UUNET MD challenges Kenyan Government estimates of low bandwidth costs
The cost of Internet connectivity is unlikely to fall to $500 (Sh33,000) per megabit per month as the Government has projected, UUNET managing director Geoffrey Shimanyula has said. The charges would only fall marginally with the landing of the first submarine fibre optic cable in Mombasa, he said.
UUNET- an Internet service provider - which is one of the prospective private investors in government-driven East Africa Marine System (TEAMs), said such a feat would require the cost of internet connectivity to fall by more than 80 per cent from the current average of $5000 per megabit.
The submarine cable is expected to land in Mombasa by second quarter of 2009 and terminate in Fujaira, Dubai.
"As you present your budgets for 2010 do not present the $500 figure because you may have to go back and justify your adjustments for that item," Shimanyula warned IT marketing executives.
"That price can only be for the last mile, the layer two services, and the raw pipe - WiMAX or KenStream that you get from Telkom Kenya. There is no IP service that can be sold for $500 per megabit per month ," he said.
IT firms, including UUNET, will have to connect to an Internet Service Provider (ISP) based in Fujaira before bringing the service - with a mark-up to local companies.
"That is where UUNET comes in. We will be connecting directly to Verizon Business in Fujaira, who are our principle shareholders hoping that we will get competitive rates from them to pass over to our customers," he said.
Information permanent secretary, Bitange Ndemo, however maintained that the $500 price was achievable with the a fibre optic cable.
"We have structured the pricing in such a way that even after factoring in the cost of onward connectivity the highest an operator may charge is $700. Anyone who will be charging consumers more than that in the first year of operation will just be serving the cause of greed," he said.
Dr Ndemo said the cost of connectivity was expected to continue dropping gradually in the subsequent years as the demand for the bandwidth picks up.
"The reason we are working on these figures is that we do not plan to make money from the pipes but only from the services rendered and by taxing the jobs that will be created," said Dr Ndemo.
The Kenya government has a 40 per cent stake in the project with Dubai's Etisalat holding 15 per cent. A 45 per cent stake has been reserved for private telecommunication companies.
Shareholders will have access to large amounts of capacity with a 13 STM1 (Synchronous Transport Module ) - basic rate of transmission of fibre optic network - for a minimum of five per cent equity investment.
Capacity will be allocated at cost with TEAMs investors paying $400,000 per STM1 per year. This translates to $2580.645 per megabit per year up to Fujairah and $ 215.00 megabit per month.
TEAMs shareholders are expected to operate on an Internal Rate of Return of 32.71 per cent with a pay back of 2.4 years.
Share holders in TEAMs will have the freedom to either use or sell excess capacity allocated to them through a pool or directly to the market under a bilateral sale arrangement.
CCK has said that only licensed operators will be allowed to sell capacity directly to the market - all other shareholders will be allowed to sell their excess capacity through jointly coordinated pool sales.
TEAMs shareholders will also benefit from the flexibility of selecting onward connectivity carriers from Fujairah.
Dr Ndemo said TEAMs shareholders could get a better deal by collectively bargaining for capacity from Fujairah onwards and offer even more competitive point to point connectivity prices.
Transit costs from Fujairah to Europe and US stands at between $55,000 to $100,000 per year, which Dr Ndemo insists is still in line with the government's estimates.