Township fever

Rael Lissoos sits in his office in Yeoville, downtown Johannesburg, and dreams. He dreams of emerging technologies, business opportunities and SA's changing social landscape. But mostly, he dreams of township communities.

It was in the sprawling urban settlement of Orange Farm, a few kilometres south of Johannesburg, that Lissoos shot to prominence four years ago. At the vanguard of a campaign to deliver low-cost telecommunications services to SA's township residents, Lissoos locked horns with the Independent Communications Authority of South Africa (ICASA) and Telkom, which branded his activities illegal. The former Wits University academic eventually triumphed over his heavyweight foes. His fledgling firm, Dabba Telecoms, was allowed to provide homes in Orange Farm with low-cost voice and Internet services. Lissoos set his sights on delivering similar facilities to townships and low-income communities throughout the country. Further opportunities were mooted elsewhere in Africa as well as Asia.

Lissoos' triumph was something of a pyrrhic victory, however. Dabba struggled to fulfill its early potential and was sold to Du Pont Telecom last June. Lissoos remains on the board of Dabba, as a non-executive director, but has little involvement in the company's operations.

Innovative thinker

“Rael is one of the most intelligent entrepreneurs in South Africa. He is a brilliant, innovative thinker, particularly around issues such as providing access to technology,” says Steve Song, CEO at Village Telco.

I'm trying to do unique things with cellphone technology across platforms such as iOS and Android. There is also a big opportunity using tablet computers.

Rael Lissoos, Dabba Telecoms

Song and Lissoos began working together in 2008. Song was a research fellow at the Shuttleworth Foundation and Lissoos was looking to build a potential business for Dabba (whose name has a variety of verbal connotations including 'yada yada' and 'jabber'). They collaborated to build a low-cost, standards-based, scalable, wireless telecommunications system that could easily be deployed and operated in rural areas. The project enjoyed the backing not only of the Shuttleworth Foundation, but also US multinational Cisco Systems. The rural telecommunications system devised by Song and Lissoos, dubbed the Mesh Potato, incorporates reprogrammed WiFi routers and open source software and is now marketed and supported by Village Telco - a company subsequently founded by Song.

Dabba's early cash-crunch prompted Lissoos to shift the direction of the company. He was quick to recognise the opportunities presented by the large-scale renovation starting in central Johannesburg. Big apartment blocks were being snapped up by developers, refurbished and rented out to low- to middle-income tenants. As Telkom was reluctant to provide these apartments with fixed-line telephone facilities (because of the high cost of implementing such infrastructure and the often rapid turnover of occupants), tenants had to rely on expensive prepaid cellular phone services for their telephone and Internet communications. Lissoos saw that Dabba could generate substantial revenue by providing inner-city apartment blocks with alternative telecommunications facilities. He hooked up with several developers and began installing telephone and Internet facilities in apartment blocks in Yeoville, Berea and Hillbrow.

Venture capital

Dabba re-cabled the buildings and fitted a central control unit in each block, which connected via a wireless link to the company's trunking network. Tenants could use the connection for voice or data services and paid for the service by buying prepaid airtime vouchers. By the end of 2010, Dabba had provided telecommunications facilities to more than 5 000 apartments in Johannesburg and Pretoria.

Rael is one of the most intelligent entrepreneurs in South Africa. He is a brilliant, innovative thinker.

Steve Song, Village Telco

Lissoos also managed to secure the backing of a major venture capital fund. Hasso Plattner Venture Capital Africa (HP Ventures) bought a large minority equity stake in Dabba in 2009 and is believed to have pumped more than R10 million into the firm. The EUR39 million (R428 million) fund was established by SAP founder and former chairman Hasso Plattner in 2008. Lissoos caught the attention of management of the local investment fund in that year when Plattner's European investment fund, together with Deutsche Bank and MAN Ferrostaal, named him Social Entrepreneur of the Year.

Despite the success of Dabba's foray into downtown Johannesburg and Pretoria, the influx of external funding and international accolades for its founder, the company continued to be hungry for cash. The provision of cabling and telecommunications equipment into high-rise apartment blocks was capital-intensive. Dabba's payroll swelled to nearly 30 people. Inexperience in its new market sometimes resulted in costly mistakes - one big apartment block had to be re-cabled three times.

Early last year, HP Ventures prompted Lissoos to cut costs at Dabba and outsource a lot of the company's installation and maintenance work to Du Pont Telecom. A few months later, terms were agreed for Du Pont to take over Dabba.

Du Pont (which has no connection with the multinational DuPont chemicals group) has built a steady business over the past dozen years, providing telecommunications equipment and services to small and medium-sized businesses. Its acquisition of Dabba is its first move into the consumer market.

Du Pont CEO Graeme Victor, who bought the company in 2005 with backing from Investec and Liberty Life, believes the Dabba business has good long-term potential. He expects strong revenue flows to begin within three to five years. The company will remain focused on high-density urban markets rather than the townships where it began its operations.

“Since we acquired Dabba, we have connected a further 5 000 apartments. We have also opened two retail stores, in conjunction with Autopage, to market Dabba products and services and have installed prepaid voucher dispensing machines in several apartment blocks,” says Victor.

Du Pont is also looking to market the Dabba systems in other high-density environments such as gated residential communities and office parks.

HP Ventures' managing partner Marc Balkin shares Victor's optimism. “The fundamentals of Dabba's business are very good. It focuses on a narrow geographical area with a very dense customer base. We regard it as a great market,” he says.

HP Ventures is keen for Du Pont to realise Dabba's potential. The upfront purchase price of Dabba has not been disclosed. However, the bulk of the consideration will be paid in three years and will be determined by the future performance of Dabba. If Dabba does well, both its former shareholders, HP Ventures and Lissoos will walk away smiling.

Opportunities

By the time of the pay-out, Lissoos is likely to be enmeshed in another project. An economist by training, Lissoos pioneered the use of telecommunications systems to deliver educational material to rural areas before he founded Dabba.

Lissoos' attention has now turned to new opportunities. Once more, it is SA's extensive township communities that have attracted his attention.

“I am looking at several things, mostly revolving around cellphone networks. I am trying to do unique things with cellphone technology across platforms such as iOS and Android. There is also a big opportunity using tablet computers,” he says. More diverse endeavours include examining ways to deliver solar power systems to rural schools and creating small businesses around the provision of bio-gas energy.

Lissoos believes that sustainable businesses in SA's townships can provide a model for further operations not only elsewhere in Africa, but in any developing nation around the world. The challenges of conducting business in Orange Farm are not very different from operating in Lagos or Sao Paulo, he argues.

“South Africa is still a great place to do research and development. You can just go out and do it,” he says.

Somewhere in the townships lurks Lissoos' next big idea.

First published in the February 2012 issue of ITWeb Brainstorm magazine.