D-day for East Africa - Seacom fibre arrives but SAT3 monopoly is still in place

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The Seacom international cable is due to go live next week on Thursday and it will fundamentally change much of the underlying economics of the communications business. It will be followed by the TEAMS cable some time in Q4 this year and by EASSy at the end of June 2010. There will be something like full competition for international capacity and prices will fall considerably. The same will also happen on the west coast of Africa but the current reality is that the SAT3 monopoly is still very much in place. Russell Southwood looks at the quickening pace of events.

The Seacom cable will deliver up to 1.28 Tbps of capacity to landing stations in South Africa, Mozambique, Tanzania and Kenya. So far according to Brian Herlihy, CEO of Seacom it has sold 80 Gbs, including 10 GBs to South African research network TENET. Herlihy says:”People are buying 10-15 times their existing bandwidth. They can get that much for the same sort of cash they’re already spending.”

But how will anyone get the fibre from the landing station? Seacom has set out to provide the same prices inland as at the landing station so that customers can buy all the way through from say London to the POP in Kigali. KDN is the Seacom POP in Kenya, Uganda and Kigali. Faced with the slow pace of inland network development, Seacom had two choices: either build its own network or become a customer of an existing network. It did not want to compete with its own customers so it has worked with a range of partners to create inland routes. However, in Tanzania and Mozambique it has a small amount of backhaul to get its capacity to its customer in the capital cities.

For Ethiopia, it will meet ETC who will then take it on from the border and it is discussing partnerships that will give it access into Burundi and Zimbabwe. As Herlihy puts it:”We own rights for connectivity pretty far into Africa. We’re setting precedents so it means educating partners. We have our price bundle and there’s quite a bit in our product. In fact, it contains almost everything. Others quote to the landing station, we go all the way.”

The new fibre has spurred a growth of network roll-out:”These cables have been a catalyst. I’ve been quite surprised at the level of risk people are taking. There are quite significant metro networks and WiMAX investments. It took the cables to get this going.”

Meanwhile EASSy, which has been written off time and time again, is ploughing forward for a 30 June 2010 start date. It has its piracy plans in place and because Alcatel is the vendor, the French navy will be providing protection for the ships.

According to Chris Wood, CEO of WIOCC, the consortia of smaller investors within EASSy (of which MTN is one with a 29% shareholding), he’s currently doing pre-sales and will sell all the way to London. The cable will link up with the EIG cable in Djibouti and it is still negotiating to have a similar link north through Port Sudan. According to Wood:”You don’t want to be on one cable through the Red Sea and the Mediterranean. Only last year there was a case of an anchor dragging that cut several cables.”

EASSy had originally planned to land in the Somali capital Mogadishu but has that under review and is likely to land in Northern Somalia with a submarine link to Djibouti.

In terms of getting the capacity inland, EASSy has ambitious plans to create a series of inland rings. The most advanced of these - dubbed the East African Backbone System (EABS) - will go Mombassa-Nairobi-Kampala-Kigali-Bujumbura-Dar es Salaam-Mombassa. This will mean that if there are any cuts anywhere along the ring, traffic can be reversed down the other side of the ring. Currently the Sudatel link to Kampala is 300 kilometres short of the border and the Telkom Kenya link to Ethiopia is up to the border, leaving a gap for ETC to close.

Wood says that the majority of these inland routes will be operational by the time EASSy launches: “There will be few major towns not connected by fibre in the next 12 months.”

And what about pricing inland? Wood believes that EASSy and WIOCC will be able to offer prices inland that are more or less the same as at the landing station:”We’re trying to make the inland differential as small as possible, so that prices are not materially different.” Inevitably, these reductions will force down both African inter-country prices and national backhaul prices.

Meanwhile back in SAT3 monopoly land on the west coast of Africa, it’s business as usual. For all the talk about the ending of the monopoly, only two countries (Mauritius and South Africa) have really got to grips with the beast. According to an inside source who attends consortium meetings, whatever the legal position, the incumbent operators continue to operate a de facto monopoly:”This won’t change until the new cables arrive. The new capacity is completely sold and it’s been split between the owners. There’s no reserve capacity, only some for in-cable restoration.”

Worse still the Nigerian incumbent which has been barely able to provide service through its own landing station for both financial and operational reasons tried to stop neighbouring incumbent Benin Telecom from taking diverted Nigerian traffic from Suburban Telecom. The CEO of Nitel himself actually turned up to argue this threadbare case but luckily he was not well supported and the meeting ended without a conclusion on the issue.

On the positive side, Telkom South Africa has announced that its prices are now almost in line with Seacom’s forthcoming prices. And according to this same insider, prices are also beginning to drop in Namibia.

And will Seacom get involved in West Africa in some way? According to CEO Brian Herlihy:”It’s a bit of a moving target. We’re still very interested and are still in discussions to see whether Seacom can be a partner to one of the projects. The dust has yet to settle but we’ve not yet decided to participate. However, we’re pursuing it quite actively.”