TOP STORY FROM BALANCING ACT: KENYA SPECIAL: MARKET GETS READY FOR CHEAPER BANDWIDTH _____________________________________________________________________ The Kenyan Internet market is set for a big change as the players transform their strategies to take advantage of new opportunities. With legal VoIP, they are now no longer looking at just offering Internet access. Once the long-delayed interconnect agreements are sorted out, these newcomers will start making inroads into the voice market. With the arrival of cheaper, plentiful international bandwidth in 2008, those who will flourish in a competitive market will no longer primarily sell bandwidth. With cheaper broadband offers, the number of their customers will increase and they will look to services and applications that they can sell their customers. The market is going through a major period of re-alignment and investment. Access Kenya’s IPO was four times over-subscribed, showing the level of interest there is in the market and it has plans to expand (see On the Money) . Telkom South Africa is now the proud owner of Africa Online and is devising its strategy for both the pan-African and local markets. ATC is now firmly at the helm of Wananchi and has ambitious expansion plans. There are also losers as we understand that there are at least two ISPs that are not in the best of financial health. Last week five governments signed a communiqué in Kigali saying that the East Africa Community “should adopt an open access policy for backbone networks”. TEAMS will be fast-tracked, promising to start in Q1 2008 and it will seek input from regional partners within 4-6 weeks. (see Internet News below). Meanwhile, a large team from the private sector competitor project, Sithe’s Seacom, was in Nairobi last week talking to potential customers. The heat is on to see who will be the first to market with cheaper international fibre. In this Kenya special, Russell Southwood interviews John Joseph, the new CEO of Africa Online who gives some pointers about its future direction and to Kai Wulff, CEO of KDN whose recent “free access” experiment provides a fascinating insight into the potential size of the market. After the flattening out of dial-up demand, the market’s on the move again with strategies to attract new customers in what looks set to become a much bigger market. * AFRICA ONLINE’S NEW CEO LAYS OUT HIS STALL In an interview last Friday, Africa Online’s new CEO talked to Russell Southwood about his strategy to revive the company and renew faith in its pan-continental brand. He spoke frankly about how he sees competitive markets and the kind of opportunities the company will pursue. Q: Why did Telkom buy Africa Online? It links immediately with the pan-African acquisition target Telkom has set itself and its desire to create a presence across the continent. It’s been looking right across the IT scale (at potential acquisitions), including fixed and mobile service providers. Africa Online gives us the opportunity to immediately get into eight countries and the ability to opportunity to expand in each of them. It gives us immediate access to the existing licences and the potential to acquire new licences in these territories. In addition, we have affiliates in 20 countries where they are resellers of our corporate connectivity services. We’re searching for affiliates in those countries where we currently don’t have a presence. There’s a also number of carriers in South Africa and the Far East who want to be able to deal with one service operator. We’re also talking to major European carriers who we will be pursuing to set up agreements to provide corporate connectivity and obviously similarly with Telkom SA. It’s always had difficulties with a number of corporates about creating a presence across Africa to meet their needs, companies like retailers and banking organisations, to provide reliable connectivity in their branches. Q: What about the competitors in that market? There’s very few competitors in that space and that’s what makes it attractive. We’ve also had discussions with providers in Hong Kong. Q: What’s the current subscriber base across the eight countries? There’s around 15,000 subscribers. Q: So where are you starting from? We’re offering dial-up and broadband access. The broadband we’re rolling out is using iBurst which is already set up in Kenya and Ghana. We’re currently sorting out spectrum licences to roll that out elsewhere. Our main business will become broadband. We want to significantly grow existing services and add growth in new markets. There’s currently limited iBurst coverage in Kenya with only Nairobi and Mombasa but we’re looking to expand. Q: What kinds of things will you be investing in? There’s currently a limitation on operations that we need to address to increase the top line. The way we do our business is limiting the number of orders per month we can handle. We need to invest in IT systems for process flow. There are limitations on connectivity and bandwidth. We need to increase in-country connectivity and international connectivity and get subscriber numbers up. We need to look at our initial technology choices – iBurst – and then have a wireless base station roll-out. We need to expand services like good quality VoIP services. We’re trialling these within African Online at the moment but we have to do a lot more to improve them. We need to invest in products like VoIP and video calling. Q: What about investment in the brand? I’ve picked up on the history of pride with the brand but this has faded over time. We need to create a passion for the brand in Kenya and other countries but also outside of the continent. Customers need to know what they might get so it’s the brand plus the quality of the product. The brand association should be quality and price. I see a lot of other ISPs advertising here in Kenya and elsewhere and we need to create our own external profile. But we also need to do create that profile internally within the company so that Africa Online is the employee of choice. Q: You mentioned the need for more plentiful, cheaper bandwidth. What’s your attitude to SAT3 and the new East coast fibre projects? My opinion is that there’s a real urgency to get an undersea fibre cable landed on the East coast. It will change the whole ICT marketplace in East Africa. It changes the capacity of price per consumer that would be possible and provides quality connectivity. I believe that the prices we now see on SAT3 and other projects are coming down. I’m flying to the west coast later this month to discuss this. We have to have more investment in fibre projects because it’s a supply and demand issue. Q: Will you be focusing only on services or will you also look at infrastructure? There’s some discussion on the West coast of Africa about looking at providing some infrastructure. Specifically we’re looking at bandwidth provision to other ISPs in some countries. There’s discussions about facilitating that so investment is focused on the service layer but progressing infrastructure and connectivity. Q: Will demand increase if prices come down? Even without price reductions, demand is not being met. We’re moving forward on broadband in Kenya and it’s going to be very competitive. We need to remove the bottlenecks and offer more cost effective offerings. There’s a great deal of demand there but it’s not being fulfilled because of the limitations of current coverage. Q: How does it feel being in a competitive market? I’ve seen greater liberalisation in East Africa than down in South Africa. Regulators in the region have moved more quickly towards competition and deregulating the marketplace. Within the South African marketplace, there’s great competition but there’s a need from the regulatory point of view to change the landscape more. The reality’s there but there’s the need for more implementation. Q: Telkom SA has expressed interest in buying Telkom Kenya. How would it work? Do you buy it or does the parent company? Africa Online is looking to expand. We’re looking at ISP operations, new markets and new licences to grow. However, we would not look at buying into Telkom Kenya as Africa Online. Telkom SA’s expansion plans are looking at all operations throughout Africa and that’s what they’re really pursuing. We are operating as an arms length subsidiary but generating synergies between the two operations. * KDN’S FREE ACCESS OFFER UNCOVERS EXTENT OF WI-FI DEVICES KDN’s Wi-Fi service called Butterfly has been offered for free with no login page on the basis of a word-of-mouth “whispering” campaign and the results have thrown up some potential surprises about the shape and size of the Kenyan market and what the users really want. The free trial took place over a public holiday when there would be plenty of bandwidth available. According to KDN’s CEO Kai Wulff:”We wanted to see where our traffic threshold was. It got up to 22,000 users and then we were smoked away. There were things like corrupted config files occurring.” When it crashed, it was provisioned for 40 megs up and 40 megs down. The significance of the test is that there are 22,000 users with separate MAC addresses using Wi-Fi-enabled devices, purely on the basis of spreading news about the offer on a word-of-mouth basis. It guesses that the figure may actually be double or triple that number. KDN itself has sold around 2,000 Wi-Fi cards in the last few months. At present, Wulff says that:”A broadband service costs on average around KS30,000 a month and I’m confident that by the end of the year there will be 20-30,000 users on a pay-for basis.” Interestingly, customer expectations have gone up considerably with the provision of the Wi-Fi service. Wulff says:”Customers expect the service to be like a leased line. When they see the Wi-Fi indicator going from 48 meg to 36 meg, I start to get customers ringing me on my mobile.” So what was the demand from customers over the free period? Lots were browsing international content. There was a lot of VoIP usage, particularly Skype, where users were phoning each other both within the country and outside it. The network was offered without bandwidth restrictions and it enabled peer-to-peer services like Skype to work well. Apparently lots of students found out about the offer and went out and bought Wi-Fi cards to take advantage of it. Peak use period was after-office hours between 7-9 pm. On a pay for basis, VoIP use (by traffic) on the KDN network is between 10-15% but rises to 20% on the Butterfly service. It’s possible to have a Skype conversation between two people without delays. Unfortunately users are not as security conscious with Skype and viruses are now being spread by users. KDN is now offering all its ADSL 2 customers (unless they specifically request otherwise) Funkwerk modems with Wi-Fi capability. Out of the 24 meg capacity, 4 meg is devoted to Wi-Fi, in effect creating lots of little base stations and thus rolling out coverage to an ever wider number of places. It has tested IP-TV over Wi-Fi and although this is not yet commercially available, it is talking to KTN about offering content.