ITXC SELLS VOIP MINUTES TO STATE-OWNED AFRICAN TELCOS

28 June 2002

Top Story

Almost unnoticed the sale of internet telephony minutes to African telcos has been laying the foundations for a more competitive environment. Traditional telco operators counter this claim by saying that Voice Over IP (VOIP) minutes only account for seven per cent of the total of minutes sold worldwide. They may have a point but they are missing something of wider significance. The dominant airlines in Europe sing a similar song: "the budget carriers have only a tiny share of our market". What is missing in this explanation is that the budget carriers are the growth part of the market and they are filleting the dominant carriers’ more profitable routes. The budget carriers have only had to take a tiny market share before it has forced a number of airlines to completely rewrite their business model, following the budget carriers down with fare prices and costs. As it goes with airlines in Europe so we would argue it will follow (more slowly) with telcos in Africa.

 

The dilemma that the dominant telcos in Africa face is not so different. Currently their markets are largely protected but the regulatory fence which keeps out intruders is already showing signs of significant holes. In each African country there is a small but appreciable "grey market" in VOIP minutes. If you talk to industry bandwidth suppliers for a wide range of countries, all will tell you stories of selling to small-scale suppliers in countries where the dominant telco has a monopoly on international termination. The sellers can be anyone from a barber’s shop in Addis Ababa to a cyber cafe in Mombasa. They stay small to "stay below the radar" of the regulator in their country.

 

No-one can accurately put a number on this "grey market" but it could be as high as 5-10% of the market in some countries and much higher in places where overall governance is weak. In some instances, the dominant telco has a manager who is doing this kind of business "below the counter" for personal profit. The more far-sighted telcos (like Senegal’s Sonatel) have seen the shape of the future and come to terms with it. Elsewhere less progressive African telcos simply carry on as if nothing had happened like the poor dinosaur whose brain is still waiting to receive the message that his tail has been attacked.

 

There are four main IP telephony players in the African market: ITXC, iBasis, Net2Phone and Veetone. ITXC is probably the largest of them. It has a sales force who work every day on negotiating routes and looking to ensure that quality does not slip below tier one standard. In the wake of the collapse of the dotcom boom there is plentiful bandwidth available internationally. The key to competitive rates is having plentiful suppliers to the destination. Although Africa is not as competitive as places like Mexico and Hong Kong, ITXC has at least three suppliers for most African countries. ITXC can offer telcos software that enables them to see what rates are being offered for different routes. The most serious issues faced in most countries is the poor quality of national infrastructure and the lack of capacity to handle traffic "spikes" at busy times. In this issue we interview Ghanaian Yaw Osei Amoako, Sales Director-Africa on his views of what impact VOIP telephony is having on the African market:

 

Which African countries has ITXC sold into?

 

The ones we’ve announced so far are Sonitel in Senegal, Ghana Telecom, Sotel in Chad, the PTT in Zimbabwe, Telkom in South Africa and Gamtel. There are others but we can’t go public on them yet.

 

What’s the pitch to the telco?

 

I’ve been on both sides of this and handled switch traffic and IP traffic. There’s a new technology and you’ve got to be part of it. You can’t leave it until the last minute before you get on the train because you might miss the opportunity.

 

You’re dealing with the "big four" telcos but the pre-paid card people are getting minutes to you illegally so why not deal with us and get back control over some of this revenue? Often African telcos can’t believe the rate we can offer minutes at.

 

How does ITXC deliver its end internationally?

 

We are connected to 152 countries through affilates. The large telcos only give you minutes from the country they are in. With ITXC, you can compare switch and IP and get better quality, cheaper minutes from us. In two to three years time, this kind of IP telephony will be used in every country in Africa. They will have to go this way or they will not survive. We are currently talking to every carrier on the continent. We can say to them, we know you’re losing traffic to the "grey market", you know you’re losing traffic. We can win you some of that traffic back.

 

How does it work in practical terms?

 

The telco provides the landlines and we provide the "box" that acts as the gateway. The box is called a SNARC but the initials don’t stand for anything. If you buy your own switch equipment, the equipment supplier won’t change it if the equipment is upgraded. But we will swap the equipment as and when upgrades occur.

 

Do you get resistance to the idea of buying VOIP minutes?

 

Yes we do. It tends to be based on a lack of knowledge. Most engineers have only worked with switch technology. They don’t understand how you can put voice on the internet. There’s also issues of quality. When they think of internet telephony they tend to think you need PCs to make a call of type made illegally in some cyber cafes. Obviously the quality of this type of call is way below what we offer. To convince them, we offer a trial. We offer tier one standard (judged on the percentage of call completions) and we can increase quality from this if the customer wants to pay a premium. We have over time established our credibility and trustworthiness.

 

Are there quality issues with the IP bandwidth out of Africa?

 

Not really. There is now either fibre or satellite for most countries on the continent.

 

What about the monopoly on international traffic and the grey market?

 

If you don’t have a licence you can’t bring in international traffic. For the dominant telcos it’s about 80% of the cash in their business. But there are ways of dealing with it. Sonatel had a meeting with the illegal operators and agreed that they could wholesale if they paid a proportion of what they should have been paying. The alternative would have been to close them down and this would have a negative effect.

 

In Ghana I think they regretted arresting and trying the ISP operators who sold VOIP minutes. They were ridiculed publicly. The regulator Major Tandoh now turns a blind eye. I met the Chair of the FCC for Nigeria at the African Telecoms Summit and he was asked whether selling VOIP minutes was allowed. He said it’s allowed. Go do it. The problem is getting a line from Nitel.

 

***********************************************

Balancing Act’s News Update will be providing a daily e-letter from ACT 2002 (see Events). If you would like to receive this daily edition, please send an e-mail saying:"I want to receive the daily e-letter on ACT 2000" to info@balancingact-africa.com.

************************************************