ICTworks by Inveneo

TechCrunch has been doing a series of articles on African technology matters. While an ICTWorks commenter pointed out that a past article about the Ethiopian Telecom Monopoly had a lack of depth, it is a positive direction that a widely-read technology medium like TechCrunch is covering African technology matters (including more detailed features about Nigeria). Their recent article with an inside look at SEACOM is a good example.
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Seventeen years ago Wired published Neal Stephenson’s magisterial epic “Mother Earth Mother Board” , about the web of undersea fibre-optic cables being built to connect all of humanity. Well – almost all. Africa, again, was left behind. Until 2009, all of East Africa could only connect to the Internet over slow and hugely expensive satellite links.

Finally, two years ago, SEACOM laid a cable along the East African coast to Mumbai; then tributaries were run thousands of kilometers inland, as far as Uganda and even Rwanda; and later this year, a direct connection to Europe will be lit up. This has chopped the cost of bandwidth from US $5,000 per megabit/s per month to approximately $100, hugely increased capacity to 1.28 terabits/second, and given more than 100 million people (and counting) access to broadband Internet for the very first time. Today I visited their cable landing site in Mombasa, Kenya.

It doesn’t look like a high-tech hub. The site stands in the shadow of Fort Jesus, an ancient castle constructed by the Portuguese in 1593, and to better blend in with its UNESCO World Heritage surroundings, its outer walls are built to look like a Swahili keep:

But within are prefab buildings constructed in New Jersey (of all places) and shipped halfway around the world. The open trapdoor leads to the cable…

…which runs seven kilometres out to the branching station, and then 3,000 kilometers northeast to Mumbia, 2,000 km northwest to Egypt, and another 3,000 south to South Africa:

An observant eye can see the path the cable takes, beneath the shore below Fort Jesus:

Landing the cables is the hard part. It took three months to dig, lay, and cover those seven kilometres, using local barges and professional divers. By contrast, the cable that runs to Djibouti along the 1500 kilometres of Somalia’s wild coast was laid in less than a month … not counting the 55 days that the ship had to rest in port because of the danger of pirates.

That Djibouti branch isn’t even lit up yet. The cable is laid, and ready – but three kilometers of it that pass through Egyptian soil remain a sticking point. “Each country moves at its own pace,” sighs Mahmoud Noor, manager of the Kenyan landing station (which also double’s as the system’s backup Network Operations Center.) He won’t go into details, but I get the impression that the problem is more political than technical. When Egypt comes online, hopefully later this year, SEACOM capacity will leap upwards again, and lag times will halve. Until then, all their external traffic has to go to Mumbai, then be routed elsewhere by leased lines.

The undersea cable consists of the fibres themselves, as thin as human hairs, wrapped in a copper sheath that carries up to 10,000 DC volts to power the repeaters every 100km that keep the signals comprehensible. In depths less than kilometre, this is all sheathed in thick additional armour. Here Peter Ouko, a SEACOM engineer, displays a cutaway example of the cable:

…and here’s where it enters the New-Jersey-built prefabs after its monumental journey along the continent.

The interior is cavernous, antiseptic, and honeycombed with cables:

An outgoing sheaf of fibre connects to the next building, where customer equipment goes, and where SEACOM is installing added-value options: an exchange to route connections within Kenya, Uganda, Rwanda (and Ethiopia, when they finally connect) directly without having to wastefully forward that data to Mumbai or London first, and an IP service so that customers can connect directly to routers without having to step down from SDH themselves.

It’s a triumph of engineering, and a profoundly important one. In Kenya today, a SIM card costs less than a beer, and a minute of 2G Internet access costs only 2.5 cents. That’s still too much, but far less than in the bad old days. Once South Africa was the continent’s tech powerhouse, but now they grumble about how good the Kenyans have it - and this building is why. It and the others like it are the bedrock on which Africa’s nascent Internet revolution is built; they are, quite literally, where the future is being forged.

Recently, Ory Okolloh (aka @kenyanpundit) asked a pertinent question on Twitter, that I would paraphrase as: "Tanzanians - what are your thoughts on why Internet access prices are not dropping and bandwidth speed is still slow, even after undersea fiber cables landed at Dar es Salaam, as compared with other countries, especially Kenya?"

I happened to see this tweet while meeting with a major Tanzanian ISP and posed the question to them. Their answer is enlightening for everyone in the ICT space. Essentially, its a failure in regulation and transparency with the national fiber optic backbone infrastructure.

Tanzania fiber cable history

Back when SEACOM and EASSy were in the planning stages, the Tanzanian government entered into an agreement with the Chinese government to build a National Information Communication and Technology Broadband Backbone (NICTBB) to transport that bandwidth nationwide. The national network was designed and installed by Huawei and connects most of the major population centers to the landing points at Dar es Salaam. So far so good.

Pricing at SEACOM landing point

Trouble began when the government gave Tanzania Telecommunications Company TTCL, the incumbent national telecommunications operator the monopoly rights to manage the backbone, as evidenced by bandwidth pricing. SEACOM will sell 1 Megabyte per second (Mbs) of bandwidth at $230 USD per month at its landing point in Dar. If an Internet Service Provider wants to use another bandwidth provider, they can get it for as low as $175 for 1 Mbs per month at the SEACOM landing point.

Companies that connect their network infrastructure at the SEACOM landing point have dropped prices and increased bandwidth speeds. Mobile phone companies now offer great plans like Airtel's 3GB of mobile data for $10 and the Holiday Inn Dar es Salaam has the fastest hotel bandwidth in Africa.

Transmission is the issue

ISPs operating outside of Dar es Salaam still have a transmission problem - how to get bandwidth to the paying customer? TTCL charges a flat $180,000 per year to transport Internet bandwidth across the country. In addition, to connect to the backbone requires custom Huawei routers because of the way Huawei built the network. These specialized routers cost $18,000 and take 6 months to manufacture. By comparison, a similar Cisco router for standard network architecture is $8,000 and in stock across Dar.

If ISPs want to buy the bandwidth from TTCL rather than transmitting it on their own, its $700 for 1Mbs per month in Dar and $900 per month in Arusha. If you think TTCL's $470 per Mbs per month mark up extreme, it gets better. TTCL has a 20-year agreement with SEACOM for bandwidth that averages out to less than $65 Mbs per month.

Regulation is the problem

The excessive markups by TTLC should not come as a surprise to anyone in the African telecom industry. Incumbent telcos have been using their monopoly position for rent seeking for years now. What is surprising is that this is happening in Tanzania. The mobile operator marketplace is open and very competitive - there are several private operators fighting for market share. In other industries, government-run companies were privatized and markets liberalized, unleashing a privitization economic boom that the country is still enjoying.

Yet with TTCL, the Tanzanian government has given one company a monopoly power, which that company is using to monopolize the bandwidth transmission market, keeping Tanzanian citizens from enjoying the African bandwidth bonanza.

Update: Be sure to also read the Tanzania Domestic Broadband Internet Infrastructure Policy Analysis post by Jenny Stefanotti

It’s been about 12 months since Africa was the only continent without submarine fiber telecommunication links to the rest of the world on all of its coasts. The east coast did not have any fiber links while the west coast had only one fiber link, the (in)famous SAT3 cable.

Satellite was slow and expensive

There were a couple of fiber links in North Africa. Go back 3 to 5 years and even fiber inside African countries outside a few countries in Southern and North Africa was scarce. The only connection to the outside world for many African countries was satellite.

Pretty much anyone who used the Internet regularly knew that reliance on satellite connectivity was the cause of high prices for internet access and telephony for countries relying either exclusively or mainly on satellite connectivity. On average, accessing the Internet cost Africans 50-100 times more than what it cost consumers in Europe, Asia and North America.

The hidden connectivity barrier

What wasn’t as widely known was that local (in-country) connectivity was as expensive if not more expensive than international connectivity over satellite in most countries. If you have tried renting a “leased line” or dedicated circuit in-country in Africa then you know that the prices were astronomical and dependent on distance from the capital city.

The intra-country connectivity is important because connecting to the internet or making international phone calls involves three important network elements: the connection from the user to the local service provider’s node or office (the “local loop” or “last mile”), the national or regional high speed backbone that aggregates traffic from all the providers and users and the international link which connects to the outside world.

Then a bandwidth bonanza

The situation has changed quite dramatically in the last one to three years. First off, the east coast of Africa now boasts three, yes three cables (Seacom, EASSY and TEAMS) in just 12 months! The West African coast that has long had the SAT3 cable, infamous for its sky high prices, now has another four cables in the process of being laid or activated (MainOne, GLO1, ACE and WACS). Most of these new cables will be active in 2011.

The excitement in East Africa with the landing of these fiber cables a few months ago was incredible. Telecom companies involved in the fiber roll out were promising “affordable” high speed bandwidth with prices pegged to drop by 90%. The East African operators, governments and the international development funding agencies vowed that the new cables would not go the way of the monopolistic SAT3 cable with its super expensive prices. Optimism was high, the Promised Land had arrived.

Local telecommunication companies and governments have been investing heavily in in-country fiber network backbones; the latter with soft Chinese money. Most African countries now boast of a fiber backbone network or one on the way in a year or so.

Yet prices still high

Despite all the initial excitement that greeted the landing or announcement of new cables and backbone networks in Africa, disappointment is setting in. Prices for Internet access have gone down by a factor of 2 rather than 10 as expected. Indeed prices are still high in most of Africa outside a few North Africa countries and others like Senegal. South Africa is a most puzzling case where prices are still higher than even East Africa with its new found fiber.

So with most African countries now boasting of fiber in the backbone and fiber available on all the African coasts, why are prices still high? Why do countries like South Africa and Namibia with world class intra-country fiber networks and good external connectivity (at least for South Africa) still have some of the highest connectivity costs in Africa? Why has all the fanfare and promises of low connectivity costs in East Africa not materialized with two fiber cables already operational and a third on the way?

Two reasons for the high prices

The main reason advanced by most operators is that fiber investment costs are very high and prices have to be high in order to recoup their investments. This is the reason given by East African operators in places like Kenya and the SAT3 operators in West Africa. Others point to a high demand-low supply as the cause.

In other places, like South Africa and Namibia, prices are high simply because of a monopoly or duopoly. Further examination reveals at least two other reasons for these high prices: the largest fiber owners in-country, have until recently, not been allowed to sell or provide services and most importantly, African service providers are still beset with archaic business models and anti-customer mindset! Let’s examine these two factors in some detail.

Reason 1: Hamstrung alternative infrastructure providers

As we saw above, intra-country connectivity costs are high and contribute to the overall high cost of Internet access. With fiber now available in-country in many countries, one should expect that prices would come down. The problem is that those with the largest amount of fiber are not allowed to sell or offer services!

You may not know but the largest fiber base in most African countries is held by the electricity companies and in some cases by oil and gas pipeline companies or rail and train operators. These companies need and laid fiber for monitoring and control of their networks. Until very recently, these electricity companies (dubbed “alternative infrastructure providers”) were not allowed to sell, lease or operate services on their existing fiber in many countries by the telecommunications regulators.

The situation is changing, rapidly in some cases, with electricity companies in Uganda, Kenya, Zambia and other countries now allowed to sell their existing fiber capacity mainly to telecommunications companies. The second National Operator in South Africa benefited from purchasing and acquiring fiber from these alternative infrastructure operators. As this fairly large fiber capacity has been brought into play, intra-country capacity has been greatly boosted and prices have come down.

African governments and regulators need to keep up with this deregulation trend and allow all the existing fiber in the hands of non-telecommunication entities to be made available for telecommunications services. Aside from making more capacity available, this new fiber also increases competition thus further lowering prices.

Reason 2: Archaic business model and mindsets

The second factor which I consider to be even more important is what I refer to as an archaic business model and business mindset. Telecommunication companies such as Internet Service Providers (ISPs) in Africa overwhelmingly rely on a small base of customers that they charge high prices. These customers (banks, large companies, multi-nationals, -collectively dubbed the “corporates,” large educational institutions, government agencies, development agencies and NGOs and a tiny number of high net worth individuals) need connectivity and are willing to pay these high prices.

This mindset still pervades the ISPs and thats why prices are still high as they “need to recoup their investments” from a small customer base. But this business model is flawed: there are millions of individual customers and small business that also need connectivity but cannot afford to pay the current high prices.

The success of mobile phone companies has taught us (and any ISP that is awake) that communication services are not the preserve of the rich and powerful. Unfortunately, the typical African ISP is unable to shift to a “large customer base, low margins” business model: drop the prices and attract a lot more customers. This is the main cause of recurring high prices.

Glo 1 landing in Nigeria

Mobile phone companies to the rescue

Fortunately for the consumer, the mobile phone companies with their understanding and masterly of the large-customer-base-low-margins business are getting into the act. These mobile phone companies understand that there is a killing to be made in providing data and internet services.

They are investing in fiber networks, purchasing most of the available capacity from alternative infrastructure providers like electricity companies and they have a tried and test last mile solution. By overlaying their 3G networks with fiber networks, they are capable of providing decent connectivity services at an affordable price.

The traditional ISPs and telecommunication companies in Africa are in for a rude shock if they stick to their existing business models. I would dare say that they will soon be extinct. And that’s a good thing too for they surely deserve what is coming to them!

And we the customers can take solace from the fact that we have cheaper internet connectivity coming to us soon. Now African governments and regulators only have to ensure that the mobile phone companies do not become new monopolies and forget the lessons learned on their meteoritic rise.

Alex Twinomugisha originally published Why Are African Internet Access Prices Still High? on Africa Business Source

Since 2001, Investment into the African telecommunications sector has hit $18bn, however Africa has missed many opportunities to deploy cable infrastructure to the same extent as its competitive continents such as the Middle East and Asia.

Nevertheless leading authorities understand that such an infrastructure is vital for the continents development and they are planning to announce future moves into 4G at NGT Africa summit hosted by GDS international.

South Africa’s international connectivity received a major boost last year with the launch of the Seacom cable, a high-bandwidth data link connecting Africa with India and Europe. Two further major cables, the West African Cable System and the East African Submarine Cable, are due to come into operation over the next two years.

Africa can offer competitive prices to emerging companies and has obvious mass growth potential. Recent infrastructure improvements throughout the African Markets have allowed the continent to rival the likes of Dubai. As a direct result of the NGT meetings regions such as East Africa are now the choice of many multinationals as a gateway to the Middle East and Africa.

“So far, technology has been a strong point for Dubai. But the arrival of the new submarine cables will allow Africa to run services at a reduced cost.” Will Gary Austin, NGT Director

With so much growth potential and increased investments into the African telecoms market it comes as no surprise that the Middle East telecoms elite have been quick to announce their attendance at the NGT MENA summit to discuss how they plan to maintain their dominance within the market and provide the best services possible to outside investors.
Representatives confirmed to attend the NGT Discussions include Tony Shakib – VP Service provider Emerging Markets from CISCO and Knut Aasrud GM Communications Sector EMEA who will be on hand to share their thought leadership as technology innovators with Ghana Telecom (Vodafone Ghana) - Eric Valentine, Head of Technology Core Networks Orange Uganda - Phillipe Luxey, CEO MTN Group - Sifiso Dabengwa , COO Telkom SA - Charlotte Mokoena, CEO Vodacom Group - Vujani Jarana, Ex. Director Operations Virgin Mobile South Africa - Steve Bailey, CEO

"Cisco and SEACOM share a common goal to enable accessible broadband across Africa while lowering the cost of communication to spur growth within urban and rural communities. We're working with SEACOM to help transform Africa by outlining process change, building networks, and then providing the application services and expertise that support key services for citizens, such as education, healthcare, public safety, economic development, and national security. SEACOM will provide the catalyst for African consumers, business and government to realise the benefits of connectivity and collaboration across the globe." Courtesy of CISCO Systems Inc.

I was IM'ing with Possicon this weekend about the difference between online business opportunities in Nigeria and Kenya. We both agreed that Nigeria could and should be beating Kenya in Internet businesses, but its not.

Both Kenya and Nigeria have many problems. But I think there are 3 main reasons why Kenya is pulling ahead of Nigeria, even though its a much smaller country:

1. Safaricom

It may not be the best mobile phone provider in Africa, but its certainly one of the most innovative and is pushing Internet access aggressively across the country with 3G data services and subsidized netbooks.

Nigeria may have more mobile phone players, and cheaper voice rates, but their 3G data services are no where near the quality and reach of Safaricom.

Glo 1 landing in Nigeria

2. Seacom & Teams

The East African bandwidth bonanza cannot be underestimated. With two huge fiber optic cables landing in Kenya, and it serving as a backbone for Uganda and Rwanda, Kenyans now have an unprecedented position to drive Internet adoption across East Africa.

Nigeria's telcom sector is years behind. Yes, the Glo cable is coming, but with the current restrictive regulation, I bet it will still be cheaper for Nigerian companies to buy bandwidth microwaved over from Benin.

3. Kenya Power & Lighting

Say what you will about last year's blackout, KPLC is pretty reliable as a power company, especially when compared with its peers. And anything digital or Internet needs constant, reliable electrical power.

No one would call Nigeria's National Electric Power Authority anything but useless. Not when it generates a new national anthem on daily basis.

Rise Up Nigeria!

These may be the 3 reasons why Kenya is leading now, but don't think that they will always be ahead. Possicon and I both also agree that Nigeria could overtake Kenya at any time, if it focused, if Nigerians themselves, and Nigerian business were serious about tapping the Nigerian Internet goldmine.

May 2010 be the year Nigerians wake up - or risk getting passed by.