Liquid Telecoms’ fibre network connects Southern Africa and may go into DRC but what’s happened to the carriers’ carriers?

Top Story

Liquid Telecom has been quietly building out its Southern Africa fibre network that will eventually be 8,500 kms long and cost US$170 million. Its network is now meeting the fibre networks of East Africa and it wants to go into DRC from Zambia. However, the continent’s other carriers’ carriers are not in bullish expansion mode and the example of Kenya’s KDN shows what can go wrong. Russell Southwood spoke to Liquid Telecom’s CEO this week.

Liquid Telecom has now got a fibre route from Johannesburg up to the Zambian border. Alongside this network it has two metro rings in Zimbabwe and several in Zambia. Its network in Zambia is through a joint venture with Copperbelt Energy Corporation (CEC) and includes the assets of Realtime Technologies, who used to manage the network on behalf of CEC. The CEC network reaches up to the Zambian border with DRC and there may yet be a cross-border link to Lubumbashi. Rudnick says:”We’re working on an arrangement to extend the network in DRC and will make an announcement shortly.”

In the not yet completed part of phase two and phase three it will: build out customer access in Zimbabwe; and build links into Botswana (Gaberone and Francistown). It is also connected to Namibia via Neotel. In South Africa, it has its own network north of Johannesburg but uses other people’s network for the onward journey south.

The customers of the network are the mobile operators and corporate customers operating across Southern Africa:”In terms of corporate customers, we have a significant and growing number of corporates with regional branches, particularly banks.”

As an existing satellite operator across the continent, Liquid Telecom is in a position to see the difference the new fibre network has made to bandwidth volumes bought. Satellite is now less than 10% of its total capacity: it continues to fall as an overall percentage but grow in bandwidth terms:”Data is 8 times greater than it was 12 months ago when everything was going by satellite.” On its network, prices have come down 50% on satellite and early fibre prices:”Now there is sufficient bandwidth but congestion is still occurring”.

“Costs will continue to come down but volumes will go up. The wholesale reductions have not yet been passed on to the consumer as operators are still investing in local access networks. But retail prices will come down by more than a third and could even come down more. The networks are still trying to understand consumer behaviour.”

Its competitors are mainly alternative fibre providers, the state-owned electricity utilities like Powertel:”They used to charge as much as they could now it’s swung the other way and they’ll charge as little as they can to keep the business. They don’t have a commercial model.”

The continent currently has four carriers’s carriers of any scale that offer services to all operators: Liquid Telecom, KDN, Suburban and Phase3 Telecom. The latter only has a domestic fibre network.

Of these, KDN provides an interesting case study in what can go wrong. Originally launched by the Sameer Group (which also owned the mobile company Celtel bought and is now Airtel), it was bought into by South African family business Altech. The latter had previously bought into a Uganda ISP and set up another in Rwanda. However, towards the end of the period of its previous CEO Kai Wulff, the timetable for investment seemed to slow down.

The South African co-owners bought in a new CEO, Rykus Matthyser, who had formerly been with Telkom and latterly Telkom Media (before it became Super5 Media). He has recently left the company.

As Jane Austen might have said if she was in the telecoms business, it is truth widely acknowledged that South Africans and Kenyans do not always get along. On occasions, South Africans can exhibit the tendency to give the impression that they know it all. At KDN key staff left, feeling that they had been treated as if they didn’t know the business and the local market. All of which might have become bar-room gossip if success had followed.

But as one insider told us:”They thought they could hold the East African market hostage.” According to several sources they put up the prices they were charging the dominant player Safaricom (by some accounts by as much as 10 times) and lost this account which represented 30% of the company’s turnover. Worse still, by seeking to put up prices charged in a highly competitive market where rates were falling, they encouraged operators and other companies to build their own networks and now there is something of a capacity glut in Kenya.

To add to its troubles, the company has been squeezed from two sides in cash flow terms. Contractor Soliton Telemec went to Court in July 2011 with a winding up petition over payment for the redundant Wajir-Mombasa link it built. KDN claims they have been over-paid. On the other side of the balance sheet, Essar (owners of Yu) agreed in September 2011 to make monthly payments on their debt that settled an outstanding dispute.

The business case for pan-continental carriers’ carriers is simple and remains valid. For the operator, it means that the investment they might make in terrestrial fibre can be put into other parts of the network and new customer services. This leaves the risk with the carriers’ carriers who have to ride the down cycle of prices and still make money.

The biggest customers for carriers’ carriers are the mobile operators and as with their attitude to content, they are conflicted about where to place themselves strategically: in or out? It’s very much case of the two conflicting Ts: trust and testosterone.

Local opco managers will argue to themselves and their investment committees that on certain routes they need to build their own fibre but the approach appears piecemeal. In the main, opco managers are engineers by background and like to control their own networks. On the other side, the carriers’ carriers have to build trust both in how they deliver their service and the way they behave.

With Liquid Telecom’s  fibre network now joining parts of the east African fibre networks, this is a business case that it is in everyone’s interest to get right.

This week on Balancing Act’s You Tube Channel

Nic Rudnick, CEO, Liquid Telecom on its Southern African Fibre Network

Future mobile content?
Lippe Oosterhof, CEO, Livestation on live streaming for African news broadcasters and its mobile platform

Henk Kleynhans, Chair of WAPA
on TV White Spaces proposals in South Africa

Steve Song, CEO, Village Telco
on the TV White Spaces Workshop

Richard Bell, CEO, Wananchi Group in Kenya on international fibre connectivity, local TV content for its Zuku bouquet and financing its vision:

Riyaz Bachani, CTO, Wananchi on its Wazi hot-spots partnership with Google

Want up-to-the-minute breaking news? Balancing Act's Twitter feed provides a combination of breaking news for telecoms, Internet and broadcast in Africa, direct tweets from countries visited and access to the occasional rumours circulating. You can follow us on: