Strategy Assignment 1 – African Communications Group
Business Case Projections
The business case presented focuses on insatiable demand amongst a growing population for a service built on dilapidated, poorly maintained infrastructure, against a backdrop of government deregulation in the telecoms sector. As of 1992, there were a mere 78k telephone lines for the 27m people living in 4.7m households (a population set to double over the coming 24 years), with users suffering success rates of just 25%. Demand was forecast to grow to 500k subscribers by 1996. The recent deregulation of the telecoms sector (via the break-up of TPTC into TPC and TTCL) and the formation of a regulator (TCC) had paved the way for private investment in the sector, something supported by a World Bank initiative to invest $220m in a repair and upgrade programme. Private foreign investment was further being supported by a removal of foreign exchange restrictions and the National Investment Act which, amongst other incentives, introduced tax reliefs. TCC had by mid-1995 already issued 20 licenses for pay-phone services in Tanzania (ACG was amongst those successful). Base case ACG forecasts of moderate usage would see pay back within 9.5 months for each phone installed (with 200 due to be installed initially in Dar es Salaam), net income of $2.6m in year 2 (41% profit margin), $4.6m in year 5 (47% profit margin) achieving zero debt status in year 4 (debt that would fund initial equipment purchases) paints a healthy picture.
| * Business people (accounted for 70% of Tanzania’s telecom revenue): * In agricultural sector (accounted for >50% GDP) * In transportation sector, e.g. business couriers, truck-drivers * Callers at banks, airport, hospitals, and education institute * Citizens * Those living in cities but having family members in rural areas * Middle- and high-income customers who...
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