Hitting the spot – African Wi-Fi hot spots come of age

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Initially “pay-for” Wi-Fi hot-spots proved a difficult sell in developed countries but eventually those that couldn’t bear to be parted from their e-mail became slowly addicted. In the UK the addiction has become so bad that it is affecting sales levels in the coffee shops that offer the service.

African markets are very price-sensitive so it is probably not surprising that hot-spots have been so slow to take off in Africa: it would be easy to think of it as a luxury.  But a number of countries now have a growing number of hot-spots. Russell Southwood looks at one of the fastest growing markets – South Africa – and looks at different business models that might emerge.

The South African market is divided between two key players: Internet Solutions and Telkom. Estimates of market share vary enormously depending on who you are talking to but a fair guess probably be 75%:25% in Internet Solutions favour. There have been small providers but most have not expanded because they have been unable to attract a community of users or offer the infrastructure support required. The nearest thing to real competition is the HSDPA service offered by Vodacom which although still a premium product, it is comparatively cheap.

In broad terms, there are two types of hot-spot offers: someone offering it free as a service attraction for customers (typically hotels) and a “pay-for” service. We have not yet come across any free hot-spots in South Africa but have found them in hotels in places as diverse as Mozambique and Sudan.

In South Africa, the pay-for hot-spots operate using a web-based interface that allows you to buy time either by putting in a pre-paid voucher number or by using a credit card.

Internet Solutions pay-for hot-spots are provided by bringing together three partners: Always-On (to do the implementation and support); Internet Solutions (bandwidth, billing and customer relations); and MWeb (to give access to a large pre-existant, retail customer base). Internet Solutions bills MWeb for use of the hot-spots by its customers and it enables the latter to add this service to its customer offer. The income from the hot-spot is split 50/50 after a 7.5% royalty payment to Airports Company of South Africa that developed the customer platform.

Internet Solution’s access costs are on a sliding scale depending on the time used and vary from R1 a minute to 62.5 cents for two hours. The minutes bought are time-limited and expire after time-limited periods. Telkom (which is partnered with WirelessG) offers the same R1 per minute access but both offer larger chunks of time at lower prices. This compares for example with R1.50 a minutes offered by the Garden Court Hotel in Sandton for access using a hotel-provided PC.

Internet Solutions is about to launch a per meg charging service and it also has a service for its corporate customers where they can roam using the hot-spots.

For the company buying the service, there are two broad models: the supplying partners pay all the costs of the set-up and take all the income and a revenue-share model where the company offering the service takes on some of the capital costs. The first option provides a risk-free service offer for the organisation offering it and the second an opportunity to share both risk and revenue. The organisation offering the service buys a modem with an access port with Wi-Fi capability for R200 a month. The revenue is then split three ways after the royalty payment to ACSA.

But as Paul Sconborn who has just become head of IS’s Mobile Solutions Business Unit points out:”We’re also negotiable. If a hotel for example invests in the capex of the equipment, we can vary the revenue share to reflect this.”

There are three main types of organisations offering hot-spots: airports. Hotels and coffee shops. And the whole growth of hot-spots in Africa started in airports. Places as diverse as Kenya, Rwanda and Senegal all offer hot-spots for visitors passing through their facilities. Hotels offer the Wi-Fi service in three different ways: all rooms, premium rooms only and only open areas.

As a regular user of these hot-spots, I have to report that although overall the service is good, there are a number of issues. With two different hotels I have booked Wi-Fi enabled rooms and found the signal too weak to use in the room. With the Telkom service in several different locations, the signal actually went down several times during half hour or hour-long sessions.

An although nearly always extremely fast, there were moments when the service was so slow that it appeared almost as if the service was lost. But as Sconborn observes:”The bandwidth connections are made using a Telkom DSL line, usually offering a total of 512K download. Contention rates vary, depending on the exchange and the time of day.” Overall African hot-spot download speeds reflect the speed of access in a given country. Kenya’s satellite-dependent hot-spots are much, much slower as are Rwanda’s.

Internet Solutions will have 200 hot-spots by the end of August 2006 with 450 wireless access ports and will probably double this infrastructure in the next 12 months. These hot-spots are spread throughout all the major cities of the country but with the largest number in Johannesburg.

As Sconborn told us:”We were first to market. We have an exclusive relationship with ACSA and good relationships with chains like City Lodge, Sun International and Mug and Bean.”Growth is usally slow at first according to Sconborn:”In the first few months it’s not very dramatic. Then it gets critical mass and takes off and an exciting customer base begins to grow.” Sconborn confesses that IS entered the market with some trepidation:”We entered hesitantly but we’ve seen it take off. It’s all about presence, footprint and branding.”

So who are the people actually using hot-spots? The corporate business traveller and the lap-top-owning consumer. According to Internet Solutions 95% are local and 5% are international based on payments they make to international providers iPass and QuickerNet. But this does not include credit card or voucher payments so the international proportion is likely to be somewhat higher.

The physical coverage is limited by South African regulations and the desire of the providers to make the service exclusive to a single company premises rather than have it spread throughout say a shopping mall. It needs to add value to the company offering and not do the same for all of his neighbouring competitors. It uses 2.4 ghz and can extend to 100 metres line-of-sight.

In another of Africa’s larger markets – Egypt – ISP Way Out.net is operating 108 Wi-Fi hot spots in the same categories of locations as in South Africa and plans to open 56 more in the coming year. For a full list go to: http://www.wayout.net/docs/hotspot.asp

By contrast, a smaller market like Ghana has a smaller number of hot-spots in the market but is beginning to grow. First in was Busy Internet that provides free Wi-Fi service in its café as a service to customers with lap-tops. Teledata ICT has sold hot-spots to fast food outlet Frankies and cable provider Cable Gold offers hot-spots in its coverage area in Sakumo. There is also a provider called Kaslain. But the much larger Nigerian market lags well behind. There are fast-food outlets in Lagos offering hot-spots but on a visit last week, they did not seem to be working. There also apparently one in the Le Meridien Hotel on Victoria Island but we were unable to confirm this.

So what do these early returns say about the future development of hot-spots? A number of issues emerge:

- It’s comparatively easy to size the first wave of the market. Count up the number of four or five star hotels. Add in the number of airports with international travellers and top it off with either branded coffee shops or fast food outlets. The latter will usually include the by now nearly ubiquitous South African-style malls in Anglophone countries with Steers and Nandos. In smaller countries this will add up to 10s of hotspots. In places like Kenya it might be somewhere between 50-100 and in larger markets it will start at around 500 and eventually hit the low 1000s.

- The providers are understandably coy about seeing income figures announced publicly but the numbers in the South African context are certainly interesting if not spectacular. The same will probably be true for hot-spot operators outside of South Africa although they would probably rely more heavily on international visitors for their revenues.

- Although the revenues are not large, the substitution of hot-spot use for other types of access will probably send out a number of ripples. It will take out a stream of high-end customers from cyber-cafes. Why sit in an uncomfortable chair in a badly lit room without air conditioning when you can sit in a coffee shop or fast food outlet in greater comfort for a relatively modest outlay on food or drink?

- Although the current customer with a laptop doesn’t yet know it, what he or she would probably sign up for would be the ability to be online almost anywhere. For the African power user (a small but not insignificant group), this is probably an already identified state of nirvana.

- The outstanding questions are will they pay for it and who will provide it? It offers an interesting niche opportunity for the larger retail ISPs in bigger markets. But it may be that it will the mobile operators if they get the pricing right. If that’s the case, you can sit wherever you feel most comfortable and read and write e-mails…Don’t let it be me that tells you to get a life.

According to an ABI study, there will be 350,000 Wi-Fi hot spots worldwide by 2008. Somewhere in the region of the mid-thousands will come from growth in Africa.

If you are aware of free or pay-for Wi-Fi hot spots available in countries not mentioned, please mail: info@balancingact-africa.com