Cheap Internet Far From Reality Despite Seacom Roll-Out in East Africa

Internet

Two fibre optic cables, Seacom and TEAMs, landed in the country this month, with Seacom activating its network in five countries in Africa, Kenya included. An article in Business Daily illustrates strikingly different views on how fast prices will come down for consumers. Despite significant falls in the cost of bandwidth, there are a surprisingly large number of people arguing against reducing consumer prices.

For many Kenyans, the news was expected to herald a fall in Internet charges and faster connectivity as operators who had bought capacity into the cable can now offer the services to end users.

However, apart from when Seacom activated their network in Mombasa with some users experiencing high speed connections, many are still waiting, with most operators paying between $5,000 and $6,500 per megabyte per month for satellite connectivity.

Telecommunication operators had warned that prices will not drop drastically as expected. Business Daily sought the views of industry experts on the pricing issue.

Jonathan Somen, Managing director, AccessKenya Group said:” ISPs like AccessKenya and other players have terminated their metro fibre to the Seacom hub in Nairobi. AccessKenya is currently carrying tests of the fibre connectivity with a sample clientele”.

“Once the connection is given a clean bill, AccessKenya clients will be connected and their speeds doubled immediately free of charge. Subsequent upgrades will occur in a carefully controlled upgrade process from August”.

“Two options are available to clients: one can either extend a fibre cable to connect to our company's metro fibre ring from the nearest fibre node if they are not within the buildings or route covered by the fibre cable. This will be at an extra cost to the client in buying the necessary infrastructure”.

“Alternatively, clients need not necessarily be connected to fibre as the last mile, but can use radio to connect to the ISP's fibre network and still enjoy fast speeds. The difference in speeds between option 1 and 2 is 10 milliseconds latency and may not be necessary to invest the huge sums required to pull the fibre cable to the client's office”.

According to Aggrey Madahana, Managing director, Swift Global:” Pricing is a tricky issue, because it is not clear exactly how bandwidth will be shared or priced. But generally, I would say that we should not expect any drastic changes in price any time soon. We can expect prices to fall by between 20 and 25 per cent by next year, and after that pricing will fall based on demand, as fibre operators try to get more users”.

“Certainly, investors in the cables will be keen to get returns on their spending -- and some of the cost savings for operators will be eaten into as they retain some bandwidth on satellite for redundancy purposes. These elements will keep prices up”.

“I expect once TEAMs and other cables come in, cost will start becoming more of an issue and we could even see price wars similar to those seen in the mobile sector. Once that healthy competition takes place, we may begin to see the drastic drops that were expected, where customers can pay up to 80 per cent less”.

Michael Joseph, Chief Executive Officer, Safaricom told Business Daily:” A number of issues will determine pricing. First, a lot of money has been invested in these cables. For instance, Safaricom has put in upwards of $25 million in the TEAMs cable and an equally substantial amount in buying capacity on Seacom. Maintenance will also require further cash outlays”.

“This money will have to be recovered first before material price reductions can be passed on to the consumer. It makes business sense and we owe that to our shareholders and financiers”.

“Other than these , principally, onward connection fees would be a major factor. For instance, we have to procure connection from Fujairah onwards on the Seacom link.

This would be the same scenario for TEAMs. Other factors would be the level of investments they have made in these cables and the payback period for those investments”.

“Perhaps the part of the equation that is often overlooked is how much subscribers will immediately save through faster and more reliable Internet speeds and the many opportunities this will spawn. Safaricom has already connected some of its external and internal IP traffic to the Seacom cable which means that Safaricom 3G, EDGE, WiMAX and fixed data subscribers are already enjoying faster speeds and response times”.

Bitange Ndemo, Permanent secretary, Ministry of Information who was one of the prime movers behind the TEAMS project told Business Daily:” We don't want to regulate prices, but we anticipate that market competition among the providers would be able to bring down the costs as seen in the mobile sector. End users will have to wait for probably another three months before they see drastic reductions on costs as the operators will need to recover the investments made on the cables. However, the faster more people start utilising the cables the faster the prices would come down due to economy of scales”.

Tom Omariba, Managing director, UUNET Kenya said:” End users will not connect to the backbone directly, but through the last line frequencies, using either copper cable-- leased copper cables, dial ups and DSL--or wireless networks like WiMAX, WI-Fi, GPRS and 3G”.

“But we are currently experiencing artificial shortage of last mile spectrum because some players had acquired the frequencies some time back, but are not utilising the frequencies thus denying other players from accessing the same”.

“Unless the government subsidises the high spectrum fees when the spectrum becomes available, we are going to have the initial challenges to rural electrification caused by high end user transformer and power line investment costs. The service will still be expensive and the targeted end users will not afford the service”.

“The price reduction will therefore be in the range of 20-30 per cent unless the players revert to the old ways of overselling capacity which will mean a bad end-user experience”.

Business Daily