[kictanet] UUNET MD challenges Kenyan Government estimates of low bandwidth costs

[Eric Osiakwan]

The cost of Internet connectivity is unlikely to fall to $500  
(Sh33,000) per megabit per month as the Government has projected,  
UUNET managing director Geoffrey Shimanyula has said. The charges  
would only fall marginally with the landing of the first submarine  
fibre optic cable in Mombasa, he said.
UUNET- an Internet service provider - which is one of the prospective  
private investors in government-driven East Africa Marine System  
(TEAMs), said such a feat would require the cost of internet  
connectivity to fall by more than 80 per cent from the current  
average of $5000 per megabit.
The submarine cable is expected to land in Mombasa by second quarter  
of 2009 and terminate in Fujaira, Dubai.
"As you present your budgets for 2010 do not present the $500 figure  
because you may have to go back and justify your adjustments for that  
item," Shimanyula warned IT marketing executives.
"That price can only be for the last mile, the layer two services,  
and the raw pipe - WiMAX or KenStream that you get from Telkom Kenya.  
There is no IP service that can be sold for $500 per megabit per  
month ," he said.
IT firms, including UUNET, will have to connect to an Internet  
Service Provider (ISP) based in Fujaira before bringing the service -  
with a mark-up to local companies.
"That is where UUNET comes in. We will be connecting directly to  
Verizon Business in Fujaira, who are our principle shareholders  
hoping that we will get competitive rates from them to pass over to  
our customers," he said.
Information permanent secretary, Bitange Ndemo, however maintained  
that the $500 price was achievable with the a fibre optic cable.
"We have structured the pricing in such a way that even after  
factoring in the cost of onward connectivity the highest an operator  
may charge is $700. Anyone who will be charging consumers more than  
that in the first year of operation will just be serving the cause of  
greed," he said.
Dr Ndemo said the cost of connectivity was expected to continue  
dropping gradually in the subsequent years as the demand for the  
bandwidth picks up.
"The reason we are working on these figures is that we do not plan to  
make money from the pipes but only from the services rendered and by  
taxing the jobs that will be created," said Dr Ndemo.
The Kenya government has a 40 per cent stake in the project with  
Dubai's Etisalat holding 15 per cent. A 45 per cent stake has been  
reserved for private telecommunication companies.
Shareholders will have access to large amounts of capacity with a 13  
STM1 (SynchronousTransport Module ) - basic rate of transmission of  
fibre optic network - for a minimum of five per cent equity investment.
Capacity will be allocated at cost with TEAMs investors paying  
$400,000 per STM1 per year. This translates to $2580.645 per megabit  
per year up to Fujairah and $ 215.00 megabit per month.
TEAMs shareholders are expected to operate on an Internal Rate of  
Return of 32.71 per cent with a pay back of 2.4 years.
Share holders in TEAMs will have the freedom to either use or sell  
excess capacity allocated to them through a pool or directly to the  
market under a bilateral sale arrangement.
CCK has said that only licensed operators will be allowed to sell  
capacity directly to the market - all other shareholders will be  
allowed to sell their excess capacity through jointly coordinated  
pool sales.
TEAMs shareholders will also benefit from the flexibility of  
selecting onward connectivity carriers from Fujairah.
Dr Ndemo said TEAMs shareholders could get a better deal by  
collectively bargaining for capacity from Fujairah onwards and offer  
even more competitive point to point connectivity prices.
Transit costs from Fujairah to Europe and US stands at between  
$55,000 to $100,000 per year, which Dr Ndemo insists is still in line  
with the government's estimates.
(Source: Business Daily)



Eric M.K Osiakwan
Executive Secretary
AfrISPA (www.afrispa.org)
Tel: + 233.21.258800 ext 2031
Fax: + 233.21.258811
Cell: + 233.244.386792
Handle: eosiakwan
Snail Mail: Pmb 208, Accra-North
Office: BusyInternet - 42 Ring Road Central, Accra-North
Blog: http://blogs.law.harvard.edu/eric/
Slang: "Tomorrow Now"




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