Future of Bandwidth 2011 Excerpt and ToC

8/3/2019 Future of Bandwidth 2011 Excerpt and ToC

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THE FUTURE OF AFRICAN BANDWIDTH

African Internaonal Bandwidth Economics, Bolenecks and

Business Models

AN INVESTOR REPORT BY AFRICANEXT INVESTMENT RESEARCH

2011

REPORT TABLE OF CONTENTS AND SAMPLE EXCERPTS


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Page 2The Future of African Bandwidth 2011

Over the past year, the African telecoms market has been transformed by the

launch of new, private submarine cables. International wholesale prices have

fallen by more than 50% in many markets, bandwidth supply has risen by nearly

300% in 2010, and some countries have raised their international bandwidth

intake nearly tenfold.

As more submarine cables prepare to become operational, The Future of African

Bandwidth Report provides an in-depth analysis of subsea cable impact in theAfrican wholesale market. From an in-depth review of bandwidth demand and

supply to an analysis of the evolution of bandwidth pricing models, the report

offers a comprehensive view of the dynamics shaping African bandwidth

markets.

Among other views, we say the following:

East Africa will be undersupplied unless operators keep lighting up

bandwidth,

West Africa will hinge (in large part) on what Globacom does

IRRs generated by SAT-3 were at least 30%

The onslaught of new bandwidth will make no material difference toprices in a few markets

France Telecom is the largest service provider investor in African

international bandwidth, and Tata isnt far behind.

And more..

In an environment that is as fast-paced as it is difficult to grasp, The Future of

African Bandwidth provides perhaps the most in-depth research available on

Africas international wholesale bandwidth markets.

The African

bandwidth market

is inching ever

closer to a pping

point.

OVERVIEW


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REPORTSPECIFICATIONSBasic version - $1,500.00

PDF format

100 Pages

52 Exhibits

Premium Pack - $2,000.00

PDF format

100 Pages

52 Exhibits

PPT Executive Summary (~30 slides)

All Exhibit Data in Excel

ORDERINFORMATIONPurchase available by credit card or invoicing (corporate only). Please contact us [email protected] or call +1 617 444 8426.

REPORTSPECIFICATIONS


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What are the projections of bandwidth supply in African markets for the

next 10 years?

What are the projections of bandwidth demand in African markets for

the next 10 years?

What are Africas most attractive wholesale markets? Which markets

will be least attractive and why?

Are African markets headed towards a bandwidth glut?

What are the current prices for wholesale bandwidth in Africa? How are

they expected to evolve?

How will fibre unit costs impact pricing?

How will fibre costs impact profitability?

Which players will be the winners in Africas Bandwidth race?

Which players will be the losers?

What is the impact of domestic transmission on bandwidth adoption?

How much profit and returns (IRRs) did previous cables generate?

What is the return potential for new subsea cables?

And more

KEYQUESTIONSEXAMINED


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LISTOFEXHIBITS 5COMPANIESMENTIONEDINTHISREPORT 7LISTOFABBREVIATIONS 7EXECUTIVESUMMARY 8THE CATALYSTS: BROADBAND, SMARTPHONES/TABLETS, APPLICATIONS AND DOMESTIC BACKHAUL 8

BANDWIDTH REQUIREMENT PROJECTIONS: A 2TBPS LONG TERM TARGET 9

THE SUPPLY SIDE: FROM BANDWIDTH SCARCITY TO BANDWIDTH TSUNAMI 11

IS AFRICA FACING A BANDWIDTH GLUT? 12

THE ECONOMICS OF SUBSEA CABLES 14

PRICING: HEADING DOWN, BUT HOW FAR, HOW FAST? 15

SECTION1 THETRANSFORMATIONOFAFRICAN BANDWIDTHDEMAND 171. THE CHALLENGES OF FORECASTING BANDWIDTH 17

2. THE CATALYSTS OF AFRICAN INTERNATIONAL BANDWIDTH DEMAND 18

2.1 THE BROADBAND RETAIL BOOM 18

2.2 SMARTPHONES AND TABLETS 18

2.3 DOMESTIC BACKHAUL: THE LAST BOTTLENECK 19

2.4 UTILIZATION PROJECTIONS: A 2TBPS UPSIDE 23

2.5 WHY OUR BEST CASE FORECASTS MIGHT BE A LOW CASE: OF CLOUDS AND CDNS 25

2.6 PURCHASED BANDWIDTH & REVENUE POTENTIAL 27

2.7 CHARACTERISTICS OF BANDWIDTH GROWTH 27

SECTION2:THESUPPLYSIDE:ANAFRICANBANDWIDTHTSUNAMI 302.1 THE TRANSFORMATION OF INTERNATIONAL BANDWIDTH SUPPLY: FROM SCARCITY

TO BANDWIDTH TSUNAMI 30

2.2 THE AFRICAN BANDWIDTH SUPPLY MODEL: THE RIGHTS AND WRONGS OF CONSORTIUM

STRUCTURES 37

TABLEOFCONTENTS


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SECTION3 OFBANDWIDTHGLUTSANDTHEFUTUREOFSATELLITE 403.1 IS AFRICA FACING A BANDWIDTH GUT? 40

3.2 THE REALITY OF OVERSUPPLY AND THE MYTH OF A GLUT 42

3.3 OF STRUCTURAL AND ISOLATED SUPPLY RISKS 43

3.4 FIBRE BANDWIDTH GLUT AND THE FUTURE OF SATELLITE 47

SECTION4 THEECONOMICSOFAFRICANSUBSEACABLES:OFCAPEX,MARGINSANDIRRS 494.1 SUBSEA CABLES CAPITAL INVESTMENTS: LOWER COSTS TRANSFORMING

THE AFRICAN BANDWIDTH PARADIGM 49

4.2 WHOLESALE PRICE EVOLUTION: FROM OVERPRICED, ONLY WAY IS DOWN 55

4.3 PRICE STRUCTURE: VOLUME DISCOUNTS, PRICING INCONSISTENCIES RIFE 55

4.4 PRICE VS. UNIT COSTS: COSTS SUGGEST WERE STILL FAR FROM A PRICE BOTTOM 56

4.5 INTERNATIONAL VS. NATIONAL PRICES: THE NEXT ABSURDITY 56

4.6 WHOLESALE VS. RETAIL PRICING: STRONG CORRELATION, BUT THERE ARE OTHER CATALYSTS 58

4.7 WHOLESALE PRICE OUTLOOK: LOOKING FOR THE BOTTOM, AND WHAT WILL GLOBACOM DO? 61

SECTION5 INTERNATIONALBANDWIDTHCOUNTRYSNAPSHOTS:FROMANGOLATOZIMBABWE 635.1 ANGOLA 63

5.2 BENIN 65

5.3 BURKINA FASO 66

5.4 CAMEROON 67

5.5 COTE DIVOIRE 68

5.6 DRC 69

5.7 GHANA 70

5.8 KENYA 71

5.9 NIGERIA 73

5.10 RWANDA 75

5.11 SENEGAL 76

5.12 SOUTH AFRICA 77

5.13 TANZANIA 79

5.14 UGANDA 80

5.15 ZIMBABWE 81

APPENDIX SUBSEACABLEPROJECTSNAPSHOTS 826.1 ACE 82

6.1.1 PROJECT DETAILS 82

6.1.2 UPSIDE & KEY ISSUES 83

6.2 SAT3/WASC/SAFE 846.2.1 PROJECT DETAILS 84


6.3 SEACOM 85




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6.4 EASSY 86



6.5 TEAMS 87


6.5.2 UPSIDE & KEY ISSUES 876.6 GLO1 88



6.7 MAIN ONE 89



6.8 WACS 90




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FIGURE1 Key Forecasts AssumponsFIGURE2 SubSaharan Africa Internaonal Bandwidth Demand Requirements By Region 2008 bnx

2020

FIGURE3 SubSaharan Africa Internaonal Bandwidth Demand Requirements FFFF FFFFFF FFFFFBase/Upside/Downside 20082020

FIGURE4 The Old Internet Market StructureFIGURE5 The New Internet Market StructureFIGURE6 Top 20Internaonal Bandwidth Markets in SubSaharan AfricaFIGURE7 SubSaharan Africa Cable MapFIGURE8 SubSaharan Africa Internaonal Bandwidth Design CapacityFIGURE9 SubSaharan Africa Internaonal Lit Capacity as Proporon of Design CapacityFIGURE10 East Africa vs. West Africa Lit CapacityFIGURE11 Distribuon of SubSaharan Africa Submarine Cable Landing PointsTABLE 12 Submarine Cable & Country Landing Point Matrix*FIGURE 13 Submarine Cables CapEx: Carrier SelfProvision vs. Open Access/Private CablesFIGURE14 Submarine Cables: Sample Investments by PanAfrican Carriers 20022012FIGURE15 Submarine Cables: Sample Investments by PanAfrican Carriers 20022012TABLE16 Demand, Supply & Oversupply, East Africa vs. West Africa*FIGURE17 SubSaharan Africa Internaonal Bandwidth Demand vs. Supply 20082020FIGURE18 Historical Bandwidth Ulizaon on SAT3/SAFE Submarine CableFIGURE19 Breaking Down the Open Access Surplus SubSaharan Africa 2015 EsmateFIGURE20 Open Market Excess Supply East vs. West AfricaFIGURE21 Africa Subsea Cable CapEx by ProjectFIGURE22 CapEx per Unit of Design CapacityFIGURE23 CapEx per STM1 (lit)*FIGURE24 Evoluon of Median Bandwidth Unit Costs vs. Median Unit Prices 20022012FIGURE25 Comparison of Two Sample SAT3 Investments Ghana Telecom vs. Camtel CameroonFIGURE26 Internaonal E1 (AfricaEurope) vs. Domesc Backhaul E1 in Sample MarketsFIGURE27 Evoluon of Domesc vs. Internaonal E1 Pricing in Sample MarketFIGURE28 Unit Costs vs. IRU Prices for Sample African Submarine Cables on AfricaEurope RoutesFIGURE29 Evoluon of Africa to Europe E1 IPLC Prices in Selected Markets 20022010FIGURE30 Evoluon of Subsea Lit Bandwidth vs. Unit Costs in AfricaFIGURE31 E1 (2Mbps) IPLC Monthly Price Benchmarks for SubSaharan Africa 15 MarketsFIGURE32 Bandwidth Price per Mbps by Volume and Contract Opon on Sample SubSaharan

xda African Cables

FIGURE33 Angola Internaonal Bandwidth Demand Requirements*FIGURE34 Benin Internaonal Bandwidth Demand Requirements*FIGURE35 Burkina Faso Internaonal Bandwidth Demand Requirements*FIGURE36 Cameroon Internaonal Bandwidth Demand Requirements*FIGURE37 CotedIvoire Internaonal Bandwidth Demand Requirements*

LISTOFEXHIBITS


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FIGURE38 DRC Internaonal Bandwidth Demand Requirements*FIGURE39 Ghana Internaonal Bandwidth Demand Requirements*FIGURE40 Kenya Internaonal Bandwidth Demand Requirements*FIGURE41 Nigeria Internaonal Bandwidth Demand Requirements*FIGURE42 Senegal Internaonal Bandwidth Demand Requirements*FIGURE43 South Africa Internaonal Bandwidth Demand Requirements*FIGURE44 Tanzania Internaonal Bandwidth Demand Requirements*FIGURE45 Uganda Internaonal Bandwidth Demand Requirements*FIGURE46 Zimbabwe Internaonal Bandwidth Demand Requirements*


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ACCESS KENYA

AKAMAI

ANGOLA TELECOM

BAHARICOM

BHARTI AIRTEL

BIGRAVITY

BUSINESS CONNEXION

CAMTEL

DANGOTE TELECOM

ETISALAT

EXPRESSO

FACEBOOK

FRANCE TELECOM

GLOBACOM

GOOGLE

GROUPON

IBURST

INTELSAT

INTERNET GHANA

JAMII TELECOM

KENYA DATA NETWORKS

LIMELIGHT

MAIN ST TECHNOLOGIES

MICROCOM CONGO

MTN NIGERIA

MULTILINKS

MUNDO STARTEL

NEOTEL

ONATEL

ORANGE KENYA

PHASE III TELECOMPHCN

RWANDATEL

SEACOM

SONATEL

TANESCO

TELKOM SA

VODAFONE GHANA

WANANCHI

WIOCC

COMPANIESMENTIONED


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After years of slow growth and outright despair at the crippling effect of

expensive international bandwidth on the African continent, our research

suggests that the market is inching ever closer to a tipping point. As submarine

cables find their way along Africas coastlines, the continent is slowly, but

inevitably emerging from what we have long referred to as the Dark Ages of

African bandwidth, an era of bandwidth bondage of sorts, characterized by

excessively high prices, near-zero broadband penetration rates and self-defeating

regulatory models. How things change, and nowhere are they changing as fast asin the African wholesale bandwidth market.

Our analysis yielded the following points, as it pertains to the upside for and

business models of international bandwidth in Africa:

Harbingers of a bandwidth boom abound. Broadband connectivity

uptake and traffic is on the rise, following on a path trodden by mobile

voice services. Over the next five years and based on a variety of supply

and demand assumptions- connectivity numbers should rise to around

30m from only around 6.5m in 2010, primarily thanks to the

proliferation of mobile broadband. Internet user numbers are higher,with more than 120m users projected for sub-Saharan Africa by 2015.

[]

Once overlooked, the domestic backhaul segment of the bandwidth

infrastructure value chain is becoming the last major bottleneck to full

scale bandwidth adoption in the African market. We are cautiously

positive on this segment. Domestic backbone availability is increasingly

less of an issue, though not uniformly. []

[]

Overall, however, the absence of competition in this segment is likely to

hamper growth as domestic backhaul prices remain high and indeed

higher than international bandwidth prices. Markets with high

competitive intensity in this segment are bound to see higher demand for

international bandwidth, while we are more conservative on the others.

EXECUTIVESUMMARY(SAMPLE)The African

bandwidth market

is inching ever

closer to a pping

point.


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Page 12

[]

Our bandwidth utilization forecasts point to a remarkable increase in

bandwidth requirements across sub-Saharan Africa. At the end of 2008,around [] of bandwidth was active in sub-Saharan Africa across fibre and

satellite networks. Following the launch of the Seacom submarine cable in

2009 and Eassy in 2010, that number more than tripled to around [] at the

end of 2010, with some markets (e.g. Kenya) seeing activated international

bandwidth rise by more than 1000%.

[]

While we have integrated their purported impact in our projections, we

see Internet and traditional content players as the unknown factor in

Africas bandwidth forecasts, that somewhat unpredictable yet anticipatedelement that has the potential of making upside forecasts look retrospectively

silly. []

[]

So theres a supply-demand gap, to be sure. But is there an international

bandwidth supply glut? We believe the picture is a little more mixed. For one,

excess capacity is an inherent part of the submarine cable model. Further, sub-

Saharan Africas international bandwidth has been in oversupply mode since the

launch of the SAT-3 cable in 2002, an oft forgotten fact. In addition, short term

demand is stronger than short term supply, as the performance of Africas newsubmarine cables suggests.

[]

The above hardly means there is no risk to bandwidth provider returns. The

risk is both isolated and structural. Isolated risk pertains to individual markets,

where the oversupply of bandwidth available dwarfs projected demand. In

markets such as Benin, Gabon or Angola, for example, only about 30% of

available lit bandwidth should be used over the long term.

[]

We see three main implications from our analysis of the African international

bandwidth oversupply risk for investors. First, there will be winners and losers:

the dynamics of supply cannot be changed so dramatically in a competitive

environment without negative impact on some industry players. Two []

The domesc

backhaul segment is

the last major

boleneck to full

scale bandwidth

adopon.


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Page 13 The Future of African Bandwidth 2011

Our review suggests that the short term impact of wet fibre on satellite is

unquestionably negative. Perhaps counter-intuitively, we still see some long

term upside to satellite []

[]

The decline in the cost of bandwidth has contributed to making submarine

cable deployments more attractive from an investment standpoint not that it

ever wasnt. []

Such dramatic decline in CapEx impact carries considerable implications for

African cable business models. For one, it potentially improves the business

case in a context of falling wholesale prices by lowering the investment per unit

of bandwidth. Another, perhaps more fundamental if insidious- consequence

is the impact on the nature of bandwidth as a product. []

[]

We note that African international bandwidth is selling at between 1.5x to 4x

unit cost on an IRU basis, a rate that has been fairly stable over the past 10

years, []

[]

We see some structural pricing risk in this market. []

The tradional telco

distribuon

framework has

been transformed.


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Future of Bandwidth 2011 Excerpt and ToC