A revolution in Africa

Huge attention was focussed on east Africa in July last year when the Seacom submarine cable was finally lit, the first time the region had enjoyed direct high-speed fibre connectivity with the world.

The 17,000km system interfaces with the global economy via landings in India and France. It also comes ashore in Egypt, Djibouti, Tanzania, Kenya, Mozambique, Madagascar and South Africa, paving the way for African operators to start offering high-speed broadband services between those locations and the rest of the world.

“There’s already a lot more commercial activity in east Africa, and for consumers more access to the internet,” says Taj Onigbanjo, head of Africa at Cable & Wireless Worldwide. “But it’s early days, so let’s not get too excited just yet.”

With Seacom lit, and the Teams and Eassy cables hard on its heels, east Africa is the continent’s leading economic hotspot, believes Peter Lange, senior analyst for Africa at the Buddecomm consultancy: “This is paired with the region’s amazing resilience against the global economic crisis,” he says.

The boon of international fibre has the potential to revolutionise east African communications markets, believes Lange, but only provided certain hurdles are first overcome. “There has to be a national fibre backbone network in place in every country, better more than one, to take the bandwidth to the different population centres,” he stipulates. “And access to the new international bandwidth and the national backbone must be open and fair for service providers, including 3G mobile or other wireless broadband operators, so that cheaper prices for broadband can trickle down to consumers.”

He points to Madagascar as an example of how nothing can change even after the arrival of an international cable: “The Lion cable landed there early in 2009, but Orange, the operator of the cable, says that the country’s regulatory framework is not clear on how it can exploit it, in particular the wholesaling of capacity to other operators,” he says. “National telco Telma, still 32% government-owned, is a partner in the Eassy project, and it looks like the government is waiting for its arrival before moving on regulation. Telma is also rolling out a national fibre backbone – so far the only one in the country. The result is that many months after Lion landed, retail prices for all broadband services are all still exactly the same.”

Rashid Shamte, CEO at east African fibre operator Six Telecoms acknowledges that a great deal of terrestrial activity on mainland east Africa is needed in order that Seacom’s deluge of subsea capacity not go unused.

He claims this is now belatedly underway: “The market is getting more exciting,” he says. “There’s lots of action on terrestrial networks up and down the region. There is now, at least. When Seacom first went live lots of people weren’t ready for it. There was talk about it among operators, but apart from those actually involved with the project its launch seemed to catch people off guard. A lot obviously weren’t expecting it to happen I suppose, but it did, one month ahead of schedule. Now they are scrambling to catch up.”

Shamte is quick to point out that Six Telecoms is not one of the laggards: “We’ve been working on a Wimax roll-out, and a fibre project in Tanzania. We’ve been engaged in a joint venture with Kenya Data Networks (KDN) to connect Kenya and Tanzania with places like Malawi, Mozambique, the DRC, Rwanda, Burundi and Uganda. By the end of 2010, all those countries will be interlinked with fibre. KDN is really leading the way in the region. It’s been doing an outstanding job, and has spent more on infrastructure than anyone. There’s lots to be excited about round here – and lots of work still to do.”

It is one of the fondest hopes of the Tanzanian and Kenyan governments that improved fibre connectivity with the world will stimulate the further development of east Africa as a centre for outsourcing services, after the fashion of India.

An early beneficiary of the Seacom revolution is Kencall, Kenya’s largest outsourcing business: “Previously we relied on satellite for all our international communications, which is a costly way of doing things,” says Nicholas Nesbitt, founder and CEO at Kencall.

“Many potential clients were reluctant to engage with us using satellite, as they had concerns over the quality of the calls. Now that we’re relying on fibre connections, that situation is completely reversed. We talk to clients with much greater credibility now when we talk about what we do. Opportunities were passing before us on our radar screen. Now there’s a pipeline of international business coming our way.”

Nesbitt says the most solidly material benefit of new fibre connectivity is that he can now charge more for what Kencall provides: “We had to discount before because of the risk factor,” he says. “With greater reliability also comes the ability to offer a greater range of services. We can take on high bandwidth business now for, say, clients in the legal and architecture professions.”

Who does Nesbitt identify as the leading lights in the provision of east African fibre-based services? “KDN is an important name in fibre networks here, while at the system integration end you’ve got Seven Seas who bring together connectivity with all the hardware and software side,” he says.

Nesbitt says he is now confident about east Africa’s prospects as a global hub for business, and as a self-contained commercial community in its own right: “As well as the international companies we talk to you’ve also got a lot of local companies that are waking up to things like business process outsourcing for the first time,” he says. “Communications are possible across the region now. We used to have a client who routed calls from Tanzania to London by satellite, then over to Norway by fibre and back to us in Kenya by satellite again. Just to say ‘Hello, how are you?’”

Lange of Buddecomm attributes the lowering of Kenyan broadband rates and the stimulation of its digital economy to other factors besides international fibre: “A simplified new licensing regime was introduced in 2008 which reduced the number of licence types from 40 to only three – network, service, and content provider,” he says. “The new licences are technology and service-neutral, allowing operators to offer fixed, mobile, terrestrial and satellite services.”

He agrees that KDN has been a prime mover in Kenyan communications. He says that KDN’s parent South African company Altech, is opening up telecoms in neighbouring landlocked Uganda, where a similarly enlightened licensing regime has just been introduced, and also in Rwanda.

“Altech has laid fibre backbone infrastructure in all three countries, but in each of them there is at least one other competing national fibre backbone being rolled out,” he says. “In Kenya this is being done by Telkom Kenya, now finally on its feet with capital and management from France Telecom under the Orange brand, in Uganda by Uganda Telecom and MTN, in Rwanda by Rwandatel and MTN.”

Altech, he says, is also providing Wimax wireless broadband access in every one of these markets, so that it has an interest in all types of infrastructure – international, national, and access.

He understands that Altech also has plans to enter the Tanzanian market: “In Tanzania you have the typical picture,” he says. “National telco TTCL, now partly privatised, is a partner in the Eassy project. It’s rolling out the country’s first national fibre backbone. But at least a converged licensing regime similar to Kenya’s and Uganda’s is in place, so that competition on all network levels can unfold.”

Foreign investment in emerging markets is generally a preliminary to the full opening up of competition, and the force that shatters fossilised patterns of thinking. And so it is in east Africa.

Andre Wills, managing director of ICT consultancy Africa Analysis, identifies France Telecom as a positive force in the region’s communications: “France Telecom has had a big effect on the market since acquiring its 51% stake in Telkom Kenya,” he says. “Introducing the Orange brand to Kenya has been a success. It’s now buying an operator in Uganda too and taking the Orange brand there. It’s making a strong play and is proving to be one of the more disruptive forces in east African telecoms.”

He also pinpoints South Africa’s MTN as a key innovator on the tariff side: “They’ve developed the idea of dynamic tariffs in Uganda – where the higher the demand is for the service, the higher the discount,” he says.

An indigenous company whose work Wills thinks is also helping to set the pace is Safaricom: “They have been and remain a key operator in the region,” he says. “For the last nine months they’ve been delivering value-added banking services, which has helped make a big success out of their mobile broadband access services. Only a few weeks after Seacom launched, Safaricom were reporting an 83% rise in activity on their broadband network. This underlines that the lack of broadband in Africa is not a matter of demand but of supply.”

Before the arrival of international fibre, there was little in the way of merger or acquisition activity going on in east African telecoms, says Wills, let alone dramatic leaps forward in broadband provision: “With everyone tied into satellite contracts, there wasn’t much movement on pricing,” he says. “One of the big changes since has been in contention, where there is not the same sharing of broadband capacity between all consumers. What’s now happened is a lowering of contention and a consequent leap in the quality of the service delivered for your $1 per month. Value is being added rather than just prices cut.”

Louis Gerike, manager of global sales for international markets at Sprint, says that the supplanting of satellite by fibre as the prime method of transport has revolutionised the US mobile operator’s stake in the region. “Our voice and data interconnect business in east Africa is now transferring from satellite to fibre,” he says. “We’re talking to a number of carriers there about data services – in places where there were no data services until now. Up until now, most east African data traffic has been transported on a private line-style configuration.”

But profound as changes so far have been, Gerike believes there is still a way to go: “There’s a number of companies there laying fibre,” he says. “But generally Africa is still pretty much still at the beginning of the journey. I’d include even South Africa here where the regulator has been holding back the market. That’s changing now with new licences and lots of different companies competing. The issue there is getting cell phone tariffs reduced. Then cell phone operators can expect a lot more data traffic.”

Buddecomm’s Lange points out that while South Africa has already had international fibre access for a while with the SAT-3/WASC/SAFE cable, its capacity has been largely monopolised by incumbent Telkom with resulting high prices.

“The second national operator, Neotel, has landed the Seacom cable in the country,” he says. “In addition, the government created Broadband Infraco to provide open access to government-owned national infrastructure, which has compromised Neotel’s business plans to some extent. Infraco, together with other major fixed and mobile operators in the country, is rolling out the West Africa Cable System (WACS). There is now a sufficient degree of infrastructure-based competition, and prices have come down.”

If Seacom is the starting gun rather than the end game for digital Africa, then what needs to happen next, in east Africa and beyond?

Ian Bedford, commercial director at Interoute, which has taken capacity on Seacom, would like to see a lot more done to stimulate generation of traffic inland: “With Seacom now in place, there needs to be more effort to drive demand further,” he says. “The traffic Africa generates at the moment is very voice-based. The next step is data, which will need the next level of infrastructure, ideally fibre, but that’s not going to happen everywhere. Africa’s got its first motorway with Seacom, and now it needs more slip roads.”

Bedford is given hope by Seacom’s efforts to extend its reach into places like Uganda and Ethiopia, where there has historically been little terrestrial infrastructure development. “But they’re not offering anything smaller than an STM1 at the moment in these places,” he fears. “Lower speeds will be needed to get smaller guys on board, like the smaller ISPs that are going to generate the traffic they need.”

Bedford is also concerned that many with an interest in the success of east African communications are expecting too much to happen too soon: “Seacom brings a lot to the door, but a great deal more needs to happen before that capacity gets to domestic networks,” he says. “A good start, but more is required.”

He’d also like quicker regional progress to deregulation: “Even in South Africa it’s very difficult to get tails from anyone other than the incumbent,” he claims. “All these markets are still very incumbent-led. We’re very positive looking ahead though. There’s lots of interest in connecting with Europe coming from down there, from major incumbents, altnets, large enterprises. Lots of conversations are underway.”

Onigbanjo of Cable & Wireless is more far-reaching in his vision for where African telecoms should go next: “The question I’d like the answer to, with all these new cables coming on line in east, west and north Africa, is when can we close the ring with one ring around the whole continent,” he says. “Think of all the bandwidth and resilience that would bring.”

As well as all the coastal activity, Onigbanjo says he is encouraged by what is now happening in the landlocked centre of the continent: “There’s now a lot of intra-country connectivity as well,” he says. “There’s discussions going on with the African Union and other bodies to get connectivity than runs terrestrially across the middle of the continent, coast to coast from Lagos to East Africa. But Africa is not going to become like the US just yet. In each new country you’ve pretty much got to reinvent the wheel. The next five years will be key.”

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Developments in west Africa

By virtue of getting its open access international fibre drought fixed first, east Africa has stolen thunder away from the west of the continent. But promising developments are also happening there, with new subsea capacity imminently available in the form of the WACS, Main One and Glo-1 cables. “West Africa is waiting for the switching on of a lot of new systems,” says Andre Wills, managing director of ICT consultancy Africa Analysis. “When it happens, there will be a similar impact to that made by Seacom in east Africa, but magnified because of the sheer size of the west African market. It’s got more broadband players too.” “There’s lots of activity in Nigeria, as always, and now also in Ghana with the discovery of oil off the coast,” says Taj Onigbanjo, head of Africa at Cable & Wireless Worldwide. “Lots of oil companies want to make an investment there. Ghana is an important prospect too, as it is politically stable and its economy is doing quite well. It could become an important centre for outsourcing. Angola is another hotspot for us on the west coast.” But with markets along the west coast generally not as far along the track to deregulation as their eastern counterparts, east Africa may remain the dominant regional economy for a while, at least as far as international trade is concerned. “In many cases, the incumbent telco in west Africa still has monopoly rights, so that the new cables may not have the maximum possible effect immediately,” says Peter Lange, senior analyst for Africa with the Buddecomm consultancy. “Nigeria is one exception, where second national operator Globacom is spearheading the Glo-1 international cable, and has built an extensive national fibre backbone. Incumbent national telco Nitel is no real threat, but other mobile operators such as MTN and Zain are rolling out national fibre as well, and on the access level the market is very competitive with many fixed-wireless operators.”