Archive for November, 2006

Kenyans in multistakeholder owenership of national fiber network

Wednesday, November 22nd, 2006

Folks, 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 pleasure courtesy of Russell Southwood.

Thank God the Kenyans 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 stock market.

The Kenyan 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 – it is possible.

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.

I dont mean to make my blog Kenya praise church but it is about time that we applaude bold initiatives and sing the praise of those who are making an attempt at leadership in these times.

TOP STORY: KENYA BEGINS THE COUNTDOWN TO CHEAP INTERNATIONAL FIBRE
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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 Fujairah 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 market.

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 be a shareholder.

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 connection points.

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 stay in business.

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 change with it.

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 difficult 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 unobtainable.

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 time.

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 transform the market.

Posted in Infrastructure | 15 Comments »

OPEN ACCESS SAT3

Tuesday, November 7th, 2006

I woke up to the fluctuating sound of the power system, the generator of the hotel I was staying in had taken over from the national power grid which is loadshedding on an abitrary basis. This is Banjul, the capital of Gambia which recently hosted the African Union meeting. The day before i drove on a smooth road from the airport for about thirty minutes to my host’s office then to the hotel where i was booked to stay – a really nice place which is expanding.

I wondered for a longtime on my bed about the power problem contrary to the good road on which i drove, later i was told one of the major power units of the country had gone down hence the loadshedding which also made using of the mobile network almost impossible. My mind quickly shifted back to my challenge and the subject with which i went to bed, OPEN ACCESS and SAT3 what do they have in common or are they mutually exclusive. Same as the good road i drove on and the bad power experience, do they have anything in common or are they mutually exclusive.

Road and Power are necessary ingredients for development and they compliment each other and so i started to draw the same similitude and relationship between OPEN ACCESS and SAT3, from my bed to breakfast i carried my able assistant (the new Macbook Pro) and we outlined our thinking and considerations of the subject. Please enjoy.

Since publishing the Open Access EASSy paper @ blogs.law.harvard.edu/eric/2006/10/20/open-access-eassy (you must read it to understand this paper), I have being challenged on the viability of Open Access to SAT3 and questioned on the need to institute the same standrards for both cables though we all know that SAT3 is already established and EASSy is yet to be. In this thesis I make an attempt at upholding the same Open Access structure and principles of EASSy to SAT3 – this is possible because both cables lie in the same realm but the context of their execusion are different. This is ONLY possible because of the window of opportunity presented by the end of exclusivity by the historic operators on SAT3 in April 2007 so I also suggest a process approach.

For the records, SAT3 was established with an exclusivity period to recoup investment by the historic operators and this is due in April 2007 at which the SAT3 country governments can either entrench the exclusivity of the historic operators or consider other mechanisms such as what an proposing. SAT3 stands both as a pillar of hope and despair for the African continent; hope because it was the first cable and there is an opportunity for it to significantly change bandwidth prices based on it’s non-performance, despair because we may decide to keep things the way they are currently and continue with the incumbency and high bandwidth prices.

The reasons for the non-renewal of the exclusivity range from, the historic operators haven recouped their investment in the cable at high cost since the inception of the cable and yet made fiber bandwdith more expensive than satellite capacity. Secondly we know that the loan granted by the WorldBank to the historic operators for their contribution to the SAT3 cable was guaranteed by their respective governments hence the onus lies with the government after supporting the private interest of the historic operators to now consider the public interest of providing cheap and affordable bandwidth for socio-economic development.

If the SAT3 goverrnments and regulators collectively or individually decide to end the exclusivity in April 2007 then the question to me is, what steps should they take towards Open Accessing SAT3? I don’t hold monopoly on the steps and process because national and or regional relationships coupled with on the ground details must be taken into consideration but I would proceed to outline what I see as the larger framework of what is possible in terms of structure, principles and processes – same as for the EASSy cable. Hopefully other cables or subsequent ones would adopt or follow the same strucure, principles and process to have the desired impact.

For the records again, I applaud the work done by the Open Society Initiative for West Africa (OSIWA @ osiwa) and other institutions for not only holding two (2) workshops to discuss the SAT3 issues but bringing a community of engagement, culture of awareness of the issues at stake and channelling internal capacity within the various constituencies ie governments, regulators, private sector, educational institutions and Civil Society to understand whatever decisions they make regarding the cable. My effort in this paper is to compliment such efforts with an adoption that considers some elements and layout a general framework based on the several discussions and engagements.

Declaring SAT3 an “essential facility” would mean that it holds much in the public interest so must be treated with the public good as primary and other consideration as secondary. Private consideration would be first on the secondary ladder because that is important for the running of the public entity. Am not for once suggesting a move from an extreme private position to an extreme public consideration, but rather my suggestion is to use minimal public holding as a temporal measure to move from an exteme private interest to a balance between the private and public consideration. Open Access is about balance and consideration of the various interests.

The governments holding the essential facility in trust after declaring it so is only a temporary measure which must be seeded quickly to a multi-stakeholder institution which would work in the interest of the various constituency and ensure that there is a clear reflection of equity. Regulatory and public policy must recognise the establishment of the essenttial facility which in this case would be “infrastructure provider” – providing infrastructure for the other service providers wthin the value chain.

In some cases the regulatory and public policy environment must create the structural change from a vertical to a horizontal layering communication system and that enables the change process. Whatever the case may be, the first fundamental step is the re-alignment of the communication paradigm where there is a distinction between infrastructure and services. This means a move from the vertical to the horizontal communication system. The essential facility in this case, the SAT3 country segment would constitute the infrastructure provider which DOES NOT provide services on the value chain. Ghana, Nigeria, South Africa and Senegal has hinted that they are going to adopt this approach post April 2007. In the case of Ghana, the government has also contracted the Chinese to finalise the nationwide fiber network which was owned by the Volta River Authority called Voltacom. Voltacom would be merged with the SAT3 country segment to form an “infrastructure provider” which would provider international and national bandwidth infrastructure.

Owership of the infrastructure provider is the next consideration, enjoining a multi-stakeholder ownership model ensures that there is balance of power, money and interest. It is in the interest of the government to ensure that this happens so that they are not labeled as “corrupting” the entity. The mechanism is for the government through an initial private and or public offering to invite the private sector, educational institutions, civil society, investors, PTTs and the consumer to own a part of this entity through a transparent and neutral process. Enlisting the infrastructure provider on the stock exchange would ensure that it is subject to the dictates of that environment ensuring access and commonality on ownership.

SAT3 at this point would have adhered to Open Access in terms of the structural change below;

Within the structural framework, the cable would have differentiated “Infrastructure” from “Services” where Infrastructure is seen more in the “Ownership” realm whiles Service is seen in “Access to capacity”.
The most distinguishing feature of the Open Access approach is that, ownership of the infrastructure DOES NOT GUARANTEE any access (discriminatory or not) to capacity on the value chain for the provision of service to the market. The respective country capacity would be on the money here.

A set of principles would hold for the ownership of the cable and those principles would be different from those for access to capacity.

Infrastructure ownership principles for the SAT3 cable would include;
The ownership of the cable must be in a public private partnership involving Government, PTTs, ISPs, Educational Institutions, Civil Society and Consumers.
A fair distribution of these constituencies from the member countries in an equal sub-regional distribution leading up to the Board of Directors of the enterprise in case a regional approach is adopted like EASSy.
The same set of rules must be established to identifying the various shareholders from the various countries in the different constituencies, again this applies to regional.
For the purposes of this exercise a Special Purpose Vehicle (SPV) or a legal entity with an African wide structure and majority Africa ownership should be considered
The essential facility must have a public interest combined with a private sector approach in it’s business model in order to ensure cheap and affordable bandwidth to the end-user.

Value Chain access to capacity for service delivery principles are;
The essential facility must sell capacity to all entities who meet the legal and regulatory requirements in each country directly and non-discriminatorily.
Service Providers shall be offered Transport Infrastructure Layer access to different capacities depending on their requirements.
End Users shall be free to choose any local Service Provider connected to the National and or Regional Network.
The essential facility shall not compete with Service Providers (its customers) by offering services at the Service Layers directly to End Users.
All countries must create a regulatory structure that recognizes the essential facility.
The essential facility shall be formed, owned and operated in such a way as to facilitate competition and to foster innovation at the Services Layer, and where practical and commercially viable at all levels, with a view to maximizing usage of the network and benefits to the End Users.

Once these are in place the market structure would align such that the infrastructure cost which is almost always duplicated several times by service providers is consolidated. That reduces the barrier to uptake on the service side and makes the service providers focus on services and competition in the market place for innovation and customer service delivery at cheaper or affordable cost. Ultimately the customer benefits and the uptake of ICTs as a sector and cross sectorial enabler would be enhanced.

This sets out the framework for Open Access as it relates to the SAT3 cable but I must admit that this is not the ONLY approach in terms of process but structurally and principles wise, the above is not far from wrong. The devil as they say is always in the details, though.

NB: These principles and structure are drawn from the Open Access study conducted by Anders Comstedt, Eric Osiakwan and Russell Southwood for InfoDEV @ the WorldBank – www.infodev.org/en/Project.80.html

Posted in Infrastructure, SAT3 | 4 Comments »