Liberalised South Africa starts to create market-opening mechanisms that allow cheaper access to fibre
After the successful Altech legal challenge, there are now 400 companies that can self-provision their own networks, interconnect with others and buy their own voice numbering blocks. With the arrival of Seacom, there has been what one old industry hand described to us as a “price implosion”. More has happened in the market in the last six months than has happened over the last six years. Russell Southwood looks at two companies that will make a competitive market in fibre happen and wonders whether for the first time in a long time South Africa has something to show the rest of Africa.
Dark Fibre Africa (DFA) does “what it says on the tin”: it provides dark fibre, something that to our knowledge has only happened with the power utility in Uganda elsewhere on the continent. It was set up by two fibre-laying veterans, Malcolm Kirby and Eugene Slabbert. They teamed up with Richard Came, the CEO of Community Investment Holdings to create the company.
As Kirby tells it, the idea for the company came out of conversation with one of South Africa’s big mobile operators:”Eugene and myself were talking to MTN about mechanical trunking. The person we were talking to said:’You’ll never sell me trunking but if you come back with fibre, I’ll buy it’.”
So out of that seed of an idea DFA was set up to provide competition neutral ducting infrastructure to all players with a licence. The company itself has a network licence but that was only needed for getting way leaves for trenching:”It’s about having one infrastructure for everyone to use on an equal basis.”
DFA set itself the target of 1,100 kilometres of trench in two years and passed that point within 18 months. It will double that amount in the next two years and it currently reaches most of Gauteng, Cape Town and Durban. Once all the connections to the big cities have been completed, it will add smaller places like Pietersburg and Nelspruit. Other than trenching, it has put in POPs to help customers interconnect with each other.
The network has an extended life cycle of 20-25 years:”We hope to ramp up capacity very rapidly. South Africa is on a gig Ethernet while the rest of the world is getting 40-100 gig. Fibre is the foundation for providing new, additional services.” Four ducts go into the ground with 72 or 96 fibre pairs in each micro duct. The build cost is between R650-800 per metre, depending on the quality of the roads and for long haul it completes 4-7 metres of trench a day.
It does everything except for lighting the fibre and has made a firm commitment never to compete with its clients as a service provider. It offers all customers a clear and enforceable Service Level Agreement. Security of its manhole covers is guaranteed by a GPS driven transmitted number key.
Most customers have taken a fibre tube with six pairs but Vodacom has taken 72 pairs:”The small guys usually take a pair on point to point routes. We need around three customers to extend the network and it’s simple to know where these customers will come from. Depending on how you calculate it, there’s something like 12-16 TBs of international fibre landing in South Africa and there’s no infrastructure to distribute it.” Almost all of the major players are its customers.
Pricing is based on distance:”The radial distance between two sites multiplied by a routing factor of 1.4 to give the actual billable distance. DFA charges R5.00 per metre per month, on a 5 year contract. Longer contract terms are cheaper. The price includes a 4 hour repair SLA”. For mobile operators, it will quote a flat rate cost based on connecting individual BTSs.
“When we started, there was a universe of the five customers, then (with the Altech decision) it exploded. But not all of them will make it but maybe ten will emerge as challengers. But it’s changed the psychology of the market.”
Africa.Inx was founded by Mike Brierley and Edward du Plessis. Brierley ran MTN Network Solutions for eight years so is the ultimate gamekeeper turned poacher. Du Plessis is the founder and majority shareholder in Ensync. He was a customer of the “big guys” but found that he was restricted in what he was able to do and wanted more control over the services he offered and his bandwidth costs. The rallying cry is to break the hold the larger operators (at Tier One Level) have over the smaller ISPs.
It also will only sell on a wholesale basis to other ISPs and licensed telco operators (those with network and service licences in the South African context). As Brierley told us:”There are no special deals and discounts and everyone is treated equally, including Ensync.” It offers scalable bandwidth so that you don’t need to buy a whole STM1 but can purchase whatever amount you need and it will have only year long contracts to allow customers flexibility to vary their bandwidth requirements.
When it launches in March 2010, it will offer a range of market-facilitating services that will help lower barriers to market entry for the smaller operators. These include: international internet/IP transit (at the same price anywhere on the Metro Ethernet fibre network in the country); local Internet/IP transit; Internet peering (which has long been a closed shop amongst the big players) with an MPLS backbone; voice switching; and a wholesale IP Connect for players wanting to offer ADSL through incumbent Telkom’s network but not wanting to use their service (the cost of entry for small operators is high).
The ability to provide cheaper services is based on the company’s skill in negotiating cheaper prices across all of these services by aggregating small-scale customer demand. So for example with international fibre bandwidth, the official price from Seacom for an STM1 is US$3.8 million but because there are a number of people who bought speculatively, it can now be got for US$2.5 million. Furthermore what were once outrageously expensive SAT3 prices from incumbent Telkom are now extremely competitive with the new fibre.
What is happening here is the creation of a new market ecology where there will be greater flexibility for all market players, both big and small. The “big five gorillas” will continue to seek to impose controls over who can do what but the alternatives are generally much more attractive: insurgent challengers and corporate customers will not want the terms of their business completely dictated by others.
This new ecology includes dark fibre and lower fibre costs (internationally, nationally and locally), easier and more flexible interconnection, the ability to extend the range of hosting services, and vendor neutral data centres (like Teraco covered in issue 464). Each of these market facilitating services provides higher levels of competition in the infrastructure layer that should help focus providers - big and small - on the momentous task of creating a new services and applications market.