By
Paulo Froes
One
of the underlying causes of the high cost of telecoms in Africa
is the cost of international capacity, both intra Africa and
to other continents.
The
cost of making telephone calls and of accessing the Internet
remains disproportionately expensive when compared to other
countries in Europe and Asia. This is largely due to a vicious
cycle caused by the dominance of incumbent operators. The
high costs of telecoms means that the service is unaffordable
for the majority of consumers and hence demand is low. The
result is that fixed costs must be carried by a smaller number
of customers, resulting in a higher per unit cost.
There
are really two areas that incumbent operators have maintained
as their monopoly - long distance national networks and international
undersea fibre cables. This is because in both cases it is
simple for regulation to protect them and secondly the level
of investment required is high. In the case of international
capacity, there are three elements to the costs:
- The
Undersea Cable
- The
Landing Station
-
International Gateways (also known as Co-Location PoPs)
(These three elements are generally lumped together and
referred to as "Undersea Cables").
Originally,
the rights to the Landing Station and the International Gateways
were provided to the incumbent monopoly. This was because
the State generally believed this was the most efficient option
and it was also seen as a "cash cow" to cross subsidise
the long distance networks in the relevant country. This is
the case in South Africa, with Telkom owning both Landing
Stations and Undersea Cables - Southern Africa Telecommunications
cable (SAT 3 - A West Coast Cable terminating in Madeira)
and SAFE (South Africa Far East Cable).
Over
the past three decades this trend has been largely done away
with and competition in international telecoms has been introduced.
This has proved to be very successful and has led to reduced
prices as well as hiked demand. Originally the approach was
to construct and operate the Undersea Cables as a co-operative
amongst sovereign states which invariably led to the establishment
of cartels and/or consortia. SAT 3 is a specific example of
such a consortium with defined rules for each of the consortium
members controlling what can and can't be done with the international
capacity. EASSy (East Africa Submarine System) a consortium
established in 2002 to try and build an Undersea Cable up
the East coast of Africa, is also structured along similar
lines with a mixture of Governments and Operators owning shares.
Today,
however, Undersea Cables are seen as a means to increase economic
growth and reduce the digital divide. Around the world, private
entities are investing in Undersea Cables with a view to significantly
contribute to economies of the land. Countries that previously
controlled Undersea Cables by means of statutes, telecoms
regulations and even competition law are now realising that
Operator (and/or State) controlled Undersea Cables and privately
owned Undersea Cables are not mutually exclusive and can be
combined in ways appropriate to the specific national setting.
Once
the construction of an Undersea Cable is complete, a veritable
journey on its own, there are two commercial structures that
are made available to customers:
Option
1 - Generally this is the case for Operator/State
owned cables and is one in which international capacity is
apportioned to the Operators according to their shareholding
for onsale on a month-to-month leased basis.
Option
2 - Generally this is the case for Privately owned
cables where Operators are allowed to purchase an Indefeasible
Right of Use (IRU), a contract transferring to them the right
to use a dedicated amount of capacity in the Undersea Cable.
This is an exclusive and irrevocable right to use the facility,
typically for 20 to 25 years, but with no right to control
or manage the cable.
In
the case of the West Africa Submarine Cable (WASC) and SAT
3, the investors were national incumbent operators in each
of the countries where the cable landed, plus a group of Northern
Hemisphere operators. The result of the exclusive control
over landing rights has been little incentive on operators
to increase traffic on the cables. For example it has been
estimated that capacity was at less than 40% in 2006 - the
strategy being to maintain the price as high as possible and
thereby reap the rewards of the monopoly for as long as possible.
 |
| Illustration
showing the routes and landing points of SAT-3, WASC and
SAFE undersea cables. |
However,
looking at the diagram above, one immediately notes that there
is no Undersea Cable that connects the East coast of Africa
to the rest of the world. In fact, this stretch of ocean,
alongside a continent, is the longest stretch of ocean in
the world that has no Undersea Cable. There are now two entities
that are in various stages of constructing an Undersea Cable
up the Ease Coast of Africa. EASSy, which was launched in
2002, is in the process of finalising their financial backing
and SEACOM who started construction in November 2007 after
having launched in February.
While
competition has grown and proved successful in mobile telephony
and to some extent in Internet access, it is the advent of
competition in Undersea Cables that could mark the information
revolution for Africa. There are three critical success factors
(CSF) to the successful recipe:
CSF
1 - ensuring that any Undersea Cable is defined as
an "essential facility". This would mean that specifically
the Landing Station and the International Gateway is established,
operated and managed in such a way as to ensure that all Operators
can gain equitable access to the Undersea Cable. In short,
it means that the owners of the Undersea Cable must provide
access to all other Operators, whether they are direct competitors
or not and that this applies to the quality and price of the
facilities.
CSF
2 - the Undersea Cables must offer international
capacity at significantly lower prices than what is offered
today. The benchmark should be the $100 mark found elsewhere
in the world - $100 Per Megabit of international bandwith
per month
CSF
3 - the international capacity must be available
anywhere in the country for the same price as it could be
obtained from the Landing Station, often referred to as the
"Beach". This would ensure that any dominant operators
in country could not artificially use the long distance network
to circumvent the introduction of competition in the area
of international capacity by over charging for national capacity.
This is commonly referred to as "backhaul" and provides
the required connectivity from the Landing Station to the
major cities in the relevant country. For instance, in South
Africa it could conceivably cost more than 100 times the price
(from Telkom) for national connectivity from Johannesburg
to Durban, than for international capacity from Johannesburg
to Europe (based on the pricing released by SEACOM).
It is therefore critical that any developments made on international
capacity are linked with the ability of competing operators
to construct their own infrastructure from major cities in
a country to the Landing Stations of the various Undersea
Cables that terminate there.
 |
| The
SEACOM network is expected to go live in June, 2009. |
|
