From Balancing Act Africa’s competition laboratory Kenya is the one to watch No regulation regime is perfect but the three East African countries – Kenya, Tanzania and Uganda – are leading the way in terms of breaking down many of the old barriers to competition. Of these, Kenya is interesting because it was the pioneer and many of the things that are happening there will in time be seen elsewhere in some form. Russell Southwood explains what’s happening in Africa’s competition laboratory. Outside of the large Sub-Saharan markets like Nigeria and South Africa, Kenya stands out because it has both the population level and a density of private sector activity to be different. In other words, it’s big enough to be relevant for the ten or more countries of a similar scale. In addition, since Moi left the stage, the economy has been moving at a fast clip to catch up: last year economic growth was 7%. With the dead hand of inertia removed, Kenyans have felt more confidence in setting up new businesses. The pointers it provides are as follows: - Even with a liberalised regime, it is incredibly hard for small independent companies to challenge the incumbent in the fixed line sector. Kenya was slow to introduce an interconnection regime designed for competition between many players and its two independent fixed wireless operators have suffered as a result. Fixed wireless is, as the mobile companies are discovering, far from fixed. - Between them, Kenya’s fixed wireless operators Flashcom and Popote Wireless do not have much more than 10,000 subscribers and in the case of Popote, it’s making 80% of its revenues from data. Both use CDMA and are focused on the capital Nairobi, with Flashcom having a larger number of base stations . Subscribers can actually use their phones more or less anywhere in the city. Neither have yet started a wider geographic roll-out. Despite this lack of current success in the voice market, Popote’s Eric Muthi believes that there is still considerable growth potential. Meanwhile there are others waiting to offer more retail voice competition: in one case, simply as a voice service and in others as part of a wider offer. - Meanwhile incumbent Telkom Kenya has adopted the strategy of India’s Reliance and has used its CDMA fixed wireless product as a proxy mobile service. It is said to have 400,000 subscribers based on its cheap KS5.50 a minute national rate. Subscribers have had what for all intents and purposes has actually been a mobile service and Telkom Kenya has wriggled this way and that to suggest otherwise. - With the France Telecom take-over of Telkom Kenya, the country’s two operators, Safaricom and Celtel, will have some serious competition for the first time and may have to begin to address their quality of service shortfalls. Competition should also mean prices will begin to fall for as one person told us:”Competition in this market is really only on price.” Telkom Kenya’s strategy has been very savvy in that it starts operating with an existing base of subscribers before having to invest in paying for its mobile licence. Rumour has it that France Telecom will simply rip out the CDMA network and put in GSM. As a new entrant, it will have a clear CAPEX advantage. Econet is supposed to have cleared the hurdles it had and will be investing soon but on past evidence, don’t hold your breath. - Even without a fibre connection, the country’s bandwidth requirement has grown rapidly as the economy has expanded. It is now approaching the 1 gbps mark and this is all being paid for at satellite prices. The broader message in this is that an expanding economy will drive use both at a corporate and retail level. And rapid growth will come from economies that are coming out of war or unfavourable political circumstances where there’s a “one-off” bounce that might turn into above-average growth in the mid-term. As Bill Clinton’s electoral team used to say, it’s the economy, stupid. Messages on satellite bandwidth costs are mixed. Most operators buying in volume say that prices are coming down but a small number of those we spoke to said because of he shortage of C-Band prices were going up. (Interestingly Altech has been in talks to buy Sameer ICT, which includes KDN.) - The market is readying itself for the arrival of much cheaper bandwidth. Seacom and TEAMS are both seen as credible projects. EASSy is perceived as still being in the game but its credibility has been undermined in the eyes of operators by the confusions over the rival NEPAD project. TEAMS has almost all its financing in place and says it has a ship booked to start. Depending on their investment, operators have been offered 1 mps for between US$2-300 a month. This is only to Fujirah but an onward solution is said to be not too far away and will cost about the same amount to the United States. The price will be higher than the headline figures suggest but nevertheless will be low enough to be market changing. The recent public disagreement between UUNet and PS Bitango Ndemo illustrates that not all operators have understood this changing world. It will no longer be about making money from selling over-priced bandwidth. The game moves to retail services and applications. - A “triple play” combination of voice, Internet and TV will probably be offered by at least two operators next year. France Telecom is likely to roll out its LiveBox product as the Kenyan market has considerable potential. Jamii Telecom is rolling out a PONS network and wants to be offering “triple-play” over its new STM64 fibre metro network. Industry estimates of potential retail broadband subscribers vary between 300,000-500,000. Expect bundled offers at almost European levels and download speeds starting at 512 kbps. The existing Government if re-elected wants to provide subsidised bandwidth to universities and colleges. - In the meantime, the retail independent retail ISP as it used to exist has all but disappeared and those remain are not in the best of health. Where have all the retail subscribers gone? Well, some have stayed with ISPs like Africa Online under its new owners but many more have either defected to the fixed wireless operators, or are using Telkom Kenya’s phone-in number or at the top-end of the market are using the data services of the two mobile operators. Only the state of Telkom Kenya’s copper and its distracted management focus mean that it has failed to harvest what might have been an extensive market. Incumbents need to know that if the don’t have a “low –price, high-volume” strategy for DSL then the mobile operators will take this business away from them. - Apple may say that it has no plans to roll-out in emerging markets like China but the market has a life of its own. Apparently a shipment of iPhones has already reached East Africa and we saw one in the hands of someone we visited. He hadn’t yet got it working but he was working on it. Another early adopter told us that he was surprised to discover that it worked on his Celtel account immediately and just as well when he visited Someone in Uganda who used one to e-mail to confirm our meeting clearly had better luck. It will be interesting to see whether this grey market in the latest desirable phone will survive Apple’s attempts to exclude untied users through software fixes. European competition law is already being upheld in Germany where T-Mobile must sell the device independent of a network package and even a hefty price tag does not appear to be a sufficient disincentive to stop sales. It would be unfair to say that all was rosy in the garden that is Kenya but in terms of competitive markets, it has got a great deal right and others might learn from what is happening there. Report banner <http://lists.balancingact-africa.com/t/375/178471/2/0/>