Resisting political corruption- the story of Econet- Part Two

Econet is now the country’s largest mobile phone service provider in Zimbabwe. Its founder Strive Masiyiwa had to go through a lot to establish the network. Here is the second part of this story.

In spite of heading a very successful electrical engineering company, Masiyiwa continued to be passionate about telecommunications, particularly mobile telephony.

“I had tracked it even in my PTC days. I read a lot both from an industry point of view and for my general interest, so it didn't happen, you know – as an engineer I probably knew what was happening mobile-wise right through from my university days, you could see – you know, we knew about the development work before the commercial stuff came.

“We knew what we could do with radio and what was beginning to happen, so that by the time the first mobile networks were launched commercially, I know the first US networks were probably launched by the late 70s, but they were cumbersome things.

“But by the mid-80s I knew exactly what was going on in the industry, and what I also knew was that it was going to be the first opening for private players into telecommunications, and I felt that from a technical rather than from an entrepreneurial point of view, because the fixed networks that we'd been building, things like networks like the PTC, they relied on – the whole structure was because it required Government intervention. You needed to be a Government in Africa to dig up the streets.

“Once you got on to radio I knew that the private sector would come in, so I think by the early 90s, I probably – you know, whilst I was busy doing Retrofit stuff and all this business stuff, probably 90% of what I read was to do with mobiles. You know, I read everything, I studied everything, I covered every ground, even though I couldn't afford to go to conferences as much as I would like to, I never attended a single power conference even though I was in the power engineering sector. If you saw me go to London, I tied it to a mobile telecom conference. So it became a burning passion for me …”

Initially, he was interested in satellite mobile technology, in particular Motorola’s Iridium project, which he believed offered an ideal solution to Africa’s telecommunications problems. However, he was discouraged by the large capital outlays involved, and therefore turned his attention to terrestrial mobile technology.

In 1993, he started discussing with his friend Dr. Nkosana Moyo his plans for setting up a mobile telephone network in Zimbabwe. Moyo had a doctorate in Physics and an MBA, both from English universities. He had joined the financial services industry, and was the Managing Director of the Merchant Banking Division of the Standard Chartered Bank in Zimbabwe. The two had met some years earlier and had become friends.

Moyo was very excited about Masiyiwa’s plan for setting up a mobile telecommunications network and its impact on Zimbabwe’s economy and society. Based largely on Masiyiwa’s enthusiasm and his knowledge of the telecommunications industry, he proceeded to sanction the largest loan his bank had ever sanctioned – Zim$120 million (approximately US$ 40 million) – to Retrofit to launch the cellular telephone business. Moyo indicated that the reason for sanctioning such a large loan to the venture at such an early stage was that “it was a selfevident technology.”

When asked whether he saw mobile telephony as a business opportunity with profit potential or as a cost-effective solution for Zimbabwe, Masiyiwa explained, “Oh, yes, definitely. I saw that (a profit opportunity). But, I saw the opportunity to provide a service in a way that had never been provided before. At that time, although cellular was very much a prestige thing, the average African country that had even introduced cellular had an average of five thousand, two thousand subscribers, and I believed that that was a misuse of the technology, where it was just for the rich. And I wrote furiously about this and said: Look, there’s no reason why this technology should not open up. At that time things like prepaid had not been developed, which would see millions of people become subscribers. And we were one of the first people to introduce it in Africa. So I was very, very clear in my mind which way I wanted to go”

Moyo’s team approached PTC on behalf of Retrofit with a proposal for a joint venture to operate a cellular network. PTC officials rejected the proposal, saying there was no demand for cellular phones in Zimbabwe. Masiyiwa then reached an agreement with Telecel International, a company that was involved in the cellular telecommunications business in six African countries. In July 1993, Retrofit indicated its desire to set up a private cellular phone network in Zimbabwe and requested PTC for a license. This request angered PTC officials, who wrote a letter claiming that the Act by which PTC was constituted conferred upon it a monopoly on telecommunications services, and that licensing a private firm was out of the question.

A manager in Standard Chartered Bank, who was a lawyer by training, advised Masiyiwa that PTC’s claim of having a monopoly in cellular telephony was wrong. He advised Masiyiwa to get in touch with a practicing lawyer who could argue the case before a judge. Masiyiwa scouted around for a specialist in telecommunications law. Through a friend who worked on the USAID program, he made contact with a New York based lawyer, Judith O’Neill, who had acquired a deep understanding of international telecommunications law.

O’Neill informed Masiyiwa that she knew the African telecommunications laws very well, and that they were watertight in favor of the state owned monopolies. Masiyiwa insisted that she should take another look at the Zimbabwe PTC Act. She agreed to do so, and responded that there was indeed a clause concerning radio transmission that probably negated PTC’s monopoly. She then said that they would have to persuade a judge, but cautioned that taking the legal route would be both very expensive and very unlikely to succeed, as judges rarely decided against governments.

Masiyiwa then recruited Eastwood into his team, and they hired an advocate Adrian De Bourbon to argue in the High Court of Harare that PTC’s authority to issue a license was contemplated under the Radiocommunication Services Act. Their arguments were complex and had less to do with jurisprudence than with the technical differences between cable and radio transmissions.

Judge Gibson made a commendable effort to understand the technicalities, and after six weeks of deliberation ruled in Retrofit’s favor in January 1994. She gave PTC two months to consider issuing Retrofit a license.

PTC then appealed to the Supreme Court that since parliament, through the PTC Act, had given it a monopoly, issuing a license would be unlawful. Based on how the arguments had gone in the Supreme Court, Masiyiwa’s team was confident that Justice McNally would rule in their favor. However, in June 1994, the Supreme Court reversed the High Court’s verdict and ruled that PTC did have a monopoly, and that the Radiocommunication Services Act did not cover cellular phone systems.

Masiyiwa received the news of the Supreme Court verdict from his lawyers one Saturday evening, and was shaken by this setback. Tsitsi feared that he would go to pieces. He went to bed and did not come out for the next twenty four hours. Ever since they had met, Tsitsi had been inviting him to go to church with her every Sunday, but Masiyiwa had not shown any interest until then; his faith was something very private to him. After this latest crisis, he relented and accompanied her to church one Sunday.

From this point on, he dedicated himself to being a Christian. He made a commitment to go to church every Sunday, read the Bible, and consciously tried to pursue the Biblical principles in his daily life. Commenting on this turning point in his life, Masiyiwa said, “You know, I’m a born-again Christian, and that was a decision I took. I’ve been brought up in a family, Catholics and Methodists and so forth, but at a certain point I took a decision that I wanted to go out and practice my convictions, and every day I must persuade myself that I am practicing my convictions. And, as a businessman in that environment, there was nothing more obvious than to succeed, to do anything it was all about patronage and corruption. You know, to get a contract, anything. So perhaps more so there was a revulsion in me that that was the area I had to make a stand in, that I didn’t see that we would have a future in African business as long as it was totally associated with corruption. If you go to the average man on the street and you ask them what they think of business people, they talk of kick-backs, corruption. We didn’t have an image to present to the next generation. And so I decided that I wanted to make that stand”

Masiyiwa also admitted readily that he had not come to this conviction in his earlier business dealings.

A few days after the adverse Supreme Court verdict, Masiyiwa received an important piece of advice from a person who had been present at the historic negotiations at Lancaster House in London that paved the way for Zimbabwe’s independence in 1980. This person suggested a constitutional argument against the PTC monopoly. Masiyiwa then went to meet De Bourbon with a copy of the Constitution, and pointed to Section 20, which said – “Every Zimbabwean has a right to receive and impart information without hindrance.” Masiyiwa suggested to De Bourbon that PTC’s monopoly undermined this fundamental right of Zimbabweans that was enshrined in the Constitution.

De Bourbon explained that if they filed a constitutional appeal, it would require all the Supreme Court judges to make a Constitutional Court, and to then rule on the constitutional validity of PTC’s monopoly. He recommended against Masiyiwa taking that course of action, because it would be seen as a direct challenge to the President and the Government.

“This is no longer the PTC now, you’re going – we have to go against the Minister of Justice, we’ve got to go against the full government to get this removed, because you are  effectively asking the Supreme Court to strike a law. He said: So think about it, because I wouldn’t recommend it. Go and find something else to do”

Tsitsi was also not in favor of challenging the government, because she felt that it was a battle that they could not win. O’Neill, on the other hand, was fully in favor of filing the appeal.

Masiyiwa and his team prepared the groundwork for the appeal for six months, and filed it in December 1994. They supported the appeal with the evidence that Zimbabwe had only 145,000 telephones, which translated to 1.3 telephones per 100 people; over 95,000 applicants were on the waiting list; and it took an average of five tries to complete a call. As De Bourbon had anticipated, the government’s reaction was very negative.

Masiyiwa explained: “(T)he Government was just absolutely livid, you know. I mean, people told me that they had – people come and tell me the things that the President had said, and that the generals had said – I mean, the whole system turned on me, the Secret Service, everything. Retrofit lost all its Government work. We didn't just lose the Government work, we were never paid even to this day for any work we had been doing. We were just ordered to leave Government sites, work, everything.”

Masiyiwa, his family, friends, and his associates started receiving physical threats and even death threats. He used to be taken by the police for questioning. One tactic that they tried was to arrest him on a Friday afternoon, so that they could hold him in prison until the next Monday, when the courts opened. This was a tactic that was commonly employed by the police to break a person’s spirit. However, Masiyiwa would always slip away before the police arrested him (he even hid in the trunk of a friend’s car to elude the police), and would spend the weekend in hiding.

He was followed, and his telephones were tapped. Plainclothes agents would follow him to his prayer meetings. On one occasion, he went to a bank that was on one side of a park called Unity Square in downtown Harare. After finishing his work at the bank, he wanted to cross the park on foot to go to a hotel on the other side. It so happened that there was a demonstration taking place in the park, and he was curious to read the banners.

As he was walking through the park, someone tapped him on the shoulder from behind and said, “Mr. Masiyiwa, don’t turn around, I need a favour from you. I need you to get out of this park immediately before my colleagues see you here. I’m one of the people that has the responsibility to track your movements. I don’t want to file a report that you were here, because there are people who are desperate to show that you are doing this for political reasons, and I know you’re not. I’m a great admirer of yours, so please, please, my dear brother get out of the park now”

By this time, Masiyiwa had also become disenchanted with the government-business nexus, and with the government’s attempts to take over white owned businesses.

“Although the Mugabe government embraced the idea of the development of black entrepreneurship in the country, it soon became clear that Mugabe now wanted to see only black owned businesses and wanted the blacks to take over the white owned businesses. This naturally found a lot of resonance amongst some of my colleagues in the leadership of the organisation (IBDC). I did not want to have anything to do with this approach so I resigned”

When Masiyiwa realized that he could not save Retrofit, he approached the CEO of its biggest supplier, TA Holdings, and asked him to buy the company. The CEO was interested in the deal, but Masiyiwa insisted that the telecommunications activity would not be part of the sale. The CEO readily agreed, because he saw the telecommunications activity as a political liability. Masiyiwa therefore brought the telecommunications activities under Enhanced Telecommunications Network (hereinafter, Econet), a firm he had constituted in August 1994.

He retained his secretary, a driver, and a couple of employees, and with this small team, he began a new adventure in cellular telephony.

By S. Ramakrishna Velamuri.  Rama is Professor of Entrepreneurship at the China Europe International Business School in Shanghai, China

To be continued tomorrow:

Part One

(54 VIEWS)