By Matthew Campbell and Nicky Smith - Aug 4,
After a decade of too little Internet capacity, telecommunications companies in Africa including Vodafone Group Plc and MTN Group Ltd. may face a different challenge: too much.
Five undersea cables connecting African countries such as Ghana and Kenya with Europe and India are under construction, entering service or became operational this year. Costing more than $2.5 billion, they could boost data capacity to more than 16 terabits a second in 2012 from almost none in 2000.
The new bandwidth may reduce broadband prices by as much as 90 percent, according to Cornelis Groesbeek, a Johannesburg- based independent telecommunications consultant, making it difficult for companies such as Cable & Wireless Worldwide Plc and France Telecom SA to make a return on cable investments. Operators may also find it hard to make up for some of the world’s lowest rates -- as little as $2.91 a month for voice service in Tanzania -- and very little data use.
“What nobody wants is a situation where there’s a price crash and it becomes hard to sustain the business,” said Taj Onigbanjo, Cable & Wireless’s head of Middle East and African operations, based in Lagos. “How to do it is the million dollar question.”
Excess capacity has sunk cable companies before. A bandwidth glut on transatlantic networks contributed to the 2002 bankruptcy of Global Crossing Ltd., then the fourth-largest corporate failure in U.S. history.
Some people ask “whether this is the Atlantic all over again,” said Richard Elliott, London-based managing director of Apollo Submarine Cable System Ltd., a transatlantic operator.
Cable Feast
What’s different in Africa is that more phone operators, rather than pure cable companies, are investing in infrastructure, seeking to make money from services they can offer through the pipes. The operators are banking on growth in Africa, where broadband penetration is currently just 3.2 percent, according to Cambridge, Massachusetts-based Pyramid Research.
“The Atlantic operators were aggressively selling in the wholesale market, and that was their main business,” Elliott said. “Many of the investors in African cables have significant other businesses.”
The East African Submarine Cable system, or EASSy, that went live on July 16, for example, is owned by 16 investors, all comprising phone operators, including Bharti Airtel and MTN. Glo-1, an $800 million link from the U.K. to Lagos, is going into service this year and is financed by Nigerian phone company Globacom Ltd.
‘Last Bastion’
Cable & Wireless is investing in the $600 million West Africa Cable System, or WACS, with MTN and Vodafone’s Vodacom Group Ltd. unit, linking the U.K. to South Africa. France Telecom SA is leading a group building the 17,000-kilometer, $700 million Africa-Coast-to-Europe, or ACE, cable.
The first 7,000-kilometer Portugal-Lagos phase of Main One, backed by the Africa Finance Corporation, African Development Bank and some Nigerian banks -- the only one of the five not affiliated with a phone operator -- goes into service this year.
“Africa was the last bastion a few years ago where you could generate a return from telecoms infrastructure, but for all practical purposes it’s either gone already or disappearing very quickly,” said consultant Groesbeek.
The price of international fiber capacity may plunge by 80 to 90 percent in the next 12 months, he said. Prices have been tumbling, with the list price for a one-megabit corporate connection in Kenya falling 80 percent from 220,000 Kenyan shillings ($2,747) a month in 2008 to 45,000 now.
Service Lure
Many phone operators are willing to accept a small or even a negative return on infrastructure investments in Africa if they can make money through services, Groesbeek said.
That too might be difficult as operators fight for the small number of consumers who can afford an Internet service.
“Device prices are a major obstacle,” in Africa, Kerem Arsal, an analyst at Pyramid in London wrote in a report.
Even with better international connections, high-speed Internet use in Africa may be limited in the next decade.
Broadband penetration will probably grow to 6.8 percent in 2015 from 3.2 percent today, according to Pyramid.
The increased capacity “may come back to haunt the operators,” said Arthur Goldstuck, the Johannesburg-based managing director of analysis firm World Wide Worx. “Probably, three years from now we will start seeing tremendous efforts to try and claw back revenue.”
Operators will also need to strengthen existing cable links. On July 5, the SEACOM cable linking eastern Africa to India and Europe failed due to a faulty component, slowing Internet access to a crawl in its service area.
Land Networks
Judging from other markets “you need a minimum of three cables to provide diversity and resilience,” said Carl Osborne, the director of network strategy and development in London for India’s Tata Communications Ltd., which invested in WACS to support its South African Neotel unit.
Some West African countries will, “have more capacity than they need” with WACS and ACE, he said.
Poor terrestrial networks may also hinder countries hoping to tap the surge of broadband capacity arriving on their coasts. For countries such as Mauritania, Sierra Leone, and Liberia, ACE will be the first submarine cable connection.
“There is still some investment to be done on the terrestrial side,” said Ini Urua, an executive at the Lagos- based Africa Finance Corporation, part of the Main One group.
The investments may be as much as twice the $2 billion to $3 billion being spent on new submarine cables, said Trevor Martins, MTN’s project manager for the 10,000-kilometer EASSy cable linking South Africa to Sudan.
Demand Driven
Countries that build new high-speed networks will gain from cheaper broadband access. In some African markets, 256 kilobit- per-second Internet access currently costs $100 a month, Cable & Wireless’ Onigbanjo said. In France, Internet of up to 20 megabit-per-second speed costs about 30 euros ($40) monthly.
The strength of Internet demand on the world’s poorest continent will determine long-term undersea capacity needs.
“Right now, people are migrating off of satellite and that’s driving demand; the longer-term question is harder to answer,” said Alan Mauldin, research director at TeleGeography Research in Bratislava. “But what we’ve seen around the world is that once broadband is available, people can’t get enough of it.”
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