Heavy blow to COMTEL fibre project as Ericsson says it will not be an investor

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One of Africa's major fibre network projects was struck a heavy blow this week by the revelation that its only announced external private investor - Ericsson - will not become an equity partner. Financing major fibre projects is a complicated process that requires those involved to build confidence and add investors over time and this withdrawal will undermine that process.

COMESA struck a deal in March 2004 with what was then described as the Anderberg-Ericsson Consortium of Mauritius as the strategic equity partner for the regional Communication Telecommunication Project (COMTEL).

The planned network (see map below) is designed to connect the 21 countries of COMESA, using a combination of micro-wave and fibre links. The entire network, if and when built, would be 18,000 kilometres long.

The consortium's announced intention is to launch "Comtel Communications Limited (as) Africa’s premier voice and data network."Thus far the partners backing the consortia are entirely telco incumbents from the COMESA countries and there have been problems over who will operate the network that have also proved fairly intractable.

Anderberg International was appointed by Comtel board of Directors as the Strategic Equity Partner, and as overall Project Managers. The total cost of the project will be USD250 million, financed by a mixture of public / private equity and debt. After completion of the network build in 2 years, Anderberg will operate and manage under license the COMTEL commercial operations for a period of 10 years to ensure a return to all investors and stakeholders.

However according to Annabel Cele, Manager External Relations for the Ericsson Market Unit, Sub-Saharan Africa:"The Anderberg/Ericsson Consortium and its financial investment partners in its proposal to COMESA dated March 2004 proposed that the initial investment in the Comtel Project be split into equity to debt ratio of 60:40. The Anderberg/Ericsson Consortium proposed to make seventy-five per cent (75%) of the initial equity investment, which included a ten per cent (10%) stake of the Anderberg/Ericsson Consortium and sixty-five per cent (65%) from financial investor partners".

"However, the Anderberg/Ericsson Consortium entered into the Comtel Project as two separate legal entities, with Anderberg International Limited as Consortium Leader. It was agreed that Anderberg International Limited will initially take the ten per cent (10%) equity, since Ericsson South Africa (Proprietary) Limited at the time was not interested in holding equity in the Comtel Project. Ericsson South Africa (Proprietary) Limited however reserved its right to reassess its position of holding equity after the finalisation of the due diligence, which never occurred. We hereby confirm that Ericsson South Africa (Proprietary) Limited is neither an investor in the Comtel Project nor does it hold any equity in same".

We made several attempts to reach Comtel to get their reaction but on each occasion were only able to leave voice mail messages.

The politics of building fibre are complicated and the latest report from Balancing Act - African Internet Country Market Profiles: Part 2 - East Africa (see details at the bottom of this story) - East Africa - looks at how they affect the East African sub-region.

It is the smallest of the sub-regional markets on the continent and has therefore had difficulty generating proposals that will produce investment interest from international carriers in the way that SAT3/SAFE was able to. But international fibre connecting large coastal cities by itself will not grow the market. There needs to be high-capacity, inter-country backhaul links, particularly for those countries that are land-locked.

The report looks at the range of plans being put forward in the region to provide these links. However as SAT3/SAFE has shown to date, the introduction of new fibre links does not necessarily ensure that cheaper bandwidth becomes available to users, either at the wholesale or retail level. The report looks at how the barriers to lower fibre prices came about and how these obstacles might be addressed in these future projects in East Africa.

Of the three sub-Saharan Africa bandwidth markets (East, West and Southern Africa), East Africa is by far the smallest and its share of the overall bandwidth market in the region is expected to be only about 12% by 2008. Relative to the other regions, the market has declined since the mid 1990s and looks set to decline in the foreseeable future.

Balancing Act's African Internet Country Market Profiles is published in four parts. Part 2: East Africa has just been published and covers 16 countries and territories (Burundi, Comores, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Mauritius, Mayotte, Reunion, Rwanda, Seychelles, Somalia, Sudan, Tanzania and Uganda. Part 3: Southern and Central Africa will be published in autumn 2005. Part 4: North Africa will be published at the end of 2005. For further details: http://www.balancingact-africa.com/publications.html

Each report covers the following: Overview of internet in West Africa, Impact of VoIP legalisation, key statistics, country background data, number of ISPs, dial-up-subs, bandwidth and backbone, geographic coverage, cyber-cafes, local web content, current status of regulation, digital divide initiatives and landline and mobile data.

The reports authors are Paul Hamilton, Mike Jensen and Russell Southwood.