EASSy arrival will bring down prices, spur national backbone roll-out and reduce satellite use

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The EASSy cable connecting the east coat seaboard is currently in its testing phase and will go live some time around the middle of this month. Its WIOCC shareholder consortium has always promised lower rates and better transit prices and these are on their way. But the new landing stations have energised backbone roll-out, particularly in Tanzania. All of this will leave satellite as a niche transport application in the key East African markets. Russell Southwood looks at the heady pace of change.

WIOCC has already sold somewhere between 7-8 Gbps of capacity and it has been selling at lower prices than previous cables into the market. Chris Wood, CEO of WIOC told us:”We’ve been selling an STM1 IRU for between US$2.3-2.4 million up to London compared with US$3.2-3.3 million from Seacom. Therefore the impact of EASSy will filter through over the coming period.”

“The types of volumes people talk about has gone up rapidly from 18 months ago. There has been a faster take-up of broadband, mobile Internet and data. A lot of companies have now got dedicated teams selling broadband and they’re also talking to the smaller ISPs.” The only obstacle appears to be something regulators need to sort out:”WiMAX spectrum could be a limiting factor.”

The arrival of EASSy is providing further impetus to the roll-out of inter-country and national fibre networks. The East African Backbone System ring (Mombasa-Nairobi-Kampala-Kigali-Bujumbura-Dar-es-Salaam-Mombasa) is under development. The final pieces in the jigsaw are the link to Bujumbura and the link from there to Dar: both will be complete by the end of 2010.

The biggest new advance at a national level is the Tanzanian national backbone which is being built with largely Chinese loan finance and the first part of the first phase has just been completed and the whole of the first phase will be completed by August 2010 Phase 2 will be completed in 12 months time and will give connections to six neighbouring countries. According to the team:”In the near future, small places like Kigoma on the border of Rwanda and Burundi will be connected.” 24 cores for part of the network came from the power utility TANESCO.

The network will cost US$200 million, US$170 million of which will come from a Chinese loan and US$30 million of which will come from the Government. It offers 4 channels of 10 Gbps each on most parts of the network but slightly lower on some of the cross-border links.  It will offer customers service level agreements and anticipates offering 99.999% network availability. There will be NOCs in Dar es Salaam and Dodoma. Prices for capacity have been publicly advertised in the local press and the rate structure is a mixture of distance and link-based.

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In governance terms, key management staff have been transferred to a separate unit (called the National ICT Backbone) within the Government-owned incumbent TTCL. However, the operating staff of the network will be TTCL’s own engineering staff. In management terms, the National ICT Backbone team are answerable to the Chief Executive Officer of TTCL. Other operators wanted a completely separate entity but the incumbent is financially in such a bad way that the Government chose to leave it with TTCL.

The minimum capacity level being sold is an STM1 and these will be sold to the existing four mobile operators (Tigo, Vodacom, Zain and Zantel) and TTCL itself. The rationale is that the larger operators will resell to the smaller operators. Demand so far has been for 12 STM1s. The overall Government objective is to create a low enough price for connectivity to enable the e-society that forms the backbone of its ICT strategy.

All of this is not good news for those selling satellite capacity. Out of the five markets in East Africa (Burundi, Kenya, Rwanda, Tanzania and Uganda), the three big ones (Kenya, Tanzania and Uganda) have two links to the landing station (giving a fibre choice redundancy) and are rapidly being covered by extensive national fibre backbones. Both Burundi and Rwanda are also being covered by national fibre backbones linking all major towns and cities.

The shape of the change is best illustrated by taking the example of the distribution of VSAT sites from an existing satellite reseller in Tanzania. 60% of its current sites are in Dar es Salaam, 30% are in towns and cities outside Dar and 10% in remote locations. On the basis of the map of the national fibre backbone, this operator will be reduced to the 10% of sites in remote locations. There may be some additional sites but generally the picture is not promising. WIOCC’s CEO warns:”You can’t back up with satellite redundancy. Operators are realising the need for fibre redundancy.”

Another satellite reseller in Tanzania gave his rather bleak assessment:”A lot of smaller players in the satellite market will go out of business. Capital is needed to invest in WiMAX and most don’t have those kinds of resources.”

“Satellite will always be there for the odd corner you can’t get to. We’re looking at those corners. There are a lot of district level, rural areas with companies in agriculture and mining. Some sections of the country in the North and Central area. The tourism industry depends on lodges that need connectivity.”

His experience of selling redundant capacity does not bear out the judgement of WIOCC’s Wood but this may just be a matter of timing:”Operators do not want to rely 100% on fibre. So they are taking one fifth to one sixth of their requirements for redundancy.” He believes that demand for satellite will fall dramatically by the end of this year or early next year.

The thing that is puzzling the resellers is why prices have not come down yet. All the evidence we have gathered shows major operators getting out of satellite as fast as their feet and contract limits will let them. So there should be surplus capacity in the market. Yet satellite operators and larger resellers are still holding prices up:”The satellite guys are not helping by keeping prices high and have a “take-it-or-leave-it” attitude. All our customers are expecting lower prices and higher bandwidth.”