SUDATEL’S UNWILLINGNESS TO WHOLESALE BROADBAND MAY SPELL END FOR INDEPENDENT ISPs

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The internet market is dominated by Sudatel as it was in the beginning the only company allowed to offer an ISP service. Indeed the growth of the first ISPs remains tangled up in its somewhat unfocused commercial Internet strategy. It bought a shareholding in an ISP called Sudanet and before Mobitel was sold to Celtel, it owned an interest in a third ISP, Mobinet. However it suffered big losses on Sudanet when it implemented a “loans for computers” scheme as it was unable to collect the outstanding loans effectively. But despite this setback, it controls more than 70% of the market, which two years ago had around 300,000 subscribers. Mobinet currently claims 90,000 subscribers.

There is currently a working group of ISPs looking at setting up an ISP association but no work is currently being done on setting up a local IXP.

Until October 2005 all ISPs shared the monopoly incumbent’s international gateway and service suffered because the incumbent gave priority to its international voice business.

With liberalisation, there will now be three “big players” moving into the Internet space: Areeba, Mobitel and Canartel. All of which does not leave a lot space for the other 22 ISPs in the market; 19 of whom offer dial-up and three wireless access. Most of these ISPs are small and with the arrival of broadband, some level of consolidation looks inevitable.

In these circumstances, wireless access should have taken off as the alternative challenger to the incumbent. One of the largest operators ICOM launched in 2003 with a proprietary point-to-point system. Initially it attracted a lot of customers but because of high levels of contention, customers were unhappy with download speeds. Apparently a single base station only delivered 4 mbs of capacity. In addition, there were problems with customer aerials getting out of alignment when there were high winds. As one insider told us:”The image of wireless access has been very badly damaged by this experience.”

E-Sharaf has a Wi-Max licence but it is only achieving 7-5 kms on point-to-multipoint connections. Zinanet also offers broadband wireless. Interestingly Mobitel has been using Wi-Max as a substitute for for more traditional mobile networking.

The other issue has been pricing as the service is expensive. One provider charges 400,000 dinars for the equipment needed and between 5-600 dinars (US$22-26) a month for access.

The ISPs offer “free” internet with the ISPs taking 60-70% of the retail bandwidth cost. Sudatel has launched DSL broadband but appears to have no intention of wholesaling to retail ISPs. It has rolled out the service mainly in the capital Khartoum but it has ambitious plans to roll it out to 60 towns and cities and a number of rural areas. The monthly charge for a 512k download service is 60,000 dinars (approx $260 a month).

However prices will come down by around 70% when Sudatel announces its new pricing structure shortly. And with this kind of price reduction, the number of subscribers should go up from the current figure of around 3,000. Dial-up subscriptions are therefore soon likely to become a thing of the past: As Mobitel’s Product Manager told us:”After DSL, most ISPs will vanish.”

Despite legalising a number of retail companies (buying from Sudatel) to offer VoIP (with a quality threshold), the grey market is apparently till a very large part of the international voice market. It is used both by individuals using things like Skype and through the country’s cyber-cafes and tele-kiosks. The latter advertise openly cheap calling prices to destinations like USA.

However, there is still plenty of room for those wanting to offer lower quality calling in the grey market. Sudatel’s current call cost to Washington DC is around 90 cents a minute. And as the regulator estimates that there are 60 million minutes coming into the country and probably as many going out, the grey market will remain profitable for some time to come.

Another interesting aspect of the international traffic market is that Monaco-based Midnet that supplies international connectivity to Areeba is owned by the same group of people that control Areeba’s owner Investcom. And packet-switched traffic is being sent for conversion and refiling to Areeba in Sudan.

Internet use is low because use of PCs is not widespread. The regulator NTC is looking at cutting import duties and has a scheme to offer Government employees 2 year loans to buy computers. Last year it sold 60,000 computers and has ambitious plans for that total to hot 2 million over 5 years. There are no computer labs in the smaller universities.

Nevertheless there are many cyber-cafes and access usually costs around 200 dinars  (US87 cents) an hour.

The regulator NTC also filters the internet for things like pornography and spam through a joint venture with an American company. As a result, internet access is much slower than might be expected from a country with international fibre connections.

Sudan is more “North African” in size and scale than typical Sub-Saharan African countries. Therefore you cannot fail to be impressed by the quality and extent of its backbone and the scale of its markets. But its vertically-defined, unified licence structure is an almost certain recipe for the triumph of the “big boys”: in effect, it pours all the potential of a large market into four buckets. It is noticeable that all four companies seem happy with this level of competition and that to us would seem to imply that the market could easily benefit from higher levels of competition.

Without regulatory intervention, there is an almost certain danger that most of the ISP sector will disappear unless Sudatel is forced to wholesale broadband capacity. Without others (like the power utility and oil companies) being allowed to sell fibre backbone capacity themselves, Sudatel has the opportunity to exercise dominant market power in the infrastructure layer. And these are not simply theoretical points as they are about whether local Sudanese will get the opportunity to set up small and medium-sized businesses in the sector as the market begins to double in size.