Vodafone Wholesale puts in second fibre link for regional connectivity but huge disparities exist in African wholesale rates as prices fall

17 August 2018

Top Story

Vodafone Wholesale’s new second link from Ghana to its neighbors is good news for the region. Ghana’s position as a competitive regional hub will hopefully drive more falls in wholesale prices, particularly in landlocked countries. However, there are now huge disparities in both international and national fibre prices. Russell Southwood looks at Africa’s two speed wholesale market.

Sub-Saharan Africa now has several regional hubs that service their surrounding regions. These are currently Senegal, Ghana, Kenya and South Africa. With more competitive markets and pricing policies, Angola, Cameroon and Sudan could join this elite group. But interestingly, highly competitive Nigeria is largely losing out due to lack of fibre connections to neighbors.

The walls of monopoly have yet to come tumbling down in West Africa’s Francophone countries (particularly its landlocked countries) which means that higher wholesale prices are the norm. Inevitably these lead to high retail prices. However, for example, Togo Telecom is under increasing pressure to drop its wholesale prices as corporate customers can see the much lower prices available just next door in Ghana.

So Vodafone Wholesale, a subsidiary of Vodafone Ghana, is to be applauded for building a second fibre optic network link that connects Ghana to landlocked countries within the West African sub-region, including Burkina-Faso, Niger, Mali, Cote d’Ivoire and Togo..

The link, which is located at Dakola, a border town between Ghana and Burkina Faso, will provide reliable internet services to operators and corporate customers seeking to expand their services to the landlocked countries within West Africa. The link was part of the World Bank’s West Africa Regional Communications Infrastructural Project (WARCIP) project in Burkina Faso.

Vodafone Wholesale is interesting because it has pioneered national flat pricing: in other words customers buy capacity on volume rather than distance. Contrast this with Nigeria where the cost of getting an MB from Lagos to Abuja is still several times more expensive than getting it from London to Lagos, a significantly larger distance. This has remained the case although the cost of both has fallen substantially over the last five years.

The effect of this distance charging is that wholesale bandwidth becomes more expensive the further away from Lagos you travel. In effect, wholesale bandwidth rates in Northern Nigeria make it the equivalent of a landlocked country.

Why does this happen? Cynics will say that the mobile operators – MTN in particular as it dominates the wholesale fibre market – is simply sweating its assets. Kinder people will note that Rights of Way taxes and maintenance issues around cuts and road building make operating this national network a great deal more expensive. Regulator NCC has recently brokered an agreement that the State Governments will keep their Rights of Way taxes to a lower level. Time will tell if the agreement will stick.

But there are not only huge disparities in wholesale prices at national level but also in international wholesale prices at country level. Prices have come down so much now there are multiple international cables that the cost of international bandwidth (in some countries) is only a very small part of overall retail prices.

In the coastal regional hubs identified above, bandwidth is now largely below US$10 per mbps at GB level. The arrival of at least one new East African cable and the SACS and SAIL cables on the West African seaboard will keep driving these wholesale prices even further down.

This trend contains a trap for those who bought their wholesale bandwidth originally at US$10 per mbps for as the price goes lower, the loss gets larger each time you sell. This may give those holding this kind of bandwidth an incentive to unload at the best price they can get before prices go lower. Of course, this will also add to the downward spiral of wholesale prices.

But although there have been some initiatives to improve wholesale prices for landlocked countries, many of these countries are still paying between US$50-100 per mbps on a wholesale basis.

Where the price disparity is really punishing is in the difference between small-scale and large-scale buyers in the landlocked countries. Anyone buying a few hundred mbps is likely to be paying 2-3 times as much as the MNOs in those countries.

So in a period of declining competition across many African countries at the MNO level these unfair advantages will only increase: the large will always drive out the smaller challenger. Except in those competitive regional hub markets where good deals still seem to be available.

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