broadband

[Johannesburg, 13 May 2008] - Venture capital company Seacom is to terminate its East Coast cable in Johannesburg, rather than on a beach in KwaZulu-Natal. This forms part of a determined effort to cut the cost of broadband – at the wholesale level, at least.

Seacom is currently laying a $650 million 1.2Tb fibre optic cable from Europe down the east coast of Africa. It was last year reported as saying it wanted to charge 80% less for bandwidth than the then Telkom price.

But analysts said telecommunications companies (telcos) have no commercial incentive to pass that discount on to consumers.

Seacom president Brian Herlihy says “cables are only one piece of the puzzle and telcos still hold the key to end-user pricing as they deliver the ‘last mile' to the customer”.

“Seacom understands this issue and worked out a solution all the way to Johannesburg where customers can buy from a point of presence (POP). While this doesn't completely solve the ‘last mile' problem, it puts the bandwidth into a more competitive region that is closer to the customer than the beach, in turn permitting the customer to demand a better product from a greater range of service providers at competitive prices,” says Herlihy.

He adds that the Seacom model is different from the consortium approach used by Infraco, Eassy, SAT-3 or Uhurunet in that once a consortium has been formed, no additional parties can join in and thus no additional party can secure capacity on the cable. “This means that pricing is in the hands of the members who have a direct interest in retail operations.”

The Seacom cable, by contrast, is being laid “purely at the risk of the private investors who have no interest in the retail operations that sell to the entire market. The wholesale of bandwidth is the key driver and in the case of a private cable, should it be perceived that the current wholesalers are holding prices too high, a new wholesaler may emerge, easily gain access to capacity and exploit the non-competitive environment,” Herlihy says.

“This is the reason why SA needs ‘more private cables' and not simply ‘more cables'.”

Local factors

Neotel chief technical officer Angus Hay says cheaper international broadband wholesale prices will not necessarily drive down end-user prices as a variety of other factors are at work, including telco dominance of the ‘last mile'.

“Broadband provision is always a challenge and requires an actual physical network. There is no substitute to real competition, but you have to have physical networks out there to actually compete,” says Hay.

“We find in SA that even if you take the international components out, there is still a fairly significant local cost. I won't mention any players by name, but certain large players obviously play that to their advantage and you will see that in the way they set their prices. Those who have access to significant local capacity offer competitive pricing.”

Hay adds that, as underlying international and local costs “become more in line with global costs, you will see more competition and better prices”, saying that even Telkom, which has long had a stranglehold on broadband, has dropped end-user prices.

MTN spokesperson Rochelle van der Ross says the Seacom cable, which will be available from June next year, two months ahead of Uhurunet, will help satisfy the “increasing demand for bandwidth… ensuring we have the bandwidth to satisfy our clients' requirements”.

However, Van der Ross says she agrees with Hay that the impact on pricing will be small. “International bandwidth represents a relatively small component of the local pricing structure, so we cannot forecast what, if any, significant impact this will have on pricing.”

She adds: “MTN has already factored in reduced rates and cost savings in its current data pricing.”

[itweb]

[Johannesburg, 4 October 2007] - Internet Solutions (IS) will upgrade its international bandwidth to 2Gbps to cater for growing capacity demand.

Alan Bacher, business unit manager of access solutions at IS, says: “We are showing growth in the amount of bandwidth customers are using, as well as in the number of clients we have.”

He says IS's client base in the DSL space has grown from around 22 000 to 40 000 clients, an increase of just under 50% over the last financial year.

“Having increased our international bandwidth by 843Mbps over the last 12 months, and with current bandwidth at over 1.7Gbps, we need to keep ahead of demand.”

According to Bacher, the increased capacity should reach the 2Gbps mark by the end of November.

Bacher says the company is looking at various tenders that will see it connecting to several other international backbone links over the next few months.

“This will up the capacity even more, which is an ongoing process for IS.”

Broadband boom

MyADSL founder Rudolph Muller says there has been a significant increase in the number of broadband users across the country. “We are currently looking at around 600 000 broadband users in SA. I predict this number to grow to 700 000 over the next few months.”

He says increases in international bandwidth should be and are continuous for all providers.

To accommodate the increase, IS has started to upgrade its international transit links to 1Gbps, and its links between London and New York to 4 x 155Mbps, says Bacher.

IS uses the undersea SAT3, SAT2 and SAFE cables, together with satellite access mediums, to connect to its international points of presence.

“We are looking at buying into a new undersea cable. All ISPs [Internet service providers] will need to in order to compete fairly with Telkom,” he notes.

Johannesburg - The World Bank's International Finance Corporation (IFC) is urging the South African government to be true to the policy of open access and invite other credible undersea cable operators to land their cables and resell their capacity in the country.

The Department of Communications has reportedly said it could block the landing of the East African Submarine Cable (EASSy) project in South Africa under its current structure, given that cables landing here must have an element of local ownership.

However, Mohsen Khalil, Director of the World Bank Group's Global Information and Communications Technology Department, speaking to Fin24 from Washington, said South African companies would collectively be the second largest shareholders in EASSy - aside from the Special Purpose Vehicle (SPV) created to facilitate open access - with 27% between them.

The three South African investors are MTN, Telkom and Neotel.

The SPV will have 46%, and participants would get additional bandwidth to sell in the market, which should enable market forces to kick in and bring down prices, EASSy envisages.

Hybrid model

Khalil said the ownership model originally planned for EASSy was a completely open access SPV, but this "didn't fly". So it settled on a hybrid model after much negotiation, which still sees the SPV as the biggest shareholder, but gives other investors outright shareholding as well. The model, he says, combines principles of open access and market-based competition.

The model should also not disadvantage smaller operators, by combing them into a vehicle to make them more powerful in terms of their buying power. Khalil said this was also a departure from previous business models.

Khalil says a decision by the South African government to disallow EASSy from landing here would be "unfortunate and very surprising", and not something that he wanted to even contemplate. He said it would be very difficult to explain to consumers and operators why a cable that would bring down bandwidth prices and extend capacity was being disallowed.

The IFC has committed $32.5m in funding to the EASSy project, Khalil says, in line with its goal of helping to enable connectivity in Africa. It has a complimentary $424m project called the Africa Regional Communications Infrastructure Programme (RCIP), which aims to extend the geographic reach of broadband networks on the continent.

According the RCIP website, 20 countries in Africa lack direct terrestrial access to global networks (a fibre backbone), and are forced to rely on expensive satellite connectivity. International wholesale bandwidth prices are 20 to 40 times higher than in the US, and international calls on average 10 to 20 times more expensive than in other developing countries, it says.

Betting on SA support

So, the World Bank's support for EASSy and RCIP are interlinked.

The SA government broke away from EASSy earlier this year, amidst rumours of a bust-up between the companies involved and some of the governments supporting the goals of Nepad. Now, it seems to be driving a completely new east coast cable project, in a Nepad-led initiative.

Khalil said the reasons for this breakaway were not clear to him, other than what he reads in the newspapers.

He says it still hopes that EASSy can count on the support of the South African government, which had long been involved in planning the project. Likewise, Khalil said, Nepad had long been an active part of EASSy and although it had had some concerns, he doesn't believe these have gone unaddressed: "We hope its participation continues."

Khalil said an open access model did not only require the commitment of the participants in the project, but also that of the regulatory environments of the host countries.

EASSy, a partnership between 26 telco operators, most of them African, plans to connect 21 African countries to the rest of the world. It says because of the project, international connectivity prices will drop by two thirds at the outset - and fall further as volume and competition increase - and the number of subscribers will triple.

Cut prices dramatically

Despite the lack of clarity on who would and would not be allowed to land here - although the South African government insists it wants to encourage foreign investment and not exclude private operators - if all the cable projects currently under investigation do go ahead, the once-bandwidth starved region should soon have more than enough capacity. And this competition should bring prices down dramatically.

Khalil said it was encouraging that the region could have numerous international cables, whereas a few years ago, there was little interest in investment like this in the continent. He said EASSy had spent a lot of time and resources validating the business case, and if in doing so it had laid the groundwork for other operators, then it had already served a purpose.

Privately funded Seacom also claims it will be first to roll out an undersea cable along the east coast of Africa, planning to be operational by early 2009.

Khalil says the last outstanding investments in the EASSy cable project should be approved by the end of September or early October, and construction should start thereafter. EASSy could then be operational by as early as the end of next year, or early 2009.