Fight the power: Ghana’s insurgent challenger ISPs set to take on the vertical-integrators

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Ghana still has 7-10 active independent ISPs and the process of consolidation has not yet begun. Vertically integrated mobile operator MTN sniffed around for acquisitions and either decided against or has yet to announce. At least two companies are up for sale and further two show all the signs of their owners having lost interest in them. Once mobile operators’ backhaul networks are upgraded, the likes of MTN, Zain (Celtel) and the new entry Vodafone (which will become the major DSL player) will start to put some really serious pressure on the market. Russell Southwood looks at the business strategies of those who want to be around after this happens.

South African-based iBurst recently raised over US$200 million from the Development Bank of South Africa and is aggressively rolling out in a number of countries including: Congo-Brazzaville, DRC, Kenya, Tanzania and Uganda. Its South African company is separately owned but there are overlapping shareholders. It operates a proprietary Wi-Fi technology (on 802.3B) licensed from Kyocera. Kyocera will release an upgrade to 4 mbps next year and because the technology is proprietary, the upgrade times are potentially shorter.

It has 10 base stations operational and will roll out two more in the next few months. These both provide backhaul and cover the greater Accra area (Accra itself and Tema). The radio towers connecting Accra and Tema also serve customers along the route. It plans to roll-out in this way to Kumasi and Takoradi.

By provisioning in this way it hopes to overcome high backhaul prices where they exist and control the speed and quality of their network. It claims that one of the largest players in the market has up to 40% downtime with its offer. Customer devices are proprietary so cost between US$200-500 which the company subsidises by offering an equivalent amount of pre-loaded, pre-paid use.

South African CEO in Ghana Loren Bosch sings a very similar song to Orange: to paraphrase, it’s the not the technology, stupid. Customers want a useful service and don’t much care if it’s delivered by tin cans or the wibbly-wooper. The brand has to be instantly recognizable and create a clear emotional connection with users. As Bosch says:”Being a solution provider, where DSL is in place and I can’t provide coverage, I will provide a DSL service.”

In practical terms, this means it has its own technology but will buy connectivity from others if it works and it’s at the right price. As Bosch says:”My current cost of bandwidth is bigger than my payroll.” And although it currently buys SAT3 capacity under the GISPA agreement, it is keen to develop options to buy this same capacity directly as prices come down.

The iBurst technology is already voice-ready but not mobile. So although Bosch is keen to make clear that it’s not possible in the local legislative environment, iBurst is planning to offer voice as an “leader product” in DRC where it is currently testing. On this basis it wants to form alliances with voice partners needing last mile access to customers.

It estimates that the total number of Ghanaian subscribers is 30,000 but that there is potential to go up to 200,000-250,000, of which iBurst would like to acquire a 10% share. Currently it has 1,400 active subscribers so although there is clearly a long way to go, it has a plan that addresses many of the challenges that the larger vertically-integrated competitors will begin to impose.

In the same spirit, we make no apologies for returning to Kasapa’s relationship with local ISPs. As the small outsider in the mobile market with good data provisioning, it decided to offer local ISPs a revenue-sharing partnership based on offering ISPs last mile access to customers across its coverage area. Hosting is on the ISP’s server and the revenue is split 60/40 in favour of the ISP.

The advantage for the small, independent ISP is that it can reach a geographically more diverse customer base: Kasapa has coverage in 7 out of Ghana’s ten regions and reaches 70% of the population and intends to extend its coverage area. The advantage for Kasapa is that it brings much needed income to its network.

There are seven ISPs signed up but one is a corporate back-up option and another has not yet commenced service. The five current users are: Busy Internet, NetAfrique, KNet, Ecoband, Afrinet and Teledata. The two biggest users are NetAfrique and Teledata.

There are currently 2,200 subscribers accessing the system, of which two-thirds do so on a daily basis. This sounds modest but this is on the basis that the wholesale-retail arrangement has not been actively marketed and is not yet completely set up. It is going to be introducing EVDO within the next 6-9 months and it wants to keep the number of users limited up until that point.

Being an ISP now requires serious capital investment and a clear understanding that retail customers are the next area of growth. In order that challenger ISPs are not completely dependent on the bandwidth of their competitors, they need to be able to find technologies that will deliver high volumes of capacity to large numbers of people in more cost-effective ways. They need to stop thinking like technologists and start working out how to connect with a wider subscriber base, not just the easy ones in the capital cities.

The new vertically-integrated mobile operators have terrific advantages but they are not invincible. With more mobile players entering the market (particularly with five or more players), there will always be one with outsider status with whom alliances can be formed. The infrastructure investors may in time come to understand that they have a wholesale function to play if they are to recover their investment. The arrival of triple play bundles will force new alliances as competing contenders seek to arrange all of the different elements of the bundle. There may yet be life after the vertical integrators take over….