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Breakfast with Alan Knott-Craig is never boring. The rejuvenated telecoms entrepreneur was in great form when breaking bread with Biznews.com’s Alec Hogg at the Woolworths Cafe’ in Rosebank. In this wide ranging conversation, AKC Junior reflects deeply on the challenges of having a famous father, the spell in public service with Project Isizwe, and his new entrepreneurial business, Herotel, which he hopes by 2020 will be recognised as “the Capitec of telecoms”.
Alan Knott-Craig is up in Johannesburg and we are sitting at a Woolworths’ breakfast place, Alan, you say you’re come here for the coffee.
Yeah, they’ve probably got the best consistent coffee.
Has it been good for you down in Cape Town – being based there? I know you do a lot of your work now up in Pretoria.
I think the decision I made to move to Stellenbosch was the best decision I ever made but the truth is that the money’s in Gauteng so you’ve got to regularly fly up here and do deals.
How often do you come up?
Maybe once every two weeks.
An interesting point that we’ve been talking about is that you’ve got a very famous name and there must be lots of other people who are in a similar situation. Their dads are terribly famous (like your dad) and I’d like to talk to you about him in a moment, but you’ve got exactly the same name. You’ve gone as Alan Knott-Craig Jr versus Alan Knott-Craig Sr. Do you think that’s been a help or a hindrance?
It’s been more of a help than a hindrance but I’d like to also say that my dad’s dad was also Alan-Knott-Craig. In my family house, I’ve been called lots of things except Alan because everybody gets confused. To have a famous dad and to have a dad as a success and a role model can’t be a hindrance in being a businessman.
How’s he doing?
He’s doing pretty good. He had a stroke two years ago as you know. He’s fully retired now so that’s actually been pretty good. He’s out of the game…relaxing. He’s chilled. Now I think he just likes walking on the beach and spending time with his family.
Yes. I remember from his book, he said the last time he had a difficult medical history. I’m not sure how many heart attacks. You’d know. He said that was it but he was convinced to come back. Any regrets now from his side that he did?
I don’t think my dad is the type of person who regrets things and it’s a good lesson I learned from him. I do think that he really shook things up when he went back to Cell C, which was probably good for the industry and all of that. I’m not sure it was good for me, I must say. For that brief interlude in Vodacom and Cell C, I felt a little bit more space for me to operate and him coming back in made it a bit harder for me to do deals.
Why would that be?
I’ll give you an example. When we did that Mxit deal, I had a deal with Cell C where we were going to become a prepaid distributor with ongoing airtime. We didn’t have it in writing. We were just doing the deal. I finished the Mxit deal and then four months later, my dad was appointed CEO of Cell C and my deal stopped because they wanted to make sure there were absolutely no questions around corporate governance. It’s actually quite difficult dealing with companies when my old man’s there. Then I couldn’t go to Vodacom. They were a little bit upset that my dad had left the blue world and gone to the Cell C guys. That definitely played a part in my failure to turn Mxit around. It opens doors but it closes doors as well.
Having the same name though, do you get confused with your father?
All the time. On Twitter, I get a lot of Cell C customer complaints on Twitter still. I can’t believe people think that I started Vodacom. I must have been incredibly young when I did that so yes, there are people who confuse us but I find that more and more, people know me in my own right.
Maybe you were the baby in the ad.
I definitely wasn’t, but I remember watching that ad.
Your own career has been interesting. You went abroad. You’re a chartered accountant. You’re starting to develop businesses here. You had the Mxit instance that we’ve spoken about in the past. Subsequent to Mxit, what’s been happening?
Ever since we parted ways in 2012 – it’s been over three years – I got involved with the Government. I started helping the Government roll out Wi-Fi in poor communities. I started a business a couple of years ago, called Hero Telecoms, which focuses on broadband. I’ve been very fortunate. I’ve met some great partners, found some new shareholders, and I’ve basically been following my dream, which is to be an entrepreneur and build businesses that make a difference and make money at the same time.
In the same line of business that your father was in, as well. Given that you’re a chartered accountant, was there ever any thought that you might go into a different area?
Yes. I’m often in telecoms and it was what we discussed at the dinner table my whole life. I know it. I feel like it’s in my blood. I love it but when I qualified as a CA, I didn’t want to work for Vodacom and MTN wasn’t hiring so at the time, I was looking for a job at banks. I just thought I’d go work for a bank. They also weren’t hiring me. I had a chance to start a small business on the WASP industry and that was my angle in. For better or for worse, I love the industry. I want to play a role in this industry. My name comes with a lot of baggage. It’s difficult to carve my own space out but at the same time, it’s a privilege to be able to have a name like that.
I guess with your dad now completely out of the scene (and as you say, after his stroke he’s certainly not coming back no matter how big the challenge is)… When you said earlier that it opens a space for you, what did you mean by that?
I don’t want to make it sound like a negative thing. It’s a very great privilege to have a father who’s become a great success, been a role model, left a legacy, and left a great reputation. It’s just that the negative to that is that people think you’re a Trust Fund Kid or whatever.
Was there one? Did you ever get help from your dad?
Well, there was no silver in Pretoria when I grew up. My old man worked for the Post Office his whole life, then Telkom, and then in 1994 Vodacom started. I matriculated in 1995 so I guess after varsity my old man made money, but when I grew up, we didn’t have money. We lived in a pretty standard, ugly face brick Pretoria house with a flat roof. I went to Government school and for me that was actually quite nice. That’s given me some skills that you don’t necessarily get in private schools so I wouldn’t say I’m a Trust Fund Kid. Even today, I don’t think my old man’s going to give me any money. I’ve asked him before to take me out of the will because I never want him to think that I ever want to see him for that – this is one of the curses of having parents that make money. Money becomes this thing in the family and this is something, which my brothers and I have always managed to keep out of with my old man.
How have you managed to do that?
Well, we just don’t talk about it. It’s never been a subject of conversation. We don’t ask for it. We’ve never had to ask for it. My brother (Nick) is also a CA so both Nick and I can look after ourselves.
I suppose it’s also better if you can be given a legacy of a great education, which is clearly something that your father has achieved. There are always all kinds of rumours. When you’re in the same industry and you have the same name (you’ve been successful in your own right), that perhaps you’ve been given a hand up.
I’d be lying if I thought that my very first business, (which was a success), was a success completely independent of my dad’s role in this industry. However, I know my current business is a great success and I know my old man hasn’t been part of this industry so that gives me a lot of confidence that I can do it myself. I guess that as an entrepreneur and as somebody with wealthy/famous parents, you have to keep proving it. Otherwise, there’s always going to be that doubt in the back of your mind.
Do you talk to people who are in a similar situation to you? Do they also see this as a challenge?
Yes. I have one or friends. A good friend of mine (a young entrepreneur) whose mother is actually a Minister: it’s difficult for her to get out of that shadow and she’s trying to make a space for herself in the country. Politicians are well known and famous, and come with lots of baggage as well so those are challenges, which everyone has. The way I see it… You can either take what you’ve got, try to hide it away, pretend you don’t have it and try to battle it out on a level playing field. Alternatively, you accept the fact that you’ve got an edge and you make the most of that edge because there are millions of people in the world who wish they had the same edge.
How do you see the controversy then around say, the Zuma family where several of his children have been given an obvious leg up in different ways?
That’s a hell of a good question. I really can’t comment on President Zuma or his family because I’ve never met the guys. I’ve been in the media a lot and sometimes it’s not nice stuff and I don’t think it’s true. Sometimes I think it’s better to just meet people before you pass judgment, but it’s very difficult being a public official. I think one of the big sacrifices you make when you go into the public sector, particularly as a politician, is you can’t make as much money as you would if you were in the private sector because people are watching. Even David Cameron now has this massive thing with his father having a Panama Island account. I just think that basically, the choice you have to make if you go into politics is that you’re not going to try to make any money.
Yes. Rather be a public servant than an entrepreneurial politician. Become an entrepreneur and paddle your canoe there or go into public service.
Well, entrepreneurs can get the best of both worlds. If you’re in the private sector, you can make a difference for people. You can work with the Government. You can make a difference but you can also make a buck. No one is going to think there’s anything funny about that. It’s just that you can’t go like that from the public sector. If you look at other Ministers that we have who have money: they recuse themselves. They sit behind Blind Trusts. They have absolutely no involvement. They go out of their way to make sure that people can’t say they or their family are in any way benefitting financially from their position of power in government.
It’s the interesting other side of the angle, but what about you? You did go into public service with Project Isizwe together with the Tshwane Government before you’ve now relaunched your entrepreneurial career. Why did you decide to move away from Project Isizwe (and maybe tell us a bit about it) to now start making money again?
Project Isizwe is non-profit. It helps the Government roll out free Wi-Fi to poor communities. It’s non-profit but it’s also non-loss. The Government pays. We cover our costs and we help Government roll our really frugal Internet.
You say ‘really frugal’.
We don’t spend a lot of money on salaries. We don’t spend a lot of money on bandwidth. We don’t spend a lot of money on equipment. We don’t have fancy cars. We don’t have fancy offices. We don’t sponsor Tour de France teams. The customer pays for all of that stuff at the end of the day. If you can roll out a really cheap broadband network and don’t add in all the frills that the customer doesn’t really want, but you think the customer really wants… I managed to develop a relationship of trust with Executive Mayor Ramokgopa in Pretoria, Tshwane and it comes fraught with risk. Everybody keeps saying ‘Government this’, ‘Government that’, and “How can you have a relationship with the politicians? This is not normal.” I say, “Give me a break.” Everybody in South Africa (well, people I’ve talked to) complains that private sector doesn’t work for public sector and then they also complain that nobody in the public sector is good.
I finally find a guy that I can work with, who’s a great guy, is competent, has integrity, wants to make a difference, and he can work with me. Then suddenly people say, “That is a funny relationship.” My whole predilection for Project Isizwe was built on trust we developed with the City of Tshwane’s leadership and it’s become a success. In two-and-a-half years, it has become the biggest municipal Wi-Fi network in Africa, definitely in South Africa, and just on, the weekend the ANC announced ‘public free Wi-Fi for Municipalities’ on their manifesto. The Department of Telecoms and Postal Services have adopted the Tshwane Wi-Fi model for the National SA Connect Broadband Plan. It’s been a huge success.
So, something you’ve done is going to be rolled-out throughout the country.
The model – the model that we worked on, with the City of Tshwane is going to be rolled out. Whether I’m part of that or not I don’t know but I know I was part of the beginning, which gives me a feeling – it makes me feel that I didn’t waste any time, but you know at some point Project Isizwe stopped being a start-up and started being a real business. Albeit a non-profit but too big to fail, something that you shouldn’t break. I’m not a guy you should give things that can break or that are too important to break. I like start-ups. I’m good with risk. I’m good with moving around but as soon as things get too big and there are too many important things in play, it is better for me to handover to somebody who is more solid on the defensive side. HeroTel became an opportunity to build another private venture, where I can make some money.
How did you start that and where is it now?
Well, we started it almost two years ago. We made some money from a couple of guys, Derek Prout-Jones, Michael Fass (some guys from RMB), then we finally got some steam last year, and we bought a couple of wireless internet service providers (WISPS). We raised some more money in September last year. This is a cash business, so we don’t do multiples of users or clicks or anything. We do multiples of cash flow and it’s going pretty well, so today we’ve got nine WISPS. We’re in four Provinces, growing really, quickly. We’ve got nice, annuity revenue. Most importantly, I’ve got great partners that I can trust and I’m feeling confident that we can get to probably 2020, and have a story that’s a bit like Capitec, but for telecoms, where you consolidate all these small, little players and kind of build a big guy out of all these rats and mice.
Is it disruptive? You mentioned Capitec, which clearly was simple and highly disruptive in its field.
Yes, I think it is disruptive because we’re approaching broadband from a lowest-cost appointment model. As opposed to, from the traditional Telkom model, which was we’ve got the higher voice margins. We can just spend whatever we like on anything. We’re always going to make a profit. Broadband and data is very, low margin, an infinite demand but a very, low margin, so you’ve got to keep your cost down if you’re going to give your customer the lowest possible price and still make a profit. Really, we come from this kind of ‘bottom-up’ budgeting, ‘bottom-up’ costing, and keeping things really, frugal and really, decentralised and basically, not having any Capex. Anything we put into the network will be expense, rather than build business plans around five-year depreciation.
You need Capex clearly, to buy the companies. You say you’ve got nine already, so far, so how much runway have you got? How many acquisitions could you make before 2020?
There are quite a few, we could do, and we can self-fund probably one acquisition every three months, no problem. If we wanted to accelerate that, we’d raise more capital, which we don’t think we’re going to do that but you know, we’re a cash flow, positive business. It generates cash. It grows every month. It’s a nice business. It can pay dividends if it wants to, but we’d rather take the money and reinvest it in growing our partner footprint and helping these guys make money.
Why would someone sign up with HeroTel rather than say Telkom ADSL or some of the other fibre options that are available now?
It’s not really, possible to get wired connectivity everywhere in the country. Not every business or house can get copper, which is ADSL or fibre into their premises, it’s not going to happen, and 3G is just never going to be the right solutions for Netflix in your house. It’s just not going to happen, right, so roughly five million households in South Africa have DSTV. Maximum, you’ll have one-point-four million people using fixed line. That leaves a big market – three-point-six million people, would spend over about R1.000pm, floating around looking for somewhere to go and that’s what HeroTel is trying to tap in too.
And the speeds that you are achieving?
Well, if you had asked me two years ago I would have said 1meg. Last year I would have said 5megs. Now we’re doing about 8megs. Next year it will be 20megs. Wireless technology is accelerating at a rapid rate and the nice thing about what the wireless guys are doing, the Wi-Fi guys, is… You know, 3G is like a seven-year payback period. You build a network. You get locked into a technology roadmap but the Wi-Fi guys, it’s not expensive equipment, so if next year there is better tech they take out the old equipment and they put in the new equipment and the network gets faster quickly. Every year we upgrade the speeds of the network, so every year you’re giving the customer what he wants. The customer wants faster speeds at lower prices. As a service provider, you want to make money. It’s difficult to make profit if you keep investing lots of capital and you can’t make your money back on the capital before you’ve got to reinvest.
Alan, how do restaurants, like the one we’re sitting in now, Starbucks all over the world, how do they afford to give away free Wi-Fi? Is it that cheap in their context?
In most first world countries, so that’s parts of South East Asia, Japan, Western Europe and some parts of the USA – it is very cheap. It is inordinately cheaper than anywhere in South Africa but that’s largely a function of the telecoms bubble of the 90’s – massive infrastructure glut, lots of assets written off and now they’re just sweating those assets. For the most part, you’re only going to get free Wi-Fi in places where there are wealthy people because in restaurants like this, Woolworths, they can probably afford it because you and I are buying an expensive breakfast and the profit can go towards subsidising free Wi-Fi. They use that as a business tool to attract people in but it is never going to happen in a poor community, which is why we have this other project, which is Project Isizwe, which is really saying on the one hand I want to make money, and also on the other hand, I want to live in South Africa.
I want my kids to live in South Africa, and we can’t live in the country, which has got this yawning inequality and we can’t expect people who are living in Soshanguve to be able to afford R1.00mb for 3G, and have the same internet experience as my kids. That is where I have this belief that the Government is going to get into the game of providing internet as a basic service, and I know that in my lifetime, but maybe even in the next decade, every, single South African will be within walking distance of free Wi-Fi, and that will be funded by the Government.
Isn’t that then a threat to your business model, at HeroTel?
When we define free Wi-Fi for the public, we say its public-space free Wi-Fi at best effort, so if it’s in a park, it’s in a parking lot, it’s outside a school, or it’s outside a clinic but you’re not going to run your business from a park. In your house, you are going to need internet and Government is never going to get into the game of giving you free broadband into your house or free 3G. That is not going to happen, so there’s always going to be a market for paid for broadband, high quality, straight into your house, dedicated and that nobody else is sharing – that’s our game.
Your competitor would be Telkom, presumably, with ADSL.
I would never compete with Telkom. I just think they’re a proper organisation. They’ve got lots of infrastructure. You don’t have to compete with them. There’s this Blue Sky, Greenfield ahead of us – all these guys that are trying to get on but there’s no fixed line infrastructure. I don’t even think fibre really competes with us. I’d say companies like VAST Networks seem to be trying to get into the game we’re getting into and iBurst – iBurst would have probably historically, competed with us. I’m not sure what their strategy is anymore but for the most part, we actually don’t compete with anyone. We’re just trying to roll out all these WISPS and help them all make a bit more money.
There’s a massive demand anyway that exists. These WISPS, as you call them, would be like the old, in the beginning of the internet in South Africa, you had internet service providers, who had dialup phones. Is it something similar to that but just using obviously, much better technology?
Yes, it’s a bit like that. You could call it like that except in the case of the dialup ISPs – they are still relied on Telkom infrastructure. The WISPS rely on their own infrastructure. They control the last mile. They actually own the last mile, the physical, last mile and not only is that something that is profitable but it’s a very big moat around your business. People don’t come along and just change their broadband provider overnight. They don’t dig up the soil or change the wireless dish or anything like that. Once you’ve got a household you’ve got to have life, unless you mess it up.
This last mile, we often hear about it. Why is it so relevant?
In the last seven or eight years a lot of money in South Africa has gone into core infrastructure, fibre, underground. Connecting the cities, connecting us to the rest of the world and that fibre might be running right past your house, but you can’t get on the internet. The last mile is how do you connect core infrastructure to the household? In places like Parkhurst, you’ve got guys like Boomertel doing a great job, and they’re connecting it using fibre. They literally, take a little piece of fibre and connect your house to the backbone of the internet, the transmission network but if you don’t want to use fibre you can use wireless. Our speciality is using wireless. You can’t dig up every road in the country, and every garden. The distances are too big. There’s not enough return on investment but you can put a wireless link from here to Hammanskraal, which is 100kms. You can run 100gigs per second. I think that’s the future.
The technology in wireless, presumably as you said earlier, is improving.
It is accelerating faster than anybody could ever have anticipated. I’m talking particularly wireless technology that uses unlicensed spectrum. The one, big difference we are, one strategic decision we made was we didn’t want to have to rely on the Government, the whims of a Regulator for our business. Now, if you’re using a Regulator spectrum, like Vodacom or a Neotel or something, well tomorrow the Government changes the law. The license fees increase, your shareholding has to change, and you lose your spectrum. That is kind of difficult building a long-term business but there are spectrum arranges that are public spectrums. They can never be nationalised and are not regulated but that also means you don’t have a monopoly on them, so you have to share them with lots of people. We build our whole business around operating in that spectrum.
Where do you buy your bandwidth from?
Well, our back call normally comes from Neotel, Dark Fibre Africa, Vodacom, Cell C, or Telkom or whoever.
These guys who are vulnerable to license regulations, the goliaths of the industry, and you’re a ‘David’ piggybacking off their infrastructure.
We’re definitely not fighting them. We’re actually helping them. We’re helping them solve a problem because they’ve got all, this infrastructure in the ground and they’re not sweating it, and we bring customers to them, and sweat it for them.
How big is the business now? How many clients do you have in those nine WISPS that are part of your business?
I’d be lying if I told you the exact number and Corné de Villiers, who actually runs HeroTel, would probably be upset if I told you.
Has it got tens of thousands yet?
No. It’s tens of millions, in terms of cash flow, so it’s a real business but it’s not millions of customers, but we’ve got quite a few staff members, we’ve got some great partners. The WISPS all over the country that have joined us are wonderful people. We’ve basically, got an entrepreneur in every city that thinks and runs the businesses as if we were there, so we don’t have to manage things centrally. I feel like we’ve got a good opportunity. I think by 2020, we’re going to have a business that will have made everybody a lot of money and made a difference to people that wanted to get on the internet.
You say it’s a race – a race with who?
I think we’re not the only people who thought of this opportunity and we’re not the only people trying to do it. We’re just the only people getting it right but, at some point, the other guys will start figuring out the tricks, so we’ve got to get it right before the other guys figure out what we’re doing.
Enjoy your breakfast Alan.
Thank you very much.