Island Hopping

[This week’s Communications column for the Vanuatu Independent.]

Denis O’Brien, owner of the Digicel Group, graces the cover of the August 11th issue of Forbes Magazine. Their profile, titled ‘Babble Rouser’, begins with a tone of detached and vaguely supercilious astonishment at the risks that Digicel has incurred in the course of its lightning-quick expansion across the island nations of the world. It quickly sobers, though, when it reports that the Digicel Group earned $505 million in operating profit on $1.6 billion in revenue in the financial year ending March, 2008.

Forbes leaves it to O’Brien himself to explain his damn-the-torpedoes philosophy:

“Get big fast. [Damn] the cost. Be brave. Go over the cliff. [The competition] doesn’t have the balls.”

I suspect he used some word other than ‘damn’.

Most anyone would enjoy downing a beer with the honey-tongued chancer from Cork, but Denis O’Brien didn’t make the cover of Forbes merely because of a flamboyant devil-may-care attitude. He’s noteworthy because he saw an opportunity where others didn’t, and he got rich capitalising on it.

The idea is simple enough: If you give everyone – literally everyone – access to mobile services, you can make money everywhere. In O’Brien’s world, there is no such thing as low-hanging fruit. Every single market gets aggressively cultivated. The fruits of such labours are truly remarkable.

O’Brien is not the only one to have realised that there are fortunes to be made in places once considered unserviceable. Indeed, much of the government’s telecoms policy is predicated on the certainty that market forces will provide enough incentive to encourage well-funded entities like Digicel to invest in Vanuatu without requiring some sort of financial crutch.

The economic manifestations of Network Effects are becoming increasingly well understood in the business community. Indeed, it appears that TVL has been pleasantly surprised to find that mobile phone services were far from the money-losing service they first thought it would be.

The urge to communicate is fundamental to human nature, and people are willing to go to great lengths to talk to others. More willing, in fact, than they consciously realise. An early usage survey of an email network in the Solomon Islands showed that, contrary to expectations, well over 60% of messages were between family members exchanging news. Those messages cost about 50 vatu each back then.

Digicel is benefiting from this desire to communicate primarily because of its first-mover status and commitment to its chosen course. That implies a fair degree of risk, but risk is one thing the private sector handles better than most others.

Now, let’s not overstate things. Denis O’Brien is not the Oracle at Delphi. He’s simply better positioned than the majority of corporate leaders. What we have here is a corporation tapping new reserves in a market that most others considered unserviceable. The job of other CEOs, as they saw it, was to consolidate revenues and find new ways to tap existing markets. There’s probably not a telecoms CEO anywhere that wouldn’t have been pilloried for attempting what Digicel did. If the board hadn’t ended such apparent rashness, the shareholders certainly would have.

It’s true that O’Brien was one of the first entrepreneurs to see the business potential of Network Effects in the developing world. But the process of commoditisation of hardware and software that made this investment possible has been visible for years.

My first brush with this phenomenon came when I was living on Baffin Island in Canada’s eastern Arctic. In 1994, a few friends and I created the most remote commercial Internet Service Provider in the world. We found that we were able to take a frighteningly expensive satellite link and make good money from it by slicing and dicing the bandwidth between hundreds – and later thousands – of customers.

After only six months of operation about 25% of the local population – over a thousand people – were subscribed to our service. Our competition, belatedly set up and funded by the local telecoms monopoly, had 7 customers. I’ll admit we surprised even ourselves.

Lest this be construed as an exercise in self-congratulation, the lesson here is that Network Effects work. That’s been obvious to anyone who cared to think about it since Bell Telephone president Theodore Vail first described the phenomenon a century ago in 1908. The 1990s saw a resurgence of the effect due to the advent of the Internet. In this decade and the next, low-power handheld devices will be where most of the growth occurs.

To sum up: O’Brien put two and two together, and has made a couple of billion out of it so far.

We can too, if we want. The next wave of innovation in technology and communications is happening right here in the developing world, and thanks to the vision of a few dedicated individuals here in Vanuatu, we’re further along than the majority of our neighbours. If we take advantage of the investment that O’Brien and others are making in Vanuatu, we can become allies in an island-hopping campaign reminiscent of General Douglas MacArthur’s conquest of the Pacific.

Both Digicel and TVL are investing heavily in localisation of staff and management positions. The advent of competition led directly to the promotion of a few key individuals in the TVL hierarchy. Most notable among them was the appointment of the first ni-Vanuatu comptroller in its corporate history.

John Delves, General Manager of Digicel Vanuatu, states that he is “aiming to localise all positions as soon as possible and our current experience is that there is tremendous talent here. Our ultimate goal is for Digicel Vanuatu to be run by people from Vanuatu.”

Judging by its performance in other markets, Digicel seems to favour a high degree of independence in each national operation. This is achieved in no small part because of a willingness to invest in the local population. They are currently actively recruiting both Sales and Technical Operations managers.

But these are not the only opportunities available. Improving communications requires significant policy change and the creation of strong regulatory mechanisms as well. This is another area where Vanuatu can take the lead. Some of the World Bank consultants helping Vanuatu put together its regulatory regime are citizens of Caribbean nations, veterans of the liberalisation process in their region. There is no reason why a few talented ni-Vanuatu couldn’t join their ranks. There will also be demand for logistics experts, marketing and customer service staff – you name it.

The immediate benefits of investing in this area are blindingly obvious. Salaries for skilled technology positions are higher than in most other employment sectors. Work in this field is not bound by geography. I continue to work in Port Vila with clients around the world. This means that we can export our talent throughout the developing world without losing it ourselves.

Digicel is the first company to really grasp the market potential of marginal markets like those in the Pacific. They aren’t the only ones, though. The people of Vanuatu need to take note of this regional phenomenon and commit themselves to strengthening it. If we aren’t complacent about our role in this process, the rewards for us and our neighbours will be considerable.