Just the beginning

Countries on Africa’s east coast now enjoy a choice of subsea cable options, and ample international capacity for all foreseeable needs. The continent’s west coast will soon enjoy a comparable uplift from a series of cable systems currently under construction or near completion.

But question marks still hang over the future of telecoms in Africa. Despite much work across the continent to create fibre backbones within and between its numerous economies to match submarine investments, long-haul connectivity of any quality is still patchy at best, and it remains a generally difficult and expensive business to move traffic around over wide inland areas.

At the level of the access network, all the momentum seems to be with mobile service providers, with only a tiny and scarcely growing number of African consumers or businesses able to enjoy the internet over a high-speed fixed-line connection.

And yet African telecoms looks set to reach some important milestones this year – albeit mostly of a wireless nature. Consulting firm Buddecomm expects the continent’s mobile phone market, taken as a whole, to pass the 50% penetration rate this side of 2011, with the likelihood of at least eight African countries exceeding 100% penetration by the end of the year. Several countries are seeing their mobile markets grow at more than 100% per annum.

While most African mobile phone users have to settle for 2G services, 3G subscriptions are on the up, a market sub-sector expected to be worth some $7 billion to operators in 2010, says Buddecomm. This is also the year when some lucky consumers will get Africa’s first 20Mbps mobile broadband service, while the 2010 FIFA World Cup in South Africa has delivered a shot in the arm to mobile TV service take-up in the 10 or so African countries where it’s available.

“In terms of inland domestic networks, the most significant bottleneck will always be the access network,” believes Andy Doyle, regional director for Africa with management consultancy Mott MacDonald. “A profound lack of copper access lines mean that mobile is the de facto standard for voice and, increasingly, data.”

Doyle believes the appearance of 3G in Africa is therefore of major significance, with Wimax and LTE also holding out the hope that broadband will not remain the preserve of an urban elite forever.

“The advantage of Wimax is that it’s available now, and is being rolled out, piecemeal, in certain parts of Africa,” he says. “The downside is it needs a dedicated access device and is not optimised for mobile usage. LTE on the other hand will be optimised for mobile, but the standards aren’t agreed just yet.”

There are signs in certain African economies, believes Doyle, of progress in the development of transmission networks, in many instances driven by impatient mobile operators. “As the mobile operators have become dominant, they have become increasingly frustrated with their reliance on the incumbents for backhaul network capacity,” he says. “In South Africa and Nigeria, for example, MTN has undertaken to build its own national fibre-optic network cable rather than lease capacity from the PTOs – who often overcharge and offer poor customer service.”

In South Africa, he observes, mobile players Vodacom and MTN and alternative wired operator Neotel have joined forces to build a National Long Distance (NLD) network in order that they can achieve some sort of payback from their not inconsiderable investments in new subsea systems like Seacom and Teams: “It will also allow them to establish their corporate and wholesale business, and compete directly with [South African incumbent] Telkom in many of its traditional monopolies, such as leased lines, VANS and fixed telephony,” he says.

Also in on the game of creating their own networks are many local authority bodies and municipalities up and down Africa, he claims, similarly fed up of waiting for incumbent interests to serve their regions with fibre.

“Another initiative is coming from African energy utility companies who, particularly when building new power lines, will string fibre up as a matter of course,” says Doyle. “While electrification remains low compared to the developed world, utilities will typically have spare telecoms capacity running from major cities.”

These somewhat piecemeal signs of progress, while encouraging, still leave a big hole and a huge commercial opening for anybody able and willing to invest in networks to link up subsea landing stations with inland population centres, believes Stephane Lecomte, Africa and Middle East strategic sales director with vendor Alcatel-Lucent.

“Africa has around 400 million mobile phone users, but only 10 million broadband lines now, so clearly there is a huge opportunity,” he says. “In order to unlock the market, the continent needs more competitive submarine backbones to drive the bandwidth cost down. Within two years there will be at least eight of these, and Alcatel-Lucent is building six of them. Then they will need continental highways, in other words city to city to sea shore across the continent.”

This work, he believes, is really only just beginning, with some tens of thousands of kilometres still to lay before any sort of parity with more economically developed regions can be said to exist.

“Whether public or private networks, whether owned by mobile telcos, consortiums of telcos or independent parties, projects are brewing everywhere,” says Lecomte. “We are happy to be vested in a lot of these ‘dry’ backbone projects to complement the ‘wet’ backbones which surround the continent.”

From Suburban Telecom in west Africa to Six Telecoms in the east, there are plenty of indigenous and non-incumbent-led African efforts being made to bridge the continent’s wide open spaces with networks. But naturally, as with other emerging regions of the world, foreign investment is also key. In the case of Africa, much of this is coming from countries with a colonial stake in Africa’s past and now a commercial stake in its future – Belgacom, Orange, France Telecom, Vodafone.

Interestingly there is also a great deal of faith in the future of African telecoms being shown by Asian and to a lesser extent Middle Eastern interests. There has been an on-off flirtation between South Africa’s MTN and India’s Reliance Communications, currently at stalemate but by no means off the cards. Indian steel conglomerate Essar has taken a stake in a number of African MNOs. But the biggest game of all was bagged by Bharti Airtel with its successful $8.97 billion bid for the African assets of Kuwaiti telco Zain. Bharti now has reach in 15 African countries thanks to the largest ever cross-border deal between two emerging regions.

“The biggest news in African telecoms this year in undoubtedly the sale of Zain’s African interests to Bharti,” says Taj Onigbanjo, head of Africa at Cable & Wireless Worldwide. “Everyone’s wondering what’s going to happen next. Are they going to replicate what they do in India where they outsource everything that’s non-core in order to focus on price. If they do that it could shape the future for a lot of people – bringing down pricing across the board. That could have the effect of putting a lot of plans on hold. ARPU is low in Africa anyway, and that combined with a price war leading to lower margins could affect things like investment in rolling out services to rural areas. From an independent point of view I hope there isn’t a price war, because value and quality are important too.”

If Bharti’s move is deemed to be successful it could spark a raft of similar initiatives by other non-African parties, believes Onigbanjo: “Other possible developments for the future could be another, and this time successful, attempt to acquire MTN by an outside interest. But of course you can’t just then replicate what you do elsewhere in Africa. It’s not as simple as it might look to just acquire, enter and do well.”

The difference between Africa and most of the rest of the world will be immediately evident to any investor from a developed region, rich in next-generation infrastructure. To the north, south, east and west, there are regions of Africa where the problem is not so much a total lack of any network capacity, but a generally poor quality of incumbent-operated network, not offering the sort of bandwidth that meets growing domestic, enterprise or wholesale needs.

For these networks, there is at least the prospect of short term performance improvement offered by WAN optimisation technology, says Adam Davison, VP sales and marketing at Expand Networks, a vendor of optimisation products.

“Africa has proved a good market for our technology, what with most of its infrastructure being well below the standard of north America or Europe,” he says. “We can take poor fixed-line infrastructure and give it a 500% acceleration, making a 1Mb link look like a 6Mb link. In places like South Africa you’re starting to see a lot more video conferencing over VoIP, for example, so you need to get as much as you can out of available capacity. We can see to it that bandwidth is allocated to video where required by reducing other data flows.”

Davison says Expand has been working across Africa with incumbents like Telkom and large integrators like Dimension Data, raising network performance levels: “It’s hard for me to talk about particular areas where WAN optimisation is applicable, since networks are challenged across the whole continent,” he says. “It’s the same story in Nigeria, where we’re talking to one of the top five banks, as it is in South Africa and in Morocco.”

But nobody should run away with the idea that Africa is all about shaky legacy infrastructure, unsuited to the needs of a modern multinational enterprise, says Andile Ngcaba, chairman of South African systems integrator Dimension Data’s Middle East and Africa business.

“We’re working with companies in industries like oil and gas, financial services, power,” he says. “There are huge opportunities for us. These new undersea cables have led to a major increase in bandwidth all of a sudden, and now everybody wants IP networks, MPLS, data centres. More companies are arriving from outside Africa to take advantage of all this, and in many cases they are getting what they need in terms of networks. They’re looking for something they can use to connect back into their global networks.”

Ngcaba says he is seeing more data centre capacity being built at cable landing stations: “We’re still at phase one, but with lots of activity everywhere,” he says. “People are beginning to rethink their old approach to networks, where they had their own server farms. All this capacity available at a reasonable price is making them look at virtualising and consolidating their server needs, and at the public and private cloud.”

There are also signs that technology is being leveraged to help Africa’s still largely disadvantaged population in humanitarian as well as commercial ways. The United Nations Foundation, for example, has been working with Vodafone to improve healthcare and provide disaster relief through wireless technology in countries such as Kenya, Ethiopia, Mozambique and the Democratic Republic of Congo.

“It’s a partnership that’s all about leveraging mobile networks, using technology that was initially developed in the US to improve access to health data, says Foundation director Adele Waugaman. “It was used to mobilise a vaccination programme that would have taken months to organise with a paper-based system. At first it was done with PDAs, but now mostly with ordinary mobiles. It shows there are creative ways to use mobile technology, not just for talking. Mobile banking is another obvious example, where the cost of having access to financial services has been lowered.”

“Generally one can’t help but feel optimistic about Africa,” says CWW’s Onigbanjo. “There’s exciting things happening everywhere – Nigeria, Ghana where they’ve found oil, likewise Angola, Kenya, Tanzania and South Africa. The cable capacity that has come to east Africa is now coming to the west. In mobile services, there’s building of networks inland, across boundaries too. I can see pan-African mobile coverage happening within three years. Pan-African fibre coverage? Not sure that will ever happen.”

Some recent African fibre projects

Governments, through their national telcos, are rolling out national fibre backbone networks to take the new [subsea cable] bandwidth from the coast to population centres in the interior,” says Peter Lange, senior analyst for Africa with the Buddecomm consultancy. “This has again been matched by privately funded parallel initiatives. However, some countries still don’t allow such private competition in national and international fibre infrastructure, which is likely to inhibit broadband development and lower prices in these markets.” Lange identifies some of the following projects as typical of Africa’s emergent telecoms sector: > The government of Angola is bundling all state-owned backbone infrastructure into a separate company which will offer access to service providers on a neutral wholesale basis. > In Botswana the Trans-Kalahari project is a 2,000km fibre-optic cable recently completed by the country’s incumbent to link the poor western part of the country, previously reliant on microwave links only. > Telkom Kenya is extending its considerable existing network investment in the form of the National Optic Fibre Backbone Infrastructure (NOFBI). The Kenyan government is also encouraging the private sector to invest in infrastructure, not only for mobile services but in national and international fibre as well. > In west Africa, Suburban Telecom, having already extended its network into neighbouring Benin, Togo and Ghana, is now planning on linking up landlocked countries such as Niger and Burkina Faso as well. > 21st Century Technologies has started rolling out what it claims is the first FTTH network in sub-Saharan Africa, initially targeting 10,000 homes in Lagos. > Rwanda has one of the most extensive fibre backbones in its region, and was the first country in Africa to implement a passive optical network (PON). Now it has launched the Kigali Metropolitan Network (KMN), and a National Data Centre (NDC), expected to go online during 2010. > In South Africa, second national operator Neotel is competing head-on with incumbent Telkom using wireless technologies such as CDMA and Wimax to provide alternatives to the incumbent’s copper access network.