The Telecommunications Greenfield Conundrum

June 9, 2023 Dilip Pal

For most businesses, expansion, especially to a new geographical area is both an exciting but also expensive and nerve-wrecking process. As the global economy is shifting and changing, due to globalization, this is becoming a necessary move for most businesses. And it is no different in the dynamic and agile telecommunications sector which involves building operations from the ground up.

Establishing new networks or infrastructure from scratch in untapped markets requires significant upfront investments, extensive network rollout, regulatory compliance, and patience before profitability can be achieved. In economic terms this foreign direct investment is known as greenfield operations.

From experience, though, I have learnt that most of the stakeholders lacks patience, tolerance and understanding when it comes to these greenfield operations and their associated start-up costs.

Mobile Network operators must deal with the complex and resource-intensive infrastructure development. Building a robust network infrastructure requires substantial capital expenditure, meticulous planning, regulatory approvals, and optimal coverage. These factors contribute to a longer waiting period before positive cash flows materialize.

The most recent investment by Safaricom Telecommunications Ethiopia in Ethiopia is a recent showcase of greenfield operations. Safaricom Telecommunications Ethiopia has close to three million customers and built a distributor network of over 114 outlets, delivered an award-winning premium quality network in 22 cities and regions; with close to 1300 network sites and over 900 staff, 81 percent of whom are Ethiopians. All these are capital and resource-intensive greenfield operations.

The telecom sector operates in a highly regulated environment, requiring licenses and permits to operate in different regions. Navigating through some of these bureaucratic processes and securing necessary approvals adds delays and costs to the overall timeline of profitability. Fierce competition in the industry further complicates the landscape.

The nature of telecom services presents additional challenges. Operators face limitations in network capacity, spectrum availability, and geographical coverage. Expanding infrastructure to reach remote areas or densely populated regions requires time and substantial investments that may not yield immediate returns.

Investors and analysts must thus recognize that the telecom sector’s path to profitability is not linear. Expecting instant gratification and immediate profits can hinder the long-term growth and potential of greenfield operations. By focusing solely on short-term financial indicators, investors may overlook the underlying value and potential of telecom companies investing in expanding their networks and reaching untapped markets.

Telecom operators need time to build a solid foundation, establish a customer base, and optimize their operations before achieving sustainable profitability. Investors and analysts must have a long-term perspective and appreciate the intrinsic value of greenfield operations in the telecom sector.

The lack of new entrants in the industry and greenfield ventures limits understanding of evaluating the telecom sector’s prospects. Investors and analysts often rely on precedents and established metrics from mature companies, which may not capture the long-term potential of greenfield operations.

What then is the way forward?

When assessing greenfield operations in the telecom sector, it’s crucial to consider the balance between short-term and long-term prospects. Initial losses and the time required to reach profitability may impact stock prices in the short term.

However, taking a longer-term perspective reveals the immense potential for growth and returns in untapped markets. Recognizing the strategic value of expanding into new regions, capturing market share, and establishing a solid customer base is essential.

Investors can make informed decisions that prioritize long-term gains over immediate financial indicators. It’s vital to look beyond present fluctuations and focus on the promising horizon that greenfield operations in the telecom sector offer.

Secondly, greenfield operations in the telecom sector demand innovation and adaptability. They involve introducing cutting-edge technologies and customized solutions tailored to target markets. Telecom operators must stay at the forefront of technological advancements, embracing trends such as 5G, IoT, and artificial intelligence.

By fostering innovation and investing in research and development, greenfield ventures can position themselves as leaders in the telecom landscape, driving progress and shaping the future of connectivity in digital services, education, healthcare, and e-commerce.

Investing in these ventures contributes to bridging the digital divide and fostering inclusive development, aligning investments with positive societal impact.

In conclusion, to foster an environment that supports greenfield operations in the telecom sector, a shift in investor mindset is necessary. Recognizing the potential for long-term growth and profitability requires patience and a visionary approach. Emphasizing the transformative power of connectivity and its positive impact on societies and economies is essential.

Greenfield investments are important, not as an end but as a means to create jobs, support the growth of the digital economy, bridge the digital divide, empower communities and contribute to a more connected and inclusive world.

The author, Dilip Pal, is Safaricom Chief Finance Officer.