South Africa’s Broadband Infraco to launch in Q1, 2010: Mission? Bringing national and international prices down

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In various parts of Africa, Government has intervened to ensure lower prices and fairer access to national and international fibre infrastructure. In some countries like Kenya, the Government has actually taken a role in getting this infrastructure built. As ever, this intervention raises important and difficult questions about what the role of the state is in the market and how that role is exercised. Russell Southwood talks to the CEO of South Africa’s Broadband Infraco Dave Smith about how it’s going about tackling these questions.

Q: How did you get involved with Broadband Infraco?

I’d been on the Board from the beginning and I was leading the development from an Eskom perspective. We started building fibre infrastructure with the idea that the SNO would be licensed in 2002. Eskom and Transtel put the assets into mothballs because of the delays. Then the licence was finally granted and we started renegotiating the transfer of the assets to the SNO.

The Government was looking at a number of ICT policy streams and one was about delivering the outcome of lowering bandwidth costs by leveraging national and international connectivity prices. So by the end of 2006 we bought the assets from Eskom and Transtel and spent a year completing and commissioning the infrastructure. We have the right of use but outsource management to Neotel.

Q: So what is the extent of your infrastructure assets?

We have nearly doubled our footprint and trebled our capacity. There’s 11,800 kilometres of optical transmission links between all major commercial centres and regional connections to all neighbouring countries. The only exception is the Beit Bridge link to Zimbabwe which is down and has to be re-lit.

Q: What’s your licensing position?

All of this was done pre-licence. It was always clear that an Electronic Communications Network Services Licence was going to be needed. The Broadband Infraco Act (which set the company up) outlined what we would do including electronic network and electronic services and we applied for both of these licences.

During the (licence) hearings, many VANS and ISPs expressed concerns that we would be competing with them in the services space but it was never part of our mandate to be in the metro and access space.

But part of our mandate was to secure bandwidth for things like the Square Kilometre Array (a radio telescope project that requires high levels of bandwidth). In terms of the Electronic Communications Act, anyone who is going to provide a service to the State must be the holder of an ECS (Electronic Communication Services) licence.

There’s no desire on our part to go into the retail services market. The Electronic Communications Act is a very complex piece of legislation. But we need an ECS licence to provide managed bandwidth services. But there has been some resistance to our need for the ECS licence.

Q: When will you start operations?

We will have a contractual relationship with Neotel for a period but this contract covers our need for open access to the POPs. However, we will gear up our activities towards a commercial launch when the network is fully operational. Neotel will continue to operate capacity for the remaining part of their contract and we will staff for other customer needs. So you’re likely to see us launch in two months time.

Q: What will your national pricing be like?

It’s been turned on its head. An STMI from Johannesburg to Cape Town from Telkom without wholesale discounts (which were kept secret) was R1.5 million (US$198,531). That changed to R970,000 (US$128,383) in August 2009 and is now down to R300,000 (US$39,706). Our pricing model is built on a cost plus basis and therefore rates will be close to these current numbers.

The development of Seacom has had the biggest impact on national rates. Our pricing will correspond to market rates and will be filed with ICASA (the regulator). The real challenge will be on larger capacity services above STM1 like an STM64. And there are obviously economies of scale as you light additional ways.

Q: What’s you involvement with the WACS cable?

We invested as an anchor part and there are 11 investors (Angola Telecom, Broadband Infraco, Cable & Wireless, MTN, Portugal Telecom, Sotelco, Tata Communications, Telecom Namibia, Telkom SA, Togo Telecom and Vodacom). We have approximately 11.5% of the capacity from London to South Africa. There will be landing stations in Namibia, Angola, DRC, Nigeria, Togo, Ghana and Cote d’Ivoire.

Q: And again what’s the pricing going to be like?

I can’t give you a definitive answer. I haven’t looked at international pricing for some months and that’s too long in this game. I though Seacom pricing was much more cost-effective (than SAT3). The answer (to your question) is very dependent on volume. Seacom has 1.2 terabytes capacity whereas WACS has 5.1 terabytes therefore the economics are different but this doesn’t do anything for you until the lit volume traffic is sold.

Q: The Government’s policy objective was lowering prices for the end-user. Will those prices fall?

A lot of people were expecting a dramatic fall in prices with Seacom. But the end user hasn’t seen it because of continuing market blockages in the last mile. There are a number of things in play: Telkom’s reaction to the new licencees; Neotel’s entry into the market; and Vodacom and MTN’s self-builds. On the International side, cables used to be closed systems so the impact of Seacom and WACS as open access systems will be enormous. The economic principles (of open access) were included in WACS through our involvement.

Q: So what will it look like in five years time?

We have to be able to ensure that South Africa has capacity to support projects like the Single Kilometre Array. Even at the best international commercial rates these projects are not viable so we have to work through matters like that.