Scanbi Invest 1 2007-11-14 Anders Engvall Options for Terrestrial Connectivity in Sub-Saharan Africa 5th International Conference on Open Access – Bagamoyo,

Scanbi Invest

12007-11-14

Anders Engvall

Options for Terrestrial Connectivity in Sub-Saharan Africa

5th International Conference on Open Access – Bagamoyo, Tanzania

Scanbi Invest 2007-11-14 2

Study Objectives

• Increase the awareness of mobile investments in backbone facilities

• Identify the issues for improved utilization

Sida of Sweden financed the study


An Improved Picture

Telephones per 100 inhabitants. Sub-Saharan Africa

0,0 10,0 20,0 30,0 40,0 50,0 60,0

Bots wana

Gabon

NamibiaC ape Verde

Sw az iland

Mauritania

Eq. Guinea

Gambia

Senegal

Lesotho

Nigeria

Cameroon

Kenya

Côte d'Ivoire

Congo

Togo

Ghana

Mali

Zimbabw e

Benin

Angola

Zambia

Mozambique

Guinea-Bissau

Uganda

Tanzania

Burkina FasoL iberia

DRC

Malaw i

Rwanda

Madagascar

Guinea

Sierra L

Burundi

ChadNiger

Central Afr. Rep.

Ethiopia

Percent of population

Average Tele-Density 12.3 % by end 2005


Mobile Business Dominate the ChangeMobile subscribers per fixed line.

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0

Ethiopia

Eritrea

Sudan

Zimbabwe

Djibouti

Namibia

Swaziland

Malawi

Sierra Leone

Somalia

Benin

Burundi

Central African Rep.

Botswana

Guinea-Bissau

Gambia

Lesotho

Togo

Burkina Faso

Senegal

Guinea

Côte d'Ivoire

Madagascar

Ghana

Equatorial Guinea

Zambia

Angola

Mali

Niger

Rwanda

Tanzania

Kenya

Chad

Gabon

Mozambique

Nigeria

Mauritania

Uganda

Cameroon

Liberia

Congo

Estimated traffic share between fixed and mobile networks

0%

20%

40%

60%

80%

100%

1999 2000 2001 2002 2003 2004 2005 2006

MobileFixed

Average Mobile/Fixed 10 times by end 2005


Mobile share of transmission.km

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%C

am

ero

on

DR

C

Ch

ad

Ma

da

ga

sca

r

Co

ng

o

Ug

an

da

Gh

an

a

Nig

er

Tan

zan

ia

Ken

ya

Za

mb

ia

Sie

rra

L

Ma

law

i

Bu

run

di

Rw

an

da

Mo

zam

biq

ue

Cô

te d

'Ivo

ire

Bu

rkin

a F

aso

Fixed%

Mob %

Study Results on Backbone Ownership

Mobile Operators own 70 % of the Backbone Networks in the 18 studied countries


Gaps in Backbone Networks

Our study showed that:• When > 80 % coverage is obtained,

• the backbone networks are countrywide with very few gaps• 23 % of the countries are in this category

• With < 50 % coverage• there exist major gaps in backbone networks• 40 % of the countries are in this category

A recent study by GSMA showed that GSM in Sub-Saharan Africa had reached 60 % population coverage by end 2005


Future Trends

Mobile operators will continue to account for the lion’s share of the growth:

• They are all aiming at > 90 % population coverage, probably corresponding to market penetration of at least 40%

• They will show an increasing attention to international traffic (especially the regional traffic)

• They are starting to promote and offer data services on their networks (technology choice still an undecided issue)

The Fixed Line incumbents market position is rapidly deteriorating


Connect Africa ConferenceKigali October 2007

New data on private investments:• USD 35 billion has been invested by GSM operators in Sub-

Saharan Africa to date • USD 50 Billion in planned network investment in next five

years• By end 2012, population coverage will be above 90%• Increased attention to data services will require

proportionally more investment in backbone facilities

Donor financing of investments: • World Bank claimed that there are very few gaps • Some targeted projects with its Regional Communications

Infrastructure Program (RCIP) • Donor financing only a fraction of private investments (<5%)


The Celtel Service Expansion in Nigeria

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08 3520 sites


The Celtel Fibre Network in Nigeria

10

Lagos

Kano

Abuja

Port Harcourt

Bauchi

Ibadan

AsabaBenin

Kaduna

Uyo


Conclusion of the Study

Sub-Saharan Africa will soon have countrywide backbone networks


Changing International Traffic Pattern Change in international tariffs, selected countries

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Mali

Tanza

nia

Rw

anda

Moza

mbiq

ue

Nig

er

Benin

Sie

rra L

Burk

ina

Faso

Côte

d'Iv

oir

e

Senegal

Ghana

Nig

eri

a

US

$ p

er

min

Int 2002/4

Int 2007

Local 2007

International tariffs to and from Africa

0.00

0.50

1.00

1.50

2.00

2.50

FromEast

Africa

FromotherAfrica

FrommobileEuropé

Fromfixed

Europé

SkypeOut toAfrica

US

$ p

er

min

ute


Change in international tariffs, selected countries

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Mali

Tanza

nia

Rw

anda

Moza

mbiq

ue

Nig

er

Benin

Sie

rra L

Burk

ina

Faso

Côte

d'Iv

oir

e

Senegal

Ghana

Nig

eri

a

US

$ p

er

min

Int 2002/4

Int 2007

Local 2007

International tariffs to and from Africa

0.00

0.50

1.00

1.50

2.00

2.50

FromEast

Africa

FromotherAfrica

FrommobileEuropé

Fromfixed

Europé

SkypeOut toAfrica

US

$ p

er

min

ute

90% drop

Changing International Traffic Pattern

The satellite cost component for voice is less that the national

interconnect rate

Now cheaper to call from Africa to EU than from EU to Africa


Africa is the First Continent Moving Towards Free Roaming

• Celtel introduced ”One Network” for Kenya, Tanzania and Uganda in September 2006. Expanded to coast-to coast in 2007

• Safaricom in Kenya, Vodacom in Tanzania, and MTN in Uganda joined forces and offered the same services in February 2007

• Conclusion: Mobile operators are no longer only focusing on the domestic market


Two Dominating Trans-African Operators - Opportunities & Threats

Celtel Footprint


Main Issues for Backbone Networks

• The Open Access Issue

• The Pricing Issue

• The Fibre Issue

• The Regulatory Issue


Open Access - Competition Only at the Service Layer

• Selling transmission capacity not in the mobile operators’ business model

• Little opposition to sharing capacity with other licensed operators

• Mobile operators not in favour of open access• Network built for coverage - perceived competitive

advantage

• License is often specifically for own use

• Sales to third parties a threat

• Open access also threat to fixed operators


The Pricing Issue – Mozambique Example

By mid-2008, the incumbent TDM will have a countrywide backbone network based completely on fibre.

There is no competing backbone carrier

The issue is -

Will it be used?


Prices Issue - Mozambique Example

The long-range marginal cost of SDH M/W is below USD 40 per E1 and km.

Market prices are 5 to 10 times this level in the studied countries.

Without a dramatic price change, the fibre will be underutilized!

Prices comparison - Existing TDM prices vs. own development

0100200300400500600

E1 35km

34Mbps35 km

STM 135 km

NewMWcost

An

nu

al c

os

t/p

ric

e p

er

km

(U

SD

)

Prices/costsSelected price level


The Fiber Issue

• Low traffic volumes on most routes, implying microwave is the least cost solution

• Very limited fibre links of total installed capacity

• Existing fibre (railways, power utilities…) is rarely integrated with public networks

• Mobile operators generate the bulk of demand - must be involved and drive fibre investments


The Fibre Issue - Tanzania Example A Shared Network Approach

•Total Cost upgrade fibre/MW network:

• USD 25 millionUSD 25 million

•Total Cost all fibre network (use existing):


•Total Cost all newnew fibre network:


•Total Cost upgrade fibre/MW network:


•Total Cost all fibre network (use existing):


•Total Cost all newnew fibre network:

• USD 99 millionUSD 99 millionUpgrade MW

Existing fiber

New MW

Border crossing

TANZANIA PROPOSED NATIONAL BACKBONE


The Regulatory Issue

• Restrictions on resale are gradually removed

• Mobile operators are becoming dominant

• Weak or no regulation of domestic dominance

• No regulation on regional dominance

• New trends towards regional domination and cartels


Conclusions

• There are extensive backbone links in Sub-Saharan Africa.

• They could be available for forming “national backbone networks”

• Issues to solve are Open Access, Pricing, Technology and Regulation

• Considering the rapid change, there is a short window of opportunity

• If the issues are solved, Sub-Saharan Africa could have adequate national and regional backbone networks in a few years

• There are extensive backbone links in Sub-Saharan Africa.

• They could be available for forming “national backbone networks”

• Issues to solve are Open Access, Pricing, Technology and Regulation

• Considering the rapid change, there is a short window of opportunity

• If the issues are solved, Sub-Saharan Africa could have adequate national and regional backbone networks in a few years


What Could Governments Do?

• Remove any remaining regulatory barriers

• Stimulate competition (e.g. allow electricity companies to become carriers’ carrier)

• Avoid interference on the supply side (not invest in backbone networks)

• Increase demand for broadband connectivity (pre-purchase of capacity for public organizations)

• Remove any remaining regulatory barriers

• Stimulate competition (e.g. allow electricity companies to become carriers’ carrier)

• Avoid interference on the supply side (not invest in backbone networks)

• Increase demand for broadband connectivity (pre-purchase of capacity for public organizations)


Telephone Kiosk in Africa

Thank you!

[email protected]

Report Available on www.scanbi-invest.com


Close Correlation Market Penetration and Extent of Backbone Networks

GSM penetration, area and population coverage

0

10

20

30

40

50

60

70

80

90

100

Madagasc

ar

Chad

Buru

ndi

Moza

mbiq

ue

Zam

bia

Nig

er

Tanza

nia

Congo

Ghana

DRC

Côte

d'Iv

oire

Burk

ina F

aso

Cam

ero

on

Sie

rra L

Rw

anda

Kenya

Mala

wi

Uganda

Perc

en

t

% pop

% area

GSMA teledensity

Documents

Scanbi Invest 1 2007-11-14 Anders Engvall Options for Terrestrial Connectivity in Sub-Saharan Africa 5th International Conference on Open Access – Bagamoyo,