Zambian Government reinforces Zamtel monopoly as country heads for competition

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In the run-up to the privatisation of Zamtel, the Zambian Government is proposing to add a significant proportion of the fibre assets from the state-owned power utility Zesco. This move will reinforce the de facto monopoly of Zamtel in terms of infrastructure ahead the more competitive landscape envisaged in the new ICT Act passed in December last year. This adding of other fibre assets to the incumbent’s dowry also occurred in Ghana when Vodafone bought Ghana Telecom. Russell Southwood looks at how these kinds of transfers can either hinder or help competition in the market.

The Zambian Development Agency is currently undertaking the sale of state-owned incumbent Zamtel. The company has become loss making, is hugely over-staffed and has the smallest cellular operation in a country with only three operators. Huawei has been building the company a fibre backbone but it is far from complete: indeed, there are still so many gaps that it would not be fair to describe it as a national network.

By contrast, the power utility, Zesco had laid an effective fibre network across the economically active central part of the country from Lumwana/Solwezi in the north to Sesheke in the south, connecting the copperbelt to Lusaka and on to the borders of neighbouring Botswana and Namibia. It was licensed by the regulator (then CAZ, now ZICTA) as a carriers’ carrier.

So whilst Zamtel was protecting its gateway monopoly and charging high prices for satellite connectivity, PCCW joined forces with Zesco and others and created an international fibre route out to South Africa via Namibia and South Africa. It wasn’t cheap but it was a whole lot cheaper than the Zamtel satellite service and it began to undercut Zamtel’s previously protected international revenues. Interestingly, the Zesco portion of this route was the cheapest and the Telkom South Africa portion the most expensive.

In December 2008, the Zambian Ministry of Communications decided to sell a 75% stake in the company. A year later in December 2009 a shortlist of bidders was announced by the Zambian Development Agency. More or less at the same time, the Government decided that 7 of the 12 fibre pairs on Zesco’s network would be taken away from it and given to Zamtel. This is clearly an attempt to fatten the goose before any sale price is agreed. That much is understandable but what it does is entrench the near de-facto monopoly on national fibre infrastructure of the eventual buyer.

Of the 12 fibre pairs Zesco has, it uses 2 to manage its power network, 7 will go to Zamtel, MTN has use of 1 pair, leaving 2 not yet used. Both Zain and MTN are laying metro fibre in the larger cities and are talking of building national fibre backbones. Realtime Technologies has a joint venture with the country’s second power utility CEC and has an extensive fibre network in the country, particularly the Copperbelt. So it now goes from being a competitive infrastructure play with Zesco to finding itself back in the arms of Zamtel for international infrastructure.

Furthermore, Zambian ISPs oppose the move. As one told us:”All the ISPs don’t want this to happen. We have a good relationship with Zesco and we put a lot of capacity through their link. If it happens, I’ll have to lay fibre routes and that’s not my business. We’re looking at VoIP offerings because the current prices of international calling are still US$1.10-1.50 a minute.”

On 23rd December 2009, the government through the Zambia Development Agency (ZDA) announced that the shortlist of bidders. These are: India’s Bharat Sanchar Nigam Ltd, Angola's Unitel and Libya's LAP Green Networks. Unitel is the only private mobile operator in the Angolan market and has the biggest market share. It also has the distinction of having a minority shareholding by the President’s daughter who nowadays get described in the press as a “businesswomen and entrepreneur”. LAP Green Networks owns former incumbents in Rwanda and Uganda. After the announcement, Russia’s Altimo was added as a fourth successful bidder. Altimo has investments outside Africa in Beeline, Megafon, Kyivstar and Turkcell. It issued a paper in November last year saying Africa was becoming the key investment target as other markets were saturated.

A similar situation is happening in Tanzania although lack of information from the Government makes it much harder to gauge how it might finally turn out. Incumbent TTCL has been managed up till now by Saskatel who have not managed to find a strategic investor. The Government have taken on a Chinese loan to have Huawei build a national fibre backbone. Tanzania has several parastatals who have fibre assets, most notably power utility TANESCO. It has put the use of these assets out to tender on two occasions and both occasions the tender has not been concluded. In short, the Tanzanian Government has failed to chart a strategy for creating a national backbone in sharp contrast to its Kenyan neighbour.

The national backbone seems to be underway: people have seen Chinese workers digging trenches alongside the roads and the Government is promising the northern loop will be available by November 2010. However, it is not clear when it will actually be available for use. The plan appears to be that the Government will own the fibre infrastructure and that it will be operated by incumbent TTCL through a separate subsidiary.

TTCL has not much of a track record for the successful operation of national fibre backbone infrastructure. No final pricing has yet been discussed but the Ministry has set up a Committee of operators to look at interconnection issues. However, rumours are circulating that Vodacom has been given the go-ahead for a fibre route between Arusha and Namanga and a consortium of Zain, Tigo, Simbanet and Zamtel have been discussing fibre infrastructure.

In the meantime, cheap international bandwidth has arrived in the country but it’s impossible to get it anywhere because the glacial pace at which the Tanzanian Government moves. It has neither come up with a timely, funded national fibre strategy, nor allowed the private sector to do the job. And all this is happening in one of the most competitive telecoms markets on the continent.

As one local operator told us:”Taking the international bandwidth from Dar to elsewhere is an issue. There is a lot of (national) fibre in the country but it’s a mess. The Government wants to give (the national backbone they are building) to TTCL but it will be a competitor to other providers. There are a lot of issues around management and pricing and a total lack of clarity.”

By contrast, Kenyan utility KPLC has let the use of its fibre network (see Internet News below) to three competing operators: Safaricom, Jamii Telecoms and the Wananchi Group. In this way, several players can make competing infrastructure offers whilst at the same time sharing a single network.