[Kictanet] Day 2 of 10: What are the existing Business Models for Optical Fiber Provision?

Wed Jan 24 08:19:34 EAT 2007

I want to thank all those who contributed (in writing and
in silence) during yesterday’s 1st day of discussions. 
Becky will be giving us the summaries in due course. Indeed
it was a warm-up to what I believe is going to be a lot
more of a complex issue and hence the following long and
necessary background information on the Business Models for
Provisioning  submarine Optical Fiber Cables (OFCs – plse
not the abbreviation, we shall use it frequently).

I stand to be corrected but from what I gather, there seems
to be two distinct Business Models for providing OFC,
namely, Purely Commercial and Partly Commercial. A third
approach, which is yet to be tried (implemented) but is
highly acclaimed in Donor and Academic communities, is
known as the Open Access approach.

Now, in a Purley Commercial Setup, Private Data
Communications Companies, usually the top level IBPs –
Internet Backbone Providers such as Cable&Wireless, BT,
France Telecom, MCI, would establish a business need to
build an OFC b/w continents in order to exchange traffic
between their (ISP) customers that exists on both ends of
the OFC.  Please note that IBPs are not ideally selling
bandwidth directly to the regular you and me, but rather to
the ISPs – Internet Service Providers who will eventually
resale this Internet Access (bandwidth) to you and me.  

Option I: Purely commercial Model
Basically, the IBPs use their own money to put up (down?)
the cable and they independently decide who connects to the
cable’s landing (exchange) points and at what rate per
month.  These private companies are run on a purely
commercial basis with the aim of maximising profit at the
shortest times possible. Indeed ISPs would not mind the
potentially high-prices arising from these model as long as
you and me can meet this cost when it is eventually slapped
on us.  This is the prevailing model for OFCs between
America/Europe as well as America/Asia-Pacific – but with
the advantage that the OFCs in these two realms are
abundant to point of having driven the costs extremely
down.

Option II: Partly Commercial Model.
This is what has occurred with the OFC running from
Portugal, across the Western Coast of Africa through to
S.Africa.  The so called SAT3 Cable has been provisioned
through a (currently) contentious model that has given the
term ‘Consortium’ a suspicious connotation.  At its
simplest level, a group of mainly government owned (Public)
Telco companies across the affected coast-line get together
to form a consortium with a view to seek funds and build
the OFC.  Thereafter, they retain the privilege of
independently deciding who connects to the cable and at
what rate per month. From the SAT3 experience, the OFCs
monthly rates charged are nowhere near the ones enjoyed
currently being enjoyed in the developed economies for
various reasons.  

Their high costs of OFC bandwidth has attracted pressure
from Civil Society, Academia and other groups who argue
that since (largely) Public Funds were used to build the
cable, the Consortium Profit-motive should be moderated
(regulated?) to strike a balance with the Public interest
(read – very cheap rates).  The Consortium has ofcourse
resisted this thinking arguing that their bandwidth charges
are dictated by market forces – specifically, Africa has
over the years generated little internet traffic volumes
that would have made it possible for them to drastically
drop down the charges. Circumstances have therefore forced
them into a High-cost, Low Volume business model.
Furthermore, their Bandwidth charges are incidentally 5-10
times lower than Satellite Bandwidth costs and that should
be appreciated.

Option III: Open Access Model.
And so, in comes the proponents of Open Access Model. In
the simplest terms, they argue that Africa’s socio-economic
renaissance hangs on the availability of cheap bandwidth or
communication costs.  As such, the OFC presents a historic
opportunity that should not be left to prevail under
short-term, commercial arrangements either within the
Private or Consortium models.  Open Access Models proposes
radical changes at all levels (Political, Legal,
Regulatory, Economical, etc) in order to provision
international OFC with an alleged bias towards
socio-economic development.

In particular, they claim that the OFC should be co-owned
by both Government and Private sector but should NOT be
operated for profit; that is, it should be run at Cost by a
body agreed upon.  Further, access or connection to the
cable should be Open to current and future stakeholders
wishing to connect to it – AT COST not profit. The
fundamental point is that money should NOT be made out of
the cable, money and lots of it, should be made out of
services (BPO, eCommerce, etc) that would arise from the
presence of the cable. Open Access model, foresees a
Low-Cost, High Volume Business Model for the Cable. Its
biggest limitation is the fact that it remains a fairly
academic topic that is yet to be tested – particularly in
an environment whose political, regulatory and legal
structures are not entirely matured. It chances of
successful implementations are deemed low.  Furthermore,
even if it was to succeed, the sceptics are wondering:- of
what use is cheap international bandwidth without African
(local) Content and an equally developed domestic digital
network? Might this not be just another avenue of ‘opening
up’ the emerging African e-markets to be exploited by the
developed economies?

The Question.
So back to the question:- What are the existing Models for
provisioning OFC? Plse voice your support, objection,
correction or comments on any of the above Models giving
reasons why. In addition, feel free to suggest other
existing models out there or still under construction.  We
have only 2days on this theme so let the views start
flowing.

References/Acknowledgements
http://www.fibreforafrica.net/
http://www.africafocus.org/docs06/apc0612.php
http://www.fibreforafrica.net/
http://www.diplofoundation.org/poolbin.asp?IDPool=127

____________________________________________________________________________________
Need a quick answer? Get one in minutes from people who know.
Ask your question on www.Answers.yahoo.com