[kictanet] Dropping the ties that bind – how Africa can help itself to get lower bandwidt h pric es

[emko at internetresearch.com.gh]

Value Brother, Value.....thats the name of the game.

Eric here


> Eric (there),
>
> Nice post from Russell Southwood.  Its always a pleasure reading Russell
> on ICTs - but he charges a bomb. So when I get a free post like this one
> it does make my day...
>
> walu.
>
> --- On Tue, 10/20/09, emko at internetresearch.com.gh
> <emko at internetresearch.com.gh> wrote:
>
> From: emko at internetresearch.com.gh <emko at internetresearch.com.gh>
> Subject: [kictanet] Dropping the ties that bind – how Africa can help
> itself to get lower bandwidth pric  es
> To: jwalu at yahoo.com
> Cc: "KICTAnet ICT Policy Discussions" <kictanet at lists.kictanet.or.ke>
> Date: Tuesday, October 20, 2009, 10:19 AM
>
> Dropping the ties that bind – how Africa can help itself to get lower
> bandwidth prices
>
> In Kenya two international cables – Seacom and TEAMS – have arrived
> but a
> fierce row has broken out over pricing. On the Government-backed TEAMS
> cable, Permanent Secretary Bitange Ndemo has said loudly and publicly that
> rates should come down to nearer US$200 per mbps. The cable’s owners say
> they have to recoup their money and that there will plenty of time later
> for prices to come down. Russell Southwood looks at some of the blockages
> to the benefits the international cables might bring and how they might be
> overcome.
>
> By 2011, Africa will have eight international fibre cables connecting it
> to the rest of the world. New infrastructure is already delivering an
> eight to ten fold reduction in the prices formerly charged by the
> satellite companies. But the old African mindset of “selling shortage at
> the highest price” is not changing quickly enough to keep up with the
> new
> future of plentiful bandwidth. A number of blockages are emerging that
> need to be overcome if Africa is to take full advantage of its new fibre
> assets:
>
> * Holding bandwidth prices up
>
> We have sat in rooms with bandwidth providers in at least two countries
> where they have argued that the new international fibre will not make that
> much difference to the prices charged to their customers. Indeed, the
> first move of many of the providers was to simply increase (rather
> modestly) the bandwidth their customers were receiving, whilst keeping the
> price the same.
>
> So the new cable owners find themselves arguing what might be called the
> “SAT position”. When the cable is being built, all the rhetoric is
> about
> lowering prices but the moment the cable is implemented, it suddenly
> becomes about getting back the money as quickly as possible for their
> investment, despite the long-term nature of cable investment.
>
> Telkom SA claimed to have recouped its investment on SAT3 in eighteen
> months but it is unlikely with the new lower rates that cable investors
> will see a full return for a much longer period. Apparently CCK is so
> cross with this switchover from promising lowered bandwidth costs to
> trying to keep the price high that it will be investigating price levels
> on the TEAMS cable.
>
> However, all this price-hiking is short-term as with the arrival of EASSy
> and its WIOCC consortium, prices will fall sharply again. If that has not
> occurred WIOCC has a price-fall mechanism that will see bandwidth in the
> market fall to US$100 per mbps. In East Africa, there has been a lively
> debate over pricing but expect the same price-hiking tactics in West
> Africa where media coverage may not be as intense.
>
> * Not granting international landing station licences
>
> One of the major issues in West Africa has been the granting, or perhaps
> we should say the failure, to grant international landing station rights
> to those building the new international fibre cables. How can this be
> occurring when everyone at every level has been arguing for cheaper
> bandwidth? Well, it’s the old self-interests being more powerful than
> the
> forces for change and everyone behaving according to the old model of
> behaviour and protecting the incumbent.
>
> The most extreme example is Senegal where the regulator has delayed
> granting landing stations to the cables most likely to be first in the
> race to complete: Glo One and Main One. In more competitive East Africa,
> the independently-owned Seacom cable was able to either partner with
> another independent (KDN) or land using a licence in its own name in
> Tanzania.
>
> But life has not been made that easy in Senegal where Main One is seeking
> to partner with the only possible alternative to France Telecom-owned
> Sonatel, Expresso. There is no opportunity to have an independent licence
> because this might make it too easy to compete with the de-facto monopoly
> of Sonatel, which is involved in the France Telecom cable initiative ACE.
> But why blame the regulator when the real delay is coming from Government
> that takes all the decisions?
>
> The cynic might conclude that these delays will help Sonatel get ACE in
> place and keep out other cables for as long as possible. Of course, the
> speedy licensing of Glo One and Main One would prove the cynics wrong but
> don’t hold your breath.
>
> * Rates between landlocked countries
>
> Once the new cheap bandwidth is at the landing stations, the trouble
> really begins. Operators do much “teeth-sucking” and say “of course,
> you
> know that’s not the real price. We have to charge for transit.”
>
> In countries without a landing station, this leaves them in the hands of
> those accustomed to the old way of doing things. When incumbents dealt
> only with incumbents for cross-border transit, they both had an informal
> agreement that they would charge the same high price for each end of the
> transit. The net result is that prices for cross-border transit remain
> high. One country we visited recently, it was paying more for the transit
> to the landing station in a neighbouring country than it was for the
> onward transmission to Europe.
>
> In East Africa, this is less of a problem as some thought was devoted to
> the issue and solutions are on the table. With World Bank prompting, the
> EASSy partners came up with the East African Backbone System that delivers
> inland bandwidth at more or less the same priceas at the landing station.
> Seacom has also delivered on its promise of the same price inland as at
> the landing station for those countries where it has inland partner
> (Rwanda and Uganda).
>
> But the problem will be much harder to solve in West Africa as the main
> independent cable Main One has taken the view that its capacity will be
> delivered by the operators themselves, who will doubtless turn every trick
> in the book to ensure that prices remain high for the transit portion.
>
> What regulators should be encouraging is regional carriers’ carriers who
> can compete with the existing telcos who might seek to keep prices high.
> The West African and Southern African Power Pools have ample fibre
> capacity to make a reality of this ambition working with independent
> partners.
>
> *Â  The high cost of national transit to reach the POP or the landing
> station
>
> If cross-border transit rates are a form of highway robbery, then national
> transit rates show many of the same symptoms. It is cheaper to go from
> Lagos to Sessimbra in Portugal than it is to go from Lagos to Abajua. If
> rates are based on distance, then the new international fibre cables have
> exposed the high rates charged for national backbone delivery.
>
> Not surprisingly, these national transit rates remain high where there are
> legal or de-facto monopolies. Without competition, it is hardly surprising
> that the old pattern of charging what you can get away with is maintained.
> But you cannot have competition at the international level, without it
> having knock-on consequences at the national level.
>
> National backbone operators will need to improve their efficiency levels
> or risk others building out their own backbones (where this is allowed).
> All operators know that in this circumstance they can cut between a third
> to a half off of the current rates being charged. The choice is a stark
> one: either you have a price-controlled monopoly with lower prices or you
> allow operators to compete and get lower prices.
>
> The sceptics will say “But who wants all this new bandwidth? There
> aren’t
> the customers. (appropriate shrug of shoulders) This is Africa.” The
> alternative to this old way of thinking is to have a “low price, high
> volume” strategy that is about creating volume markets at yes, you
> guessed
> it, commodity prices. Then you sell the new customers services and
> applications on top. In the mobile field, MPesa is the best example of how
> an Africa-targeted service can take off.
>
> It’s not about relying on the “same old, same old corporates” but
> about
> addressing the residential middle classes with Internet in places like
> Nigeria and Kenya who will provide the “critical mass” for reaching
> out
> more widely. It’s about bringing the small-scale companies and NGOs to
> the
> party and persuading them of the virtues of using the Internet to get
> things done more quickly. In short, it needs a strong dose of corporate
> vision rather than seeing the future through the rear-view mirror of
> history.
>
> nb: sorry for crossposting....
>
>
>
>
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