MTN’s purchase of Cameroonian ISP may spell the end of independent ISPs

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Africa’s largely small ISPs are under threat from all sides. The launch of broadband by the telco incumbents in an increasing number of countries has shifted the balance of market power decisively back in the direction of the telco. Most of Africa’s regulators are lagging behind the position in addressing the issues raised by DSL broadband roll-out. Unified licences mean that services defined by technology will disappear. Powerful mobile companies are now wanting to make sense of expensive upgrades like GPRS and are looking to add Internet operations. The purchase of GlobalNet in Cameroon by MTN may be the first of a growing trend that spells the end of independent ISPs, writes Russell Southwood.

MTN Cameroon announced in October 2005 that it wanted to purchase local ISP GlobalNet. It is understood that it offered FCFA2 billion to buy the company. The sale was opposed by the local private sector operators association Conestel (Collectif de opérateurs nationaux exploitant dans le secteur des télécommunications). It sought to argue that the sale of the ISP was in effect the sale of a national interest, “because the Internet remained one of the last elements of sovereignty.”

On more plausible grounds, Conestel sought to argue that it constituted “an abuse of dominant market power”. It pointed out that MTN already was using 40 mbs out of the 133 available and the regulator ART had never given Conestel’s members the kinds of frequency allocation opportunities enjoyed by MTN. It had promised Conestel’s members 10 LWANs but only 4 had thus far been been installed.

Three weeks ago MTN Network Solutions received official notification that it had been granted a first category operating licence for providing Internet services. This was despite a number of assurances being given to Conestel that the sale would be reconsidered. According to sources that spoke to local newspaper, Le Messager, the move to grant the ISP licence to MTN was in effect a quid pro quo for allowing the incumbent Camtel to enter the mobile market. With clearance having been granted for the sale, there is already local speculation that Orange is seeking to buy another local ISP, Creolink.

MTN Cameroon’s Corporate Communications Co-ordinator hit back at those opposing the sale by saying:”When you look at the actual market situation of the Internet in Cameroon, the situation is as follows: access to the Internet remains a luxury for the wealthy and for small companies. High prices remain a limiting factor. Access is only possible in the large urban centres of Douala and (the capital) Yaoundé. Rural populations do not yet have access. The products and services offered are very limited. The actual networks of ISPs are not very reliable and service to consumers is very weak.” The reasons why this is the case may be a subject for debate but as a description of the country’s Internet sector, it would be hard to fault.

In issue 227 Everything solid melts into air; welcome to the new business model we predicted that the boundaries between the voice, Internet and data sectors of the business would begin to break down. ISPs would go into the (eventually legal VoIP) business and mobile companies would repay the compliment by buying into ISPs and data and network providers. Unified licensing will simply accelerate these processes.

Unfortunately most of Africa’s ISPs are in no shape to respond competitively to the “big battalion” mobile companies. They are too small, undercapitalised and have often not sought to do more than live quietly (and unimaginatively) off the dial-up market of capital cities. Too few are making the kinds of innovative technology moves that will allow them to avoid getting crushed by the resurgent incumbents. DSL is allowing the incumbents to put the squeeze on ISPs that all too often were amongst those who campaigned for the opening up of markets. But too few are reacting like Africa Online (see Internet News below) and seeking to build out local loop infrastructure.

As a result, Africa’s ISPs are in danger of being crushed between the existing incumbents and the new incumbents, the mobile operators. If the cash-rich (but again innovation-lazy) mobile operators are allowed free rein they will simply replicate the vertical control previously exercised by the telco incumbents. They will accumulate dominate market power at every layer: services and applications, transport and infrastructure.

But when existing ISPs say they want to roll out cheaper VoIP mobile, you can be sure that the mobile companies will protest that it will destroy the investment they have already made in their network. However, you don’t have to be particularly observant to notice that mobile telephony charges are 3-5 times that for fixed operators, whereas it is considerably cheaper to connect a new mobile subscriber than a fixed one. The premium for mobility? There’s really no case to argue that if the majority of people are using mobiles and the majority of network investment is already in place.

Furthermore, on the basis of the current profitability of the major mobile operators, is it just possible that these mobile “franchises” favour the operator more than they do the user? So it will be interesting to see what happens when some of Africa’s ISPs start to want to offer mobile voice as they will do shortly.

And the argument must surely be about “dominant market power” in different parts of the layered network rather than the somewhat weak argument the Internet is a vital part of national sovereignty.