Below is exactly what i have being chanting as a way forward in the
ownership of the infrastructure; The Kenya Government will have a 40
per cent holding in the project, Etisalat 20% and the remaining 40%
will go to investors in the East African region. The Government has
said it will organise an IPO on the Kenyan Stock Exchange. Several
Kenyan companies have expressed interest and one said that the
Government had told them it would "guarantee their loan". The
details of the finance package have not yet been settled but it is
unclear where the Kenyan Government will raise its 40% from. Will the
World Bank simply shift a portion of its EASSy funding to the new
project as many think likely?
NB; From this week's Balancing Act, full story below for your
Thank God the Kenya
are experimenting with this approach where
government owns part, private sector owns part, educational
institutions should also own part, CSO owns part through IPO on the
The Kenya
government can actually raise the 40% from government bonds
and am not an expert on the stock market discipline of shares or
bonds but this is where the financial experts need to come out with
innovative solutions that can help raise much of this money locally
In the attached paper which is an output of the great work Rahul
Tongia did with some colleagues and little input from me, it is clear
that we could actually wire Africa up
with fiber to the most
population densed centres for a billion dollars whcih means if every
African put a dollar on the table we could wire Africa
up with fiber
and 50 percent of that dark fiber already exist - what does that mean
You Kenyans are showing the way and even it it does not work you
would be know for showing us how this model is not workable and then
we can try another. We Africans must try new ways of doing these
things and make our own mistakes and find our own solutions to our
problems but learn to avoid the mistakes of the Americans, Europeans
and Asians. Thank God for this BOLD move, it is commendable.
TOP STORY: KENYA
BEGINS THE COUNTDOWN TO CHEAP INTERNATIONAL FIBRE
_____________________________________________________________________
It´s like waiting for a matatu. You wait for ages and none come
along. But just when you´re about to give up hope, three come along
at the same time, all trying to come to a screaming halt in front of
you. Kenya
now has three (or more) potential international fibre
projects that could be complete within 12 months. Each one is loudly
proclaiming that it will deliver cheap international bandwidth.
Russell Southwood took the temperature in the market last week about
what the impact of this bandwidth will be upon the market.
The Kenya Government has signed an MOU to build a fibre link to
in the UAE currently costed at Ksh5.7 billion. The construction and
supply contract will be awarded early next year and the project,
dubbed The East African Marine System (Teams), will be ready by
November, according to a joint statement issued by both parties from
Dubai.
Many in the sector believe that it will be more like 19 months
or more before completion.
The Kenya Government will have a 40 per cent holding in the project,
Etisalat 20% and the remaining 40% will go to investors in the East
African region. The Government has said it will organise an IPO on the
Kenyan Stock Exchange. Several Kenyan companies have expressed
interest and one said that the Government had told them it would
"guarantee their loan". The details of the finance package
have
not yet been settled but
it is unclear where the Kenyan Government
will raise its 40% from. Will the World Bank simply shift a portion of
its EASSy funding to the new project as many think likely?
The Government´s commitment to a 12 month schedule is a bold move
but one that must lay them open to a certain amount of scepticism. The
tender for expressions of interest was only issued 2 weeks ago and
Government timetabling is notoriously slow compared to the private
sector. Apparently the Private Secretary has been telling interested
parties that the Government wants prices comparable to those to be
found in India
in 12 months time. This benchmark has been set in order
that Kenya
will be able to compete in the international outsourcing
Apparently a number of interested parties said that they would put up
all the money to build it if they could have a monopoly and he sent
them away disappointed. But more worryingly one interested party told
us that it could only get involved if it also allowed Telkom Kenya to
The next international fibre project is KDN´s and it has now signed
its contract with Flag Telecom. Its link from Mombasa will terminate
in an undersea junction in international waters off of the Yemen. It
says the link will be fully operational in the first quarter of 2008,
just 15 months away. The company believes that it will come to market
with capacity at $500 per mbps pm but that the price of bandwidth will
go up to those wanting to invest as time passes. In other words, for
those who commit early prices will be lowest and for those who come in
late, prices will go higher. It also stresses that its landing station
at Mombasa
will allow other carriers to co-locate there charging only
electricity and services at cost.
So this leaves the third project EASSy looking as if it will be the
third runner. NEPAD appears to have made little more progress on
persuading more African Governments to sign its political protocol.
And whilst the members of the EASSy consortium (that still includes
KDN and Telkom Kenya)
are still moving things forward, there remains a
disconnect between the political and commercial ends of the project.
If both of the above projects go ahead, there is clearly much less
need to build the Mombasa-Djibouti section of the route and it has to
be said that both of the above projects have better international
As if three were not enough, Ethiopia´s ETC has now had its
international fibre connection working effectively for two months via
Port Sudan and Saudi Arabia.
But because it is landlocked and it had
endless fruitless arguments with Djibouti Telecom over control of a
possible fibre link, it wants to find a second international fibre
connection. Therefore it is in serious conversations with both of
Kenya´s fibre network operators about connecting to the Mombasa
links when they are ready. If this goes ahead, both it and Kenya will
then have two international fibre links.
Because the process of getting the international fibre to Kenya has
been both confusing and "on-off", everyone in the market
(including customers) have understandably not really grasped the
impact of its arrival on their businesses. Until now ISPs and
satellite resellers have largely been in the businesses of living on
the margin they make between buying and selling bandwidth.
These margins have been kept high as they have concentrated on selling
to comparatively few customers. Ironically it has been a high-price,
low volume business where their primary commodity - bandwidth -
has always been in short
supply, not least because some of them
increased their margin by contending it as much as possible. This has
meant that bandwidth quality is often variable at best for those not
paying "top dollar" for a premium service.
If you argue that international fibre prices should be low price, high
volume, then the national business model changes: what´s sauce for
the goose is sauce for the gander. Bandwidth becomes cheap and
plentiful at a sub $1000 threshold. The margins that can then be
charged make it difficult for those who are not operating at volume to
However it does now open up opportunities for new services, content
and applications that can be sold to customers who should now be
paying European prices for real broadband connections (1-2 meg
upwards) rather than the paltry 64 kbps they are currently receiving.
There are at least 500,000 households in Kenya that are at an income
level that make them potential targets for broadband. It would take
only half of those households to sign up for there to be the
beginnings of a very different market.
The real sign that the market has not "got it" is that some
key
ISPs are not passing on the information about these soon-to-be cheap
prices but are seeking to protect their high margins by telling
customers higher prices. A heads-up, guys. The sector is a village and
news will get round quickly and we´ll encourage the circulation of
this price information. The market´s about to change, get ready to
At the national level, there is now a third source of fibre capacity.
Jamii Telecommunications has signed an agreement with the Kenya Light
and Power Company (KPLC) to sell an STM1´s worth of its fibre
capacity in Nairobi and Mombasa, with KPLC saying that it will triple
its capacity shortly. Two other companies - CTN and Cable Vision -
have been granted a licence to sell KPLC´s capacity and it is
telling (in terms of the argument above) that both are in the video
download and pay-TV business. Not so far afield, Tanzanian power
utility TANESCO is currently building out fibre capacity and has
invited bids to sell this capacity. Again KDN is poised to make a
fibre connection to Tanzania.
However a recent ping on the Kampala-Nairobi route shows that neither
KDN nor Telkom Kenya
has got its fibre route operational. KDN is
promising it will be operational by the end of first quarter 2007 and
that prices will be 20% cheaper.
Elsewhere in the market, the new VoIP operators are finding it
to get interconnection agreements and to get proper service from
interconnect service providers. Telkom Kenya is charging absurdly high
prices but has at least reached interconnect agreements. Nevertheless
the new fixed wireless operators - Flashcom and Popote - are
having difficulties: customers are unable to receive or make calls to
certain countries. Apparently anyone who calls a customer number of
these fixed wireless operators from Germany gets a number
Access Kenya´s Yello VoIP service has been aimed at corporates and
has attracted 250 customers who generate 120,000 minutes a month. But
it has had difficulty getting interconnection agreements with the
mobile operators. It made a complaint to regulator CCK in April and
became so frustrated that it said it would run an advertisement
publicising the position. Safaricom came back to the table but Celtel
refuses to enter discussions, saying that it will do so in its own
Kenyan ISPs are under heavy pressure from all the new operators.
Flashcom and Popote are taking more money from data than voice at the
moment as customers are primarily signing up for cheaper Internet
access. Also the introduction of EDGE services by Safaricom is eating
into their high-end customers: one ISP´s CEO admitted privately that
he
was losing hundreds of customers a month to these new competitors.
The challenge for everyone in the market will be whether they can take
the soon-to-arrive cheaper international bandwidth and use it to
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