[kictanet] Sharing the airwaves: can Kenya’s 4G partnership work?

[Alice Munyua]

http://www.analysysmason.com/About-Us/News/Insight/Kenya_4G_partnership_Dec2010/?journey=117,55,


  Sharing the airwaves: can Kenya’s 4G partnership work?

20 December 2010


<http://www.analysysmason.com/People/Robert-Schumann/>

    “Making this 4G plan work will be a challenge for the selected
    network manager ... and for those charged with monitoring its
    performance.” 

The Kenyan government has recently put forward a plan to simultaneously 
promote cost-effective use of the 2.6GHz band and save operators from 
having to spend money in an auction. The plan is to offer the management 
of the band (up to 190MHz of spectrum, which is suitable for high-speed 
mobile data services) to an independent company in order to create an 
open access wholesale network. Operators would purchase capacity from 
the company, and bundle it into packages and products that they would 
sell in a competitive market to retail customers. The end result would 
be a single, highly utilised network with low unit costs.

The plan sounds good, but the country’s government could be ‘jumping 
from the frying pan into the fire’.


    The frying pan may not have been that bad, after all

Why does the Kenyan government feel wary of assigning spectrum to 
individual operators? The reasons suggested by Bitange Ndemo, Permanent 
Secretary of the Ministry of Information and Communications, include:

    * high prices paid in an auction lead to high prices charged to
      consumers
    * operators failing to honour roll-out commitments
    * an auction would have 19 potential buyers and room for only three
      winners, so would discriminate against those that could not afford it.

Do high auction prices lead to high prices for consumers? Actually, it 
is the other way around: if operators can charge high prices, they will 
be willing to place high bids at auction. Service providers can charge 
high prices if there is limited supply of their product or of reasonable 
substitutes – and low auction prices do not guarantee low service 
prices. Furthermore, it is possible to design award processes to achieve 
ends other than extracting maximum revenue.

The 2.6GHz spectrum is unlikely to attract 19 serious bidders, given 
that it is relatively poor for providing coverage outside urban areas. A 
new entrant operator that aims to launch services based on this spectrum 
may be aiming to target a niche, such as medium-sized and large 
enterprises in urban areas. Giving them a chance to do this may be 
useful, but not as useful in expanding access to broadband as, for 
example, raising money in an auction to fund rural access.


    Think carefully before jumping into the fire

Kenyan policymakers have correctly identified that greater supply (and 
more competition) is the key to reducing mobile broadband prices. They 
have also commendably declined to squeeze auction revenue out of 
operators. However, their solution turns away from infrastructure-based 
competition, which has revolutionised the telecoms industry during the 
past few decades. Will their alternative approach, which focuses on 
retail competition, work?

The bad news is that pure wholesale business models for mobile data have 
not done well in the past. Reasons include difficulty in developing 
‘one-size-fits-all’ wholesale tariffs, absence of profitable voice 
services, and dependence on the strategy and performance of other operators.

The better news is that network-sharing deals can work. Operators around 
the world are signing deals to share radio access networks.^1 In all 
likelihood the critical feature is that the retail operators have a 
strong interest in the entity that runs the network: financial interest 
to ensure that it makes a success of the services, and management 
interest to allow flexibility and tailored ‘tariff plans’.

Tantalisingly, the arrival of Indian-style telecoms in Africa (led by 
Airtel, among others) may naturally lead to greater sharing (and price 
cuts), without the need for government intervention.

It is clear that making this 4G plan work in Kenya will be a challenge 
for the selected network manager (a “group from the USA” has been 
mentioned as a candidate). It will be even more of a challenge for those 
charged with negotiating an agreement and monitoring its performance.

------------------------------------------------------------------------

/This Insight article is based on an interview conducted by Russell 
Southwood for Balancing Act Africa. Please //click here/ 
<http://www.balancingact-africa.com/news/en/issue-no-532>/to view the 
full article./

/Analysys Mason has experience in developing concrete, coherent 
//national broadband plans/ 
<http://www.analysysmason.com/About-Us/Offices/New-Delhi/CII_broadband_report/>/ and 
in //spectrum policy and auctions/ 
<http://www.analysysmason.com/Consulting/Services/Strategy-consulting/Spectrum-management/>/./

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^1 For further details, see Analysys Mason's Insight article /Wireless 
infrastructure sharing saves operators 30% in capex and 15% in opex/ 
<http://www.analysysmason.com/About-Us/News/Insight/Wireless-infrastructure-sharing-saves-operators-capex-and-opex/>.


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