11 November 2005

Top Story

At a meeting organised by NEPAD’s e-Africa Commission on Thursday morning last week, the World Bank’s Pierre Guislain outlined the financing offer the Bank has made to the East African fibre project EASSy. The offer has been under negotiation since November 2004 and this was the first public outing for the Bank’s proposal. The offer is conditional on consortium members accepting Open Access principles, an idea that seems to be gathering momentum with Africa’s Governments and regulators.

The consortium has a financing shortfall as a number of its incumbent members are unable to raise the required capital from their own resources. The offer has split the consortium members down the middle. The larger members who have the capital to make their contribution see the offer as “a diversion” that will prevent them from raising the rest of the money quickly. They maintain that the shortfall will be made up by other members like VSNL, the main shareholder in the South African SNO.

At which point, the smaller, less well-off members will either have to leave the consortium or their donor backers will have to accept the terms offered by the consortium. However this route undoubtedly contains a number of political dangers for the larger members as it may place them in conflict with their governments and regulators. The talk of landing stations as “essential facilities” has already quickened the pulse of some of those involved. The smaller members, particularly the landlocked countries, are keen to see this project built on a different basis to the club consortium route used to build SAT3. It is a game of poker whose outcome will probably only become clear in the spring of 2006.

The Bank’s offer forms part of its Africa Action Plan and is a joint IFC/World Bank programme to support NEPAD’s Africa ICT connectivity initiative. The World Bank’s Guislain started by describing to those attending the shortcomings of the “closed club consortium structure”. The club consortium route means that members have an exclusive right to capacity and that non-members pay “an excessive premium for access”. In each country it would create a monopoly or duopoly in terms of access. The result would be that the new fibre would have a limited impact on the high prices paid by Africa for international fibre access and thus on the wider development of the continent.

The Open Structure proposed by the Bank would be funded through a mixture of commercial debt (DFI’s, commercial banks) and equity (financial investors). Capacity would be accessible to all market players (including landlocked countries): fixed line operators, mobile operators, ISPs etc. Capacity pricing would be fair, the same for all and determined by market forces. Pricing would be set low to grow traffic as quickly as possible. As with oil pipeline special purpose vehicles, the profits will be made by those using the capacity, not the operating vehicle for the capacity. Guislain said he believed the Open Access SPV route made the project bankable because it controlled the assets and the capacity.

He said the IDA would be able to offer: credits for the development of national backbone and regional networks and capacity building technical assistance for supporting reforms. The IFC can offer debt, equity and mezzanine financing for the SPV and direct financing of private operators.

A lively debate followed a number of speeches but there were few voices raised in opposition to the proposal, which does not mean opposition does not exist. One voice opposing this route was consortium member Telkom Kenya’s General Manager Joseph Ogutu who said that the SPV would take too long to arrange and that landlocked countries could always use satellite if they were unhappy with the eventual fibre price. The last comment is perhaps the African telco equivalent of Marie Antoinette’s famous reported comment when told the French people were starving:”Let them eat cake.”

Political support is beginning to grow for the Open Access route. A meeting of SADC ICT Ministers held in Johannesburg on 7 November issued a communiqué that stated:

1. The urgent need to build broadband ICT infrastructure for terrestrial and submarine cable networks for East and Southern Africa.

2. The application of open, non-discriminatory and affordable access to these networks.

3. Acceptance that cross-border terrestrial and submarine cable segments of these networks can be developed, owned and maintained, as appropriate, by special purpose vehicles.

4. Agreement on the application of the principle of public private partnerships for these networks.

5. Governments should create regulatory and policy frameworks conducive to the development of these networks.

A plan of action was tabled that will lead to proposals and recommendations going to Ministers in the first quarter of 2006. Countries attending the meeting were: Kenya, Tanzania, Mozambique, South Africa, Uganda, Malawi, Zambia, Botswana, Lesotho, Madagascar and the DRC.

The larger members of the consortium appear already to be offering a number of concessions which they clearly hope will “buy off” the growing momentum for the Open Access approach. It says the club consortium route is more financially secure and it would make its prices transparent. Also in an effort to reassure the landlocked countries it is saying that transit to the landing station would be on the basis of a cost-based leased line. The wholesale price being discussed (in other words the price paid by club consortium members) would be just over US$1,000 per mbps per month.