Investment comes of age." OECD Development Centre Working Paper
no 257.
Bain, J. S. (1956). Barriers to New Competition. Harvard University Press,
Cambridge, MA.
Bain & Company, SA Inc, (2001) The South African Telecommunications Industry –
Structure and regulation. How to destroy value – lessons from the global perspective.
Johannesburg, South Africa.
Ball, D. and McColloch, W. (1999). International Business The Challenge of Global
Competition. New York, McGraw-Hill.
Bandar, S. (2003). "MTN records N42.287 billion profit." IT Telecom.
Balogun, Hope & Hailey with Johnson and Scholes (1999): Exploring Strategic
Change, Essex England, Prentice Hall
Barendse, A. (2003). "Innovative and regulatory policy initiatives at increasing ICT
Connectivity in South Africa." Telematics and Informatics 21(2004): 49-66.
162
Barney, J. B. (1986a). ‗Organizational culture: Can it be a source of sustained
competitive advantage?‘ Academy of Management Review, 11, pp. 656–665.
Barney, J. (1986b). ‗Strategic factor markets: Expectations, luck, and business
strategy‘, Management Science, 32, pp. 1231–1241.
Barney, J. (1991). ‗Firm resources and sustained competitive advantage‘, Journal of
Management, 17, pp. 99–120.
Barr, P., J. L. Stimpert and A. Huff (1992). ‗Cognitive change, strategic action, and
organizational renewal‘, Strategic Management Journal, Summer Special Issue, 13,
pp. 15–36.
Bidaud, B. (2007). "Key Issues for telco strategies and performance." Gartner
Research Inc G00144797.
Bidoli, M. (2004, April 2) Hope springs eternal. Financial Mail.
Bidoli, M. and Sikhakhane, J. (2001, January 26) Where angels fear to tread.
Financial Mail, pp40-41.
Bogner, W., J. Mahoney and H. Thomas (1994). ‗Paradigm shift: Parallels in the
origin, evolution, and function of the strategic group concept with the resource-based
theory of the firm‘, paper presented at the Conference on Social Construction of
Industries and Markets, Chicago, IL.
Booz, Allen, & Hamilton. (1985). Diversification: A survey of European chief
executives. New York: Booz, Allen and Hamilton, Inc.
Brown, S. (1996). Strategic Manufacturing for competetitive advantage;
Transforming operations from shopflow to strategy. Harlow, England, Prentice Hall.
Buhner, R. (1987). Assessing international diversification of West German
corporations. Strategic Management Journal, 8, 25–37.
Burrus, D. (2003). "The Advantage of the Business Strategy Game."
http://www.cyberspeakr.com/burrus.html
Carlton, S. (1999). International Financial Decisions. Sweden, North Holland
Publishing Company.
Cavaglia, S. M., Melas, G. D., & Tsouderos, G. (2000). Cross-industry and cross-
country internationalequity diversification. Journal of Investing, 9, 65–71.
Caves, R. E. and M. E. Porter (1977). ‗From entry barriers to mobility barriers‘,
Quarterly Journal of Economics, 19, pp. 421–434
Chandler, A. D. (1962). Strategy and structure: Chapters in the history of the
American industrial enterprise. Cambridge, MA: MIT Press.
163
Chan-Olmsted, S. M. and Chung., B (2003). "Diversification Strategy of Global
Media Conglomerates; Its Patterns and Determinants." Journal of Media Economics
16(4): 231-233.
Chan-Olmsted, S. M. and Jamison, M (2001). "Mergers Acquisitions and
convergence: The strategic alliances of broadcasting, cable television and telephone
services." Journal of Media Economics 11(3): 33-46.
Chan-Olmsted, S. M. and. Jamison, M (2001). "Rivalry Through Alliances;
Competitive Strategy in the Global Telecommunications Market." European
Management Journal 19(3): 317-331.
Chatterjee, S., & Wernerfelt, B. (1991). The link between resources and type of
diversification: theory and evidence. Strategic Management Journal, 12, 33–48.
Christensen, C. and J. Bower (1996). ‗Customer power, strategic investment, and the
failure of leading firms‘, Strategic Management Journal, 17(3), pp. 197–218.
Cogburn, D. L. (2003). "Governing global information and communications policy;
Emergent regime formation and the impact on Africa." Telecommunications Policy
27: 135-153.
Cohen, T. (2001). "Between a Rock and a Hard Place; Assessing the Application of
Domestic Policy and South Africa's Commitment under the WTO's basic
Telecommunications Agreement." Centre For Innovation, Law and Policy, University
of Toronto
Cohen, T. (2002). Rethinking (Reluctant) Capture; The Development of South
African Telecommunications 1992-2002 and the Impact of Regulation. TPRC
Conference, Washington DC.
Cohen, T. (2001, January 17) Mental calculations size up cell bid. Business Day, First
Edition.
Collins, J. M. (1990). A market performance comparison of U.S. firms active in
domestic, developed and developing countries. Journal of International Business
Studies, 21, 271–287.
Colombo, M., G and Garrone P (1998). "Common Carriers‘ entry into multimedia
services,." Information Economics and Policy 10: 77-105.
Conner, K. (1991). ‗A historical comparison of resource-based theory and five
schools of thought within industrial organization economics: Do we have a new
theory of the firm?‘, Journal of Management, 17, pp. 121–154.
Curwen, P. (1997) Restructuring Telecommunications, Macmillan Press, Ltd,
London.
Curwen, P. J. and. Whalley. J. (2004). Telecommunications Strategy Cases, Theory
and Applications. London, Routledge.
164
Curwen, P. J. and. Whalley. J. (2005). "Alliances Joint Ventures and Acquisitions;
The Case of Mobile and Sector Vendors Strategies for gaining Subscribers and
Expanding Footprints." Department of Management Science. Strathclyde Business
School, Scotland
Curwen, P. J. and Whalley, J. (2005). "Recent Mobile and Telecommunications
Alliance Formation." Communications and Strategies 57(1st Quarter).
Curwen, P. J. and Whalley, J. (2006). "Measuring Internationalisation in the mobile
Telecommunications Industry." Department of Management Science. Strathclyde
Business School, Scotland
Curwen, P. J. and Whalley, J. (2008). "Structural Adjustment in the Latin American
and African Mobile Sectors." Department of Management Science. Strathclyde
Business School, Scotland
D' Amico, M. a. S., J. (1999). "Global Telecom partnerships flounder despite growing
need." InforWorld 21(8): 32.
Daft, R. and K. Weick (1984). ‗Toward a model of organizations as interpretation
systems‘, Academy of Management Review, 9, pp. 284–295.
Das, T. K., & Teng, B. (1998). Resource and risk management in the strategic alliance
making process. Journal of Management, 24, 21–42.
Day, S. D. and Schoemaker, J.H (2008) Are you a ‗Vigilant Leader‘ MIT Sloan
Management Review, Vol 49 no 3
Davis, S. (1984). Managing Corporate Culture. Ballinger, Cambridge, MA.
Delaney, K., J (2007). "Methodological Dilemmas and Opportunities in Interviewing
Organisational Elites." Social Compass 1(1): 208-211.
Department of Communications, Government Gazette No. 26763, 3 September 2004,
General Notice, NOTICE 1924 of 2004, Determinations of dates in terms of the
Telecommunications Act, (Act no. 103 of 1996)
Dierickx, I. and K. Cool (1989). ‗Asset stock accumulation and sustainability of
competitive advantage‘ Management Science, 35, pp. 1504–1511.
DiMaggio, P. and W. Powell (1984). ‗The iron cage revisited: Institutional
isomorphism and collective rationality in organizational fields‘, American
Sociological Review, 48, pp. 147–160.
Dosi, G. (1982). ‗Technological paradigms and technological trajectories: A
suggested interpretation of the determinants of economic change‘, Research Policy,
11, pp. 147–162.
Doyle, C. a. M., D (2003). "On the design and implementation of the GSM Auction in
Nigeria - the world's first ascending clock spectrum auction " Science Direct,
Telecommunications Policy 27: 383-405.
165
Doz, Y. (1990). Strategic Management in Multinational Companies, Pergamon Press.
Du Plessis, S. A. a. G., E. S (2008). "The Structure-Conduct-Performance (SCP)
paradigm and its applications in South Africa, a review of empirical policy and its
implications for competition policy." Economics Department, University of Cape
Town
Dutton, J. E. and J. M. Dukerich (1991). ‗Keeping an eye on the mirror: Image and
identity in organizational adaptation‘, Academy of Management Journal, 34, pp. 517–
554.
Dwyer R, F. and Tanner., J. F Jnr (1999). Business Marketing; Connecting Strategy,
Relationships and Learning. Singapore, McGraw-Hill.
Economic Growth Center. (2002). Economic growth center collection-country
schedule. Retrieved October 1, 2008, from http://library.yale.edu/socsci/egcclass.html
Efficient Research Pty (Ltd). (September 2004) An International Comparison of
South African Telecommunications Costs and the possible effect of
Telecommunications on Economic Performance, and A Report on Telkom‘s Financial
Statements and Comparisons with Selected Local and International Companies.
El Yaacoubi, A. (2007). "Transnationals bolster their positions." Vision, The Omsyc
Newsletter 2.
EMC Publication (June 2003). "Africa and Middle East Communications Report,
Detailed Overview of the wireless of Africa, Middle East, Arab World."
Esselaar, S. and Gillwald, A. (2007). "2006 South Africa ICT Sector Performance
Review." Link Public Research Policy(8).
European Commission. (1993) White Paper on growth, competitiveness, and
employment: The challenges and ways forward into the 21st century. COM(93) 700
final. Brussels.
Federal Communications Commission.(1999). "Report on International
Telecommunications Markets Update."
Financial Mail(26 January 2001).
Financial Mail(11 May 2001).
Financial Mail(17 August 2001).
Financial Mail(24 August 2001).
Financial Times (13 August 1999) Italians fall in love with mobile phone
Fiol, M. (1991). ‗Managing culture as a competitive resource: An identity-based view
of sustainable competitive advantage, Journal of Management, 17, pp.
166
191–211.
Fiol, M. and S. Kovoor-Misra (1997). ‗Two-way mirroring: Identity and reputation
when things go wrong‘, Corporate Reputation Review, 1, pp. 140–147
Fiske, S. and S. Taylor (1990). Social Cognition. McGraw-Hill, New York.
Flanigan, M. J. (1997 ). "Information and telecoms services agreements spark the
global telecom market." Telecommunications 31(18): 5.
Fombrun, C. J. (1996). Reputation: Realizing Value from the Corporate Image.
Harvard Business School Press, Cambridge, MA.
Fombrun, C. J. and M. Shanley (1990). ‗What‘s in a name? Reputation-building and
corporate strategy‘, Academy of Management Journal, 33, pp. 233–258.
Fombrun, C. J. and E. J. Zajac (1987). ‗Structural and perceptual influences on
intraindustry stratification‘, Academy of Management Journal, 30, pp. 33–50.
Fombrun, C. and V. Rindova (forthcoming). ‗Fanning the flame: Corporate
reputations as social constructions of performance‘. In J. Porac and M. Ventresca
(eds.), Constructing Markets and Industries. Oxford University Press, New York.
Freeman, J. and M. Hannan (1983). ‗Niche width and the dynamics of organizational
populations‘, American Journal of Sociology, 88, pp. 1116–1145.
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman,
Boston, MA.
Gartner Dataquest Alert(1st Q 04). (2004). "Mobile Market-share, Mobile Terminals,
Worldwide."
Gandossy, R and Guarnieri, R (2008) Can You Measure Leadership? MIT Sloan
Management Review, Vol 50 no 1
Garud, R. and A. Kumaraswamy (1993). ‗Changing competitive dynamics in network
industries: An exploration of Sun Microsystems ‗open systems strategy‘, Strategic
Management Journal, 14(5), pp. 351–369.
Genesis Analytics (Pty) Ltd, Reforming telecommunications in South Africa, Twelve
proposals for lowering costs and improving access. South Africa Foundation, Occasional
Paper, No 2, October 2005. Accessed 9 October 2008
http://www.safoundation.org.za/documents/ReformingTele.pdf Genesis Analytics (Pty) Ltd, Telecommunications prices in South Africa. South
Africa Foundation, Occasional Paper, No 1, April 2005. Accessed 9 October 2005
http://www.safoundation.org.za/documents/ReformingTele.pdf
Geringer, J. B., P and daCosta, R. (1989). "Diversification strategy and
internalization: Implications for MNE Performance." Strategic Management Journal
10(2): 109-119.
167
Ghemawat, P. (1985). "Building Strategy on the Curve of Experience." Harvard
Business Review(March 1985): 143-149.
Gillwald, A. (2001). Case Study; Broadband, The Case of South Africa, Regulatory
Implications of Broadband Workshop. New Initiatives Program.
Gillwald, A. (2001). "National Convergence Policy in a Globalised World; Preparing
South Africa for the Next Generation Networks, Services and Regulation." ITU
World Telecommunications Report.
Gillwald, A. (2004). "Stimulating Investment In Network Development; The Case of
South Africa." World Dialogue on Regulation for Network Economics WDR
Dialogue Theme 2003.
Gillwald, A. (2006 ). "ICT Sector Performance Review." Link Centre.
Gillwald, A. and Esselaar, S. "South Africa Telecommunications ICT Sector
Performance Review, A supply side analysis of outcomes" Research ICT Africa Net.
Gillwald, A. and Esselaar, S. (2004). ICT Sector Performance Review, Policy
Research Paper 7.
Gillwald, A. and Esselaar, S. (2005). South African Journal Of Information and
Communication(5).
Gillwald, A. and Kane, S. (2003). South Africa Telecommunications ICT Sector
Performance Review.
Ginsberg, A. (1994). ‗Minding the competition: From mapping to mastery. Strategy
Management Journal, Winter Special Issue, 15, pp. 153–174.
Ginsburg, J. and Chenge, W (2003). Analysts cool over Telkom, hot on MTN.
Business Day. Johannesburg, South Africa.
Gioia, D. (1986). ‗The state of the art in organizational and social cognition: A
personal view‘. In H. Sims and D. Gioia (eds.), The Thinking Organization.
Jossey-Bass, San Francisco, CA, pp. 336–357.
Gioia, D. and J. Thomas (1996). ‗Institutional identity, image, and issue
interpretation: Sensemaking during strategic change in academica‘, Administrative
Science Quarterly, 41, pp. 370–403.
Gitman, L. J. (2000). Principles of Financial Management. San Diego University,
Addison Wesley Publishing Company.
Goffman, E. (1959). Presentations of Self in Everyday Life. Doubleday, Garden City,
NY.
Goldman, S. L. N., R.N and Preiss, K (1994). Agile Competitors and Virtual
Organisations; Strategies for enriching the customer. New York, Thompson.
168
Goldstein, S. et al. (1997). "What does industry convergence mean? In Yoffie, B.D
(ed) Competing in the Age of Digital Convergence " Harvard Business Review 29.
Gort, M. (1962). Diversification and integration in American industry. Princeton, NJ:
Princeton University Press.
Grant, R. M. (1987). Multinationality and performance among British manufacturing
companies. Journal of International Business Studies, 18(3), 79–89.
Grant, R. M. (1988). On dominant logic, relatedness and the link between diversity
and performance. Strategic Management Journal, 9, 639–642.
Grant, R. M.,& Jammine, A. P. (1988). Performance differences between the
Wrigley/Rumelt Strategic Categories. Strategic Management Journal, 9, 333–346.
Gregory, J. R. (1993). Marketing Corporate Image. NTC Business Books,
Lincolnwood, IL.
GSM Strategist 7(5). (2004).
GSM Strategist 7(6) (2004).
GSM Strategist 7(9). (2004)
Guy, S. (1997). "From Promise to Reality; WTO Opens Door to global competition."
Telephony 8(44): 232.
Hall, R. (1992). ‗The strategic analysis of intangible resources‘, Strategic
Management Journal, 13(2), pp.
135–144.
Hall, R. 1993. ‗A framework linking intangible resources and capabilities to
sustainable competitive advantage‘, Strategic Management Journal, 14(8), pp. 607–
618.
Hamel, G. and Prahalad, C.K (1994). "Competing for the Future." Harvard Business
Review(July-August): 123-128.
Hatch, M. J. (1993). ‗The dynamics of organizational culture‘, Academy of
Management Review, 18(4), pp. 657–693.
Hax, A. and Wilde, D.L (1999). "The Delta Model; Adaptive management for a
changing world." Sloan Management Review 40(2): 11-28.
Henisz, W. The instutional environment for multinational investment. "The Journal of
Law and Economics and Organisation." 16(2): 334-364.
Hill, C. W. L. (2001). International Business, Competing in the Global Market Place.
New York, McGraw-Hill.
169
Hill, C. and T. Jones (1992). ‗Stakeholder–agency theory‘, Journal of Management
Studies, 29, pp.131–154.
Hisey, K. B.,&Caves, R. E. (1985). Diversification strategy and choice of country:
Diversifying acquisitions abroad by U.S. multinationals, 1978–1980. Journal of
International Business Studies, 16, 51–64.
Hitt, M. A., Hoskisson, R. E.,&Ireland, R. D. (1994).Amid-range theory of the
interaction effects of international and product diversification on innovation and
performance. Journal of Management, 20, 297–326.
Honey, P. and Fife, I (24 August 2001). Following MTN to the Northwest; Nigeria.
Financial Mail. 163: 28.
Honey, P. and Haffejee, F (30 March 2001). MTN Fires first salvo; cellular wars;.
Financial Mail. 162: 30-31.
Horwitz, R. B., Ed. (2001). Communication and Democratic Reform in South Africa,.
Cambridge, Cambridge University Press.
Horwitz, R. B. a. C., W (2007). "Another Instance where privatization trumped
liberalisation; The politics of telecom reform in South Africa- A ten Year
Retrospective." Department of Communication. University of California, San Diego
HSBC ( September 2003). MTN Group, Nigerian Mobile, the talk of the town.
Huber, P. W. Kellogg, M.K and Thorne, J. (1993). "The Geodesic Network 11."
Report on Competition in the Telephone Business.
Huff, A. (1982). ‗Industry influence on strategy reformulation‘, Strategic
Management Journal, 3(2), pp. 119–131.
Inkpen, A. C. (1998). "Global One." Thunderbird International Business Review
41(3): 337-353.
ITU World Telecommunications Report. (1997). "World Telecommunications
Development Report 1996/97; Trade in Telecommunications (executive summary)
International Telecommunications Union. (2000). "Americas Telecommunication
Indicators 2000 (executive summary) "
Jamison, M. A. (1998). "Emerging patterns in global telecommunications; alliances
and mergers. ." Industrial and Corporate Change 7(4): 695-713.
Jamison, M. A., Ed. (1999a). Industry Structure and Pricing; The New Rivalry in
Infrastructure. Boston, Kluver Academic Publishers.
Jamison, M. A. (1999b). "Business Imperatives, The New Global
Telecommunications Industry and Consumers." Penn State University's Institute for
Information Policy: 19-30.
170
Johnson, G. and Scholes, K, Ed. (1999). Exploring Corporate Strategy. (5th
ed) Upper
Saddle River, N.J, Prentice Hall.
Jones, T. (1995). ‗Instrumental stakeholder theory: A synthesis of ethics and
economics‘, Academy of Management Review, 20, pp. 404–437.
Joshi, M. P. Kashlak., R.J and Sherman, H.D (1998). "How alliances are reshaping
telecommunications." Long Range Planning 31(4): 542-548.
Kambhampati, U. S. and. Kattuman, P.A (2003). "Growth response to competitive
shocks; market structure dynamics under liberalisation; the case of India." ESRC
Centre for Business Research, University of Cambridge Working Paper no 263.
Kashlak, R. J. and Joshi, M. P (1994). "Core Business regulation and dual
diversification patterns in the telecommunications Industry." Strategic Management
Journal 15: 603-611.
Kim, W. C. and R. Mauborgne (1997). ‗Value innovation: The strategic logic of high
growth‘, Harvard Business Review, 75(1), pp. 103–112.
Kim, W. C., Hwang, P., & Burgers, W. P. (1989). Global diversification strategy and
corporate performance. Strategic Management Journal, 10, 45–57.
Klein, M. (23 July 2003). The Battle for Supremacy in Africa. The Sunday Times.
Johannesburg.
Klein, M. (2004). (5 July 2004) Nhleko manoeuvres MTN to the top. The Sunday
Times. Johannesburg.
Koenderman, T. ( 27 July 2001). MTN gets wake up call;. Financial Mail. 163: 88-89.
Koutrus, E. (2006). The Use of Mobile Phones by Generation Y Students at Two
Universities in the city of Johannesburg. Master of Commerce Thesis, Business
Management Department, University of South Africa Pretoria .
Krairit, D. (2001) Liberalizing Development: Effects of Telecommunications
Liberalization in Thailand and the Philippines, Doctor of Philosophy Thesis,
Massachusetts: Massachusetts Institute of Technology.
Kramer, R. and NiShuilleabhain, A (1997). "Investment Drivers for Global
telecommunications; Investment Structure and structural trends in multinational
services." Noam; Globalism and Localism in Telecommunications: 257-268.
Kreitner, Kinicki., Buelens (1999). Organisational Behaviour. Bershire, McGraw Hill.
Kunda, G. (1992). Engineering Culture. Temple University Press, Philadelphia, PA.
Langlois, R. (1992). ‗External economies and economic progress: The case of the
microcomputer industry‘ Business History Review, 66, pp. 1–50.
171
Lant, T. and J. Baum (1995). ‗Cognitive sources of socially constructed competitive
groups: Examples from the Manhattan hotel industry‘. In W. R. Scott and S.
Christensen (eds.), The Institutional Construction of Organizations. Sage, Thousand
Oaks, CA, pp. 15–39.
Lazonick, W and West, J. (1995) Organisational Integration and Competitive
Advantage, Oxford University Press
Leonard-Barton, D. (1992). ‗Core capabilities and core rigidities: A paradox in
managing new product development‘, Strategic Management Journal, Summer
Special Issue, 13, pp. 111–125.
Levy, B and Spiller, P.T. (1996) ―A framework for resolving the regulatory problem‖
in Levy, B and Spiller, P.T. (Eds) Regulations, Institutions and Commitment:
Comparative studies of telecommunications. Cambridge University Press, New York.
Lieberman, B. and Montgomery, D.B (1987). "First Mover Advantages." Stanford
Business Library.
Lippman, S. and R. Rumelt (1982). ‗Uncertain imitability: An analysis of interfirm
differences in efficiency under competition‘, Bell Journal of Economics, 13, pp. 418–
438.
Madura, J.,& Rose, L. C. (1987). Are product specialization and international
diversification strategies compatible? Management International Review, 27, 38–44.
Mahoney, J. and J. R. Pandian (1992). ‗The resource based view within the
conversation of strategic management‘, Strategic Management Journal, 13(5), pp.
363–380.
Marcelle, G. (2001). M-Cell a Pan African Star is Born. Sector Update. Johannesburg,
JP Morgan.
Marcelle, G. (2001). New Policy for SA Telecoms; Multi Operator Environment
Sooner than expected. Sector Update. Johannesburg, JP Morgan.
Marcelle, G. (2005). "How Telecommunications firms Build Capabilities? Lessons
from Africa." Telecommunications Policy, University of Sussex 29(2005): 549-572.
Martins, L. L. (1998). ‗The very visible hand of reputational rankings in US business
schools‘, Corporate Reputation Review, 1, pp. 293–301.
Mason, E. (1957). Economic Concentration and the Monopoly Problem. Harvard
University Press, Cambridge, MA.
McClellan, S. (1984). The Coming Computer Industry Shakeout. Wiley, New York.
McKenna, R. (1989). Who‘s Afraid of the Big Blue? Addison-Wesley, Reading, MA.
Melody, W. H. (1999). "Telecom Reform; Progress and Prospects "
Telecommunications Policy 23(1999): 7-34.
172
Melody, W. H. C., W and Kane, S; (2002). "Preparing South Africa for Information
Society 'E-Service'; The Significance of the Vans Sector." Link Centre.
Melody, W.H. Developing the information infrastructure for South Africa‘s
Information Society: How markets and Regulation are shaping network development
and access opportunities. ―the state we‘re in,‖ Wiser/p & dm series 27 March 2003
Meyer, A. (1982). ‗Adapting to environmental jolts‘, Administrative Science
Quarterly, 27, pp. 515–537.
Michel, A.,& Shaked, I. (1984). Does business diversification affect performance?
Financial Management, 13(4), 18–25.
Mitchell, W., Shaver, M., & Yeung, B. (1992). Getting there in a global industry:
Impacts on performance of changing international presence. Strategic Management
Journal, 13, 419–432.
Middle East and African Wireless Analyst(1).(2003). "The International Business
Newsletter of the Middle East and Africa."
Miles, R.E and Snow, C.C (2003). Organisational Strategy, structure and Process.
Stanford, California, Stanford Business Books.
Minges, M. (2005). Mobile Communications Indicators. World Telecoms ICT
Indicators Meeting, Geneva, Switzerland, Telecommunications Management Group.
Mintzberg, H. and Quinn, J.B. (1992). The Strategy Process; Concepts and Contexts.
Englewood Cliffs , N.J, Prentice Hall.
Mobile Telecommunications Africa and Middle East Update (July 2004). "Nigeria,
MTN Appoints New CEO."
Moon, H. C. and Perry, N.S (1995). "Competitiveness of product, firm industry and
nation in a global business." Competitiveness Review 5(1): 37-43.
Moore, J. I. (2001). Writers on Strategy and Strategic Management: Theory and
Practice at enterprise, corporate, business and functional levels. London, Penguin
Books.
Moran, P. and S. Ghoshal (1996). ‗Value creation by firms‘, Academy of
Management Best Papers Proceedings, Cincinnati, OH.
Morrison, R. and Lee, J.G (1999). "The Anatomy of Strategic Thinking." Harvard
Business Review: 108-114.
Mouqadem, A and Zaher A. ( May 2007). "Brazil and Nigeria; in two of the world's
most populated countries, operators woo clients with innovative service." Vision, The
Omsyc Newsletter 3.
MTN Group 2001-2008 Annual Reports
173
Mytelka, L. and Farinelli. (2000). Local Clusters, Innovative Systems and Sustained
Competitiveness. Local Clusters and Innovative Systems. Rio De Janeiro, Brazil,
UN/INTECH Discussion Papers
Nahapiet, J. and S. Ghoshal (1998). ‗Social capital, intellectual capital, and the
organizational advantage‘, Academy of Management Review, 23, pp.
242–266
Naidoo, K. (2006). Shaping the telecommunications market structure in South Africa
2002-2003; the role of policy and regulation. Doctor of Philosophy Thesis. Faculty of
Commerce, Law and Management, Johannesburg, Witwatersrand University
Narayama, V. K. (2001). Managing Technology and Innovation for Competitive
Advantage. Upper Saddle River, N.J, Prentice Hall.
Ndukwe, E. (2004). Overview of Nigerian Telecommunications Sector. ITU
Conference. Abuja, Nigeria.
Nonaka, I. (1998). "The Knowledge Creating Company." Harvard Business Review:
21-45.
Oestmann, S. (2003). "Mobile Operators, their contribution to Universal and Public
Service Access." Intel Research and Consultancy Limited.
Oh, J. (1996). "Global Strategic Alliances in the telecommunications industry."
Telecommunications Policy 20(9): 713-720.
Ojo, O. (July 12-18 2004). "The Summer Face of MTN? Tactical Changes." Policy: p
6-10, , The Lacom Financial Services Company Limited, Lagos, Nigeria
Orwell, G. (1982). Nineteen Eighty-Four. Harcourt Brace Jovanovich, New York.
Palepu, K. (1985). Diversification strategy, profit performance, and the entropy
measure. Strategic Management Journal, 6, 239–255.
Pearce, F. (1998). "The convergence of telecoms and broadcasting services."
Telecommunications 31(6): 72.
Penrose, E. T. (1959). The Theory of the Growth of the Firm. Wiley, New York.
Peteraf, M. (1993). ‗The cornerstones of competitive advantage: A resource-based
view Strategic Management Journal, 14(2), pp. 179–191.
Pfeffer, J. and G. Salancik (1978). External Control of Organizations. Harper & Row,
New York ew‘, Strategic Management Journal, 14(2), pp. 179–191
Phillips, M. (1994). ‗Industry mindsets: Exploring the cultures of two macro-
organizational settings‘, Organization Science, 5, pp. 384–402.
174
Pienaar, H. (1999, November 30) Getting the message through is MTN‘s tough task in
Nigeria. Business Report.
Porter, M. E. (1980). Competitive Strategy. New York, The Free Press.
Porter, M. E. (1990). The Competitive Advantage of Nations. New York, The Free
Press
Porter, M. (1991). ‗Towards a dynamic theory of strategy‘, Strategic Management
Journal, Winter Special Issue, 12, pp. 95–117.
Porac, J., H. Thomas and C. Baden-Fuller (1989). ‗Competitive groups as cognitive
communities: The case of the Scottish knitwear industry‘, Journal of Management
Studies, 26, pp. 397–416.
Porac, J. and H. Thomas (1990). ‗Taxonomic mental models of competitive
definition‘, Academy of Management Review, 15, pp. 224–240.
Prahalad, C. K. and R. Bettis (1986). ‗The dominant logic: A new linkage between
diversity and performance‘, Strategic Management Journal, 7(6), pp. 485–501.
Pyramid Research, (April 2001) The Economist Intelligence Unit. Communications
markets in West Africa — Analysis of data, voice and convergence opportunities.
Cambridge, Massachusetts.
Pyramid Research (2003). "Africa Mobile Benchmarks Report."
Pyramid Research (2003). "Mobile Communications Markets in Nigeria."
Pyramid Research.(2004). "AllAfrica.com MTN's Colonisation of Africa gets a leg
up."
Pyramid Research (2004). "Communications Markets in Nigeria.".
Pyramid Research (2006). "Low Denomination Pre-Paid Vouchers, Critical To
Emerging Market Growth, But Hardly a No Brainer.".
Qian, G. (1997). Assessing product-market diversification of U.S. firms. Management
International Review, 37, 127–149.
Quinn, J. B. (1990). Strategies for Change; Local Incrementalism. Homewood, Ill.,
Irwin.
Rao, H. (1994). ‗The social construction of reputation: Certification contests,
legitimation, and the survival of organizations in the American automobile industry:
1895–1912‘, Strategic Management Journal, Winter Special Issue, 15, pp. 29–44.
Rapael, D. E. (1998). "Connectivity through alliances." Business Economics 33(2):
32-36.
175
Reinhardt, A. K., R; Einhorn, B and Malkin, E. (1999). Dialling for pennies. Business
Week: 103-106.
Reger, R. and A. Huff (1993). ‗Strategic groups: A cognitive perspective‘, Strategic
Management Journal, 14(2), pp. 103–123.
Reger, R., L. Gustafson, S. Demarie and J. Mullane (1994). ‗Reframing the
organization: Why implementing total quality is easier said than done‘,
Academy of Management Review, 19, pp. 565–584.
Republic of South Africa (RSA) (1996a) White Paper on Telecommunications,
Government Printers, Pretoria.
Rindova, A. (1997). ‗The image cascade and the formation of corporate reputations‘,
Corporate Reputation Review, 1, pp. 189–194.
Rindova, V. P. and Fombrun, C.J (1999). "Constructing Competitive Advantage; The
role of firm-constituent interactions." Strategic Management Journal 20: 691-710.
Rindova, V. and M. Schultz (1998). ‗Identity within and identity without: Lessons
from corporate and organizational identity‘. In D. Whetten and P. Godfrey
(eds.), Identity in Organizations. Sage, Thousand Oaks, CA, pp. 46–51
Rosebush, S. (2001). Telecommunications. Business Week. 31: 91-99.
Rosenzwig, P. M. (2 October 2000). "MTN Managing in Africa." Institute for
Management Development.
Rosenzwig, P. M. (2 October 2000). "MTN; Investing in Africa." Institute for
Management Development.
Rowe, J. (2002). "Using Case Studies in Research." Management Research News
25(1): 16-27.
RSA (1996b) Telecommunications Act, Government Printers, Pretoria,
http://www.polity.org.za/html/govdocs/legislation/1996/act96-103.html.
Rumelt, R. (1984). Toward a strategic theory of the firm. In R. Lamb (Ed.),
Competitive strategic management (pp. 556–570). Englewood Cliffs, NJ: Prentice
Hall.
Rumelt, R., D. Schendel and D. Teece (1991). ‗Strategic management and
economics‘, Strategic Management Journal, Winter Special Issue, 12, pp. 5–29.
Ryan, B. and. Pile., J ( 31 August 2001). Nigerian moves worry investors. Financial
Mail. 163: 54.
Salancik, G. and J. Meindl (1984). ‗Corporate attributions as strategic illusions of
management control‘, Administrative Science Quarterly, 29, pp. 238–254.
176
Salter, M. S., & Weinhold, W. S. (1979). Diversification through acquisition. New
York: Free Press
Sambharya, R. B. (1995). The combined effect of international diversification and
product diversification strategies on the performance of U.S.-based multinational
corporations. Management International Review, 35, 197–218.
Samzelius, J. and. Camman., J. (1996). "Communications industry brand names; New
Approaches to match new prospects." Telecommunications 30: 63.
Sappington, E. and. Weisman., D.L. (1996). Designing Incentive For Regulation for
Telecommunications Industry. Cambridge, MA., MIT Press.
Schein, E. (1985). Organizational Culture and Leadership. Jossey-Bass, San
Francisco, CA
Schein, E (15 October 1996) Three Cultures of Management: The Key to
Organisational Learning, MIT Sloan Management Review
Scherer, F. and D. Ross (1990). Industrial Market Structure and Economic
Performance. Houghton Mifflin, Boston, MA.
Schlenker, B. R. (1980). Impression Management. Brooks/Cole, Monterey, CA.
Schwenk, C. R. (1984). ‗Cognitive simplification processes in strategic decision-
making‘, Strategic Management Journal, 5(2), pp. 111–128.
Sewell, W. (1992). ‗The theory of structure: Duality, agency, and transformation‘,
American Journal of Sociology, pp. 1–29.
Shapiro, C. (1983). ‗Premiums for high-quality products as returns to reputations‘,
Quarterly Journal of Economics, 98, pp. 659–681.
Shrikande, S. (2001). "Competitive Strategies in the Internationalisation of TV; CNNI
and BBC World in Asia." Journal of Media Economics 14(3): 147-168.
Spender, J.-C. (1989). Industry Recipes. Basil Blackwell, Oxford.
Spender, J.-C. (1993). ‗Competitive advantage from tacit knowledge? Unpacking the
concept and its strategic implications‘, Proceedings of the Academy of Management,
pp. 37–41.
Starbuck, W. and F. Milliken (1988). ‗Executive perceptual filters: What they notice
and how they make sense‘. In D. Hambrick (ed.), The Executive Effect: Concepts and
Methods for Studying Top Managers. JAI Press, Greenwich, CT, pp. 35–65.
Stimpert, L., A. Huff and J. Huff (1994). ‗The cognitive structuring of industries‘,
paper presented at the Conference on Social Construction of Industries and Markets,
Chicago, IL.
177
Suchman, M. (1995). ‗Managing legitimacy: Strategic and institutional approaches‘,
Academy of Management Review, 20(3), pp. 571–611.
Sunderland, E. (2008). "Counting Mobile Phones, Sim Cards and Customers." Link
Centre.
Tallman, S.,& Li, J. (1996). Effects of international diversity and product diversity on
the performance of multinational firms. Academy of Management Journal, 39, 179–
196.
Tedeschi, J. T. (ed.) (1981). Impression Management Theory and Social
Psychological Research. Academic Press, New York.
Telkom SA Ltd 1991-2008 Annual Reports,
Telkom (2007). Wholesale and Leased-Lines Market Definition; Responses to Icasa
notice no 529,.
.
Thomas, H. P., T and Gorman, P. (1999). "Global Strategic Analyses: Framework and
Approaches." Academy of Management Review 13(1).
Thomas, R. J (2008) Crucibles of Leadership Development, MIT Sloan Management
Review, Vol 3 no3
Timmons, J. A. (1999). New Venture Creation Entrepreneurship for the 21st Century.
Singapore, McGraw-Hill.
Toivanen, H. (2004). Learning Corporate Strategy; The Dynamic Evolution of the
North American Pulp and Paper Industry.
Traintaphyllou, E. (2000). "Multi-Criteria Decision Making Methods; A Comparative
Study." Applied Optimisation 44.
Valleti, T. M. and Cave., M (1998). "Competition in the UK Mobile
communications." Telecommunications Policy 22(2): 109-131.
Van Kranenburg, H. L. a. H., J. (2008). "Strategic Focus of Incumbents in the
European Telecommunications Industry; the case of BT, Deutsche Telkom and KPN."
Science Direct, Telecommunications Policy 32(2008): 116-130.
Vodacom Group 2003-2008 Annual Reports.
Vodafone PLC UK. 1993-2008.Annual Reports
Walsh, J. (1995). ‗Managerial and organizational cognition: Notes from a trip down
memory lane‘, Organizational Science, 6, pp. 280–321.
Ward, A. J et al (2007) Improving the Performance of Top Management Teams, MIT
Sloan Management Review, Vol 48, no 3
178
Wartick, S. L. (1992). ‗The relationship between intense media exposure and change
in corporate reputation‘, Business and Society, 31, pp. 33–49.
Weick, K. (1979a). ‗Cognitive processes in organizations‘. In B. Staw (ed.). Research
in Organizational Behaviour, Vol. 1. JAI Press, Greenwich, CT, pp. 41–74.
Weick (1979b). The Social Psychology of Organizing. Random House, New York.
Weick, K. (1995). Sensemaking in Organizations. Sage, Thousand Oaks, CA.
Weigelt, K. and C. Camerer (1988). ‗Reputation and corporate strategy: A review of
recent theory and applications‘, Strategic Management Journal, 9(5), pp. 443–454.
Whalley, J. a. C., P. (2005). Internationalisation among telecommunications
companies; the position in 2004 and strategic options for the future. International
Telecommunications European Society Regional Conference, Porto.
Whalley, J. and Curwen., P. (2005). "The Strategic Implications of European Union
Expansion for Mobile Telecommunications Companies." Department of Management
Science, Strathclyde Business School.
Whalley, J. and Williams., H. (2000). Exploring the geography of international
investment activity; the case of RBOCs 1984-1998, Department of Management
Science, Strathclyde Business School, Scotland.
Williams, T. and Willow, S. (1997). "One-stop telecom; The New Business model."
Telecommunications 32(4): 63-64.
Williamson, O. E. (1981). The modern corporation: origins, evolution, attributes.
Journal of Economic Literature, 19, 1537–1568.
Yin, V. (1994). Case Study Research: Design and Methods Sage, Thousand Oaks,
CA.
Zajac, E. and M. Bazerman (1991). ‗Blind spots in industry and competitor analysis:
Implications of interfirm (mis)perceptions for strategic decisions‘, Academy of
Management Review, 16, pp. 35–56.
Zibi, G. (2005) MVNO‘s in emerging markets. Pyramid Research, Cambridge,
Massachusetts.
.
179
.
Annexture: Comparative Financials
180
.
181
Annexture BVodacom resp
From: Mari-louise Esterhuizen ([email protected])
Sent: 04 November 2008 04:02:41 PM
To: '[email protected]' ([email protected])
1 attachment(s) Vusi - Wa...pdf (99.8 KB)
4 November 2008
Dear Thomas,
Thank you for your enquiry. Please note that Vodacom does not take part in research, however you are welcome to visit our website on www.vodacom.co.za for any information you might find helpful.
We wish you the best with your project.
Kind regards,
Dot Field
Chief Communications Officer
Vodacom Group
182
From: Thomas Silonda [mailto:[email protected]]
Sent: 04 November 2008 01:14 PM To: Corporate Affairs
Subject: FW: Wales MBA Research