The strange case of Somalia and the lessons of war-induced anarchy

Top Story

A country without any telecoms regulation with one of the highest percentage of people who have used a phone where there is no telco incumbent. A place where you do not need to show your passport when you arrive or leave and you pay no import duties on computing and network equipment. Sounds like paradise compared to what you're experiencing? Well not quite. This is Somalia as it emerges from civil war and takes its latest step towards peace with the repatriation of its Government, joining Sudan and many others as countries emerging from long civil wars. The emerging peace brings new, more stable business opportunities. Russell Southwood spoke to two of those involved in building the internet and telecoms sector in Somalia and ponders whether Somalia's war-induced regulation-free, anarchy has something to teach the rest of Africa.

Fred Mubiru is a Ugandan engineer who works on contract to Somali telco Waptel, spending several months in the country, interspersed with month long holidays. Waptel is one of the oldest telcos in the country and has been in operation for four years. Like most companies operating in the country, it makes no technology distinctions and although it does mainly internet services, it also offers VoIP telephony.

Mubiru says:"The main business model is to offer services to corporate customers, cyber-cafes, schools and universities." There are about 11 cyber-cafes in Mogadishu and Waptel owns 20% of some of these cafes on the basis that it supplies them with services on credit and VoiP equipment. The price they sell bandwidth to cafes at is according to Mubiru is "highly negotiable but around USD500 for 32 kbps". Waptel also supplies them with electricity from its own generators:"Every company has to buy its own generator and if you don't, you have to buy power from somebody who has one." Cyber-café customers pay 8-10,000 Somali shillings (about 60 cents) an hour.

"It's easy to get equipment in if you can afford DHL's charges. There's no import taxes and anything you order can be shipped to the DHL office in Mogadishu. You can get stuff flown in from Nairobi or Dubai. There's three passenger flights a day and many cargo flights"

Waptel's international connectivity is currently supplied by Gilat. Initially it was getting 512 kbps up and 1.5 mbps down for USD7800 but it has recently reduced this to 384 kbps up and 1 mbps down for USD5300 dedicated bandwidth. But it is still searching for cheaper prices. It pays separately for its VoIP services and buys minutes to Europe and the USA for 2 cents a minute and lower to some places. By contrast, it costs them 28 cents a minute to terminate on a mobile number on Africa. Landline terminations vary between 12-18 cents a minute, depending on the destination.

Until recently there were three mobile and fixed line phone operators (Nation Link, Telecom Somalia and pre-paid card operator Hormod) but these were recently joined by a fourth entrant Somafone. After a long period without interconnect agreements of any kind, the three established carriers habe agreed to interconnect to fight off competition from the fourth entrant: local interconnection splits revenues 50:50 and there is no international interconnect.

They have also lowered their charges. Subscribers pay a fixed monthly charge but get local calls free. Long distance calls are 10 cents a minute and international calls 50 cents a minute. The three existing operators have about 120,000 subscribers between them.

Daud Ali Jeyte is the CTO for one of these voice providers, Nation Link. It offers both fixed and mobile and has around 50,000 subscribers, mainly in Mogadishu although it covers the whole of Somalia. It has microwave links for long-distance connections and copper for the local loop. In the small towns it operates PABXs and in the larger places Nortel switches in larger exchanges. It is currently bringing in about a million minutes annually and sending out between 200-250,000 minutes. It operates its own carrier in the UK for dealing with international connections. It is planning to put fibre cables down in Mogadishu.

Ali Jeyte says:"The market is big enough to support 4 carriers and it is growing. But growth is slow because there is no Government to give a guarantee or bank to give a loan. Everything has to be financed out of operating income. Therefore we go gradually to market."

The country's economy is largely held up at present through remittances from abroad: Somalia's diaspora is estimated to number 3 million against the country's population of 10 million. Its economic activities include agriculture and fishing:"Since there is no security, there are almost no exports. But once the security situation changes, things will open up."

He told us:"The new Government of Reconstruction (which has recently returned to the country) doesn't have any funds so it's hoping to encourage the private sector to tackle the task. We are providing services for them. We will put small VSAT earth stations into villages. These cannot cover their running costs and the hope is that the Government will cover the shortfall in the long-run."

Regulation across Africa is often built around fear of what will happen if you remove it and allow competition. Somalia shows that even in the worst of circumstances that the absence of regulation and complete competition can create a sturdy, self-regulating sector. There are no artificial distinctions on business activity based on technology: everyone can do everything, including VoIP. The interconnection agreement between the three larger operators has been reached more quickly than many such agreements where regulators have pondered at length and commissioned expensive studies. There must a lesson or two in all of this somewhere.