Inside the Operation of a Kenyan Grey Operator – Reaching out to new users with a very local focus

25 November 2016

Top Story

In an interview with Ben Roberts, CEO of Liquid Telecom Kenya we did in mid-October he spoke of the “underground ISP market” in Kenya. At the end of October Russell Southwood visited a Kenyan grey operator who has rolled out fibre and Wi-Fi in a Kenyan neighborhood, offering pirated content to a willing set of customers. He looks at how the operation works and what lessons it holds.

The article that follows has been written on the basis that I will protect the name of the person I interviewed and the neighborhood visited from public exposure. So let’s call the neighborhood Flame Trees and my interviewee Joe Ochieng.

The Flame Trees neighborhood is a dense residential area with 4-5 storey apartment blocks. There are around 20,000 people packed into 3,400 households. It costs between US$186-248 to rent and the average income is probably around US$995. So it’s not a low income neighborhood but also not very high end.

The people who live there are what you might call the coming generation. They are people who have got their first job in a bank or ICT: ex-graduates moving up fro internships to the very lowest rungs of the career ladder. Many of them rent out the apartments they live in to others to cover their costs.

Joe Ochieng knows the neighbourhood because it was where he lived when he went to University:”I was only supposed to stay for 4 years but I ended up staying for 8 years. It was a fairly straightforward business decision.”

Joe’s business is hidden away in one of these apartments that would not be easy to find unless he led you there. Behind closed doors are the company’s servers and the head end for its video content. He describes the business as “an OTT public service provider that gives users connectivity to the Internet and our content. You could say we’re a below the radar operator. I’m happy to stay where I am and the market story works well for us.”

A basic Wi-Fi package costs KS500 (US$4.81) for Wi-Fi access more or less anywhere in the neighbourhood and an option for TV and film content:”We have Wi-Fi throughout the neighbourhood and the coverage is more or less contiguous, covering 85% of the air space.”

At the top end he delivers a 10 mbps Fibre-To-The-Home connection with TV and film content for KS2,000 (US$19.27).

Content is a great attraction and he offers Nollywood, Hollywood and much else besides:”We offer pretty much everything you might want from a current Hollywood movie to a Swedish movie shot 25 years ago.”

He says that in early days he tried to sign agreements with the content providers but no-one was interested:”It was like banging your head against a brick wall. When Hollywood stops being so stuck up its own arse that it will make a deal, I will make a deal with them.” So now the pirated content comes from DVDs and Bit Torrent:”People will bring us content that they want to share with everybody.” What about sports?:”Live sports is the only exception. It’s something that’s long over but it’s only a matter of time. We’ll have it in a week or two’s time.”

There are 3,000 or so devices on the network, which means a significant proportion of the neighborhood are connected. He jokes that a well-known Pay TV provider wanted to buy him out but he turned them down.

The fibre network is slung between buildings and I watched part of it going up on my visit. Joe had to go and untangle the cable on the ground from something it had been caught in before it could be pulled up:”We have 100 kilometres of fibre which we use for longer-distance connections and we use copper for the short distances within buildings.”

It buys wholesale capacity from a provider and sell it on to its customers:”We are currently buying a big package of capacity and we also have a top customer in the SME sector.” There has been a fierce dispute as once the provider realized what was going on it raised the prices to unworkable levels and tried to take over the business. But Joe fought back and won:”We reached an agreement. There are still issues but we have a working relationship.”

But nothing is easy as a “below-the-radar” operator. He’s had to raise finance for expansion through a bank loan:”It was our last chance for raising capital and it works well for us. We didn’t give them all the specifics but they’re happy if we’re making the monthly payments.”We’re expanding right now and we want to open up another 20 estates in the next 12 months.”

So what are the lessons? The most obvious one is that good content drives Internet take-up at a certain price point and whether it’s pirated or not does not cause its customers to lose much sleep. The offer is hyper local and the company is in the neighborhood to fix things at most hours of the day. And it clearly works, however improvised the whole thing looks. But this improvised network probably makes it almost worthless as an operation someone might buy.

I recently heard how a well-known Pay TV operator got into discussion with a group of grey operators like this in a completely different country. The outcome was an agreement that they would all become local agents of the Pay TV operator. Whether this commercial amnesty for local grey operators works or not, there has to be a way that these companies come back into the light.

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