Plugging into the World

Mike van den Bergh, CEO of Gateway Communications gives his views on the numerous undersea cable projects presently underway and the growing demand for communications in Africa. He sees the African continent swiftly coming out of its digital dark age.

RIGHT AT THE FOREFRONT OF AFRICA'S EMERGENCE, are companies like Gateway Communications – who provide a variety of wireless, satellite and terrestrial network services to the African telco and business sectors. They are going from strength to strength. That's possibly one of the primary reasons Vodacom’s decision to acquire Gateway Communications a little more than a year and a half ago couldn’t have been more perfectly timed. Since the acquisition, Mike van den Bergh, Gateway Communications’ CEO says the company has restructured slightly and that efforts to become more tightly integrated with Vodacom are going well. “Prior to the acquisition, we were providing all forms of network services to carriers, large enterprises and multi-national corporations (MNCs). “A year ago however, we realized that this structure doesn’t make perfect sense – since telcos, large enterprises and MNCs have different needs,” he says.

WHERE’S THE REVENUE AT?

Another reason van den Bergh believes Vodacom will see a great deal of value from its acquisition of Gateway Communications is the fact that the revenue scales are beginning to tip in the direction of data. “There are a couple of realities telcos are having to deal with at present,” he says, “and one of the most sobering is the fact that although voice is still the dominant revenue driver in their business right now, data is where the real growth is taking place. “Data needs to be a big focus because voice rates are decreasing – a trend that’s driven predominantly by the increased competition in the market (and the drop in margin telcos are having to contend with in order to remain competitive), as well as the decrease in mobile termination rates,” he says. Interestingly enough, van den Bergh says SMS is a huge driver when it comes to mobile data – since it’s accessible to every mobile phone user and the barriers to entry are minimal. “There’s also the fact that research shows the youth market is more comfortable using text messaging than initiating a voice call to someone in their social circle,” he says. Showing just how important SMS is in the greater scheme of things, Vodacom reported that it had carried in excess of 600 million SMS messages between the start of the 2010 Soccer World Cup and the semi-finals, representing a 40% increase in traffic for that time of year. “Add to that, Pyramid research’s prediction that SMS revenues will double to $12 billion by 2013 and it’s clear why this is a focus for the mobile telcos,” he says. The popular market opinion that increasing data revenues and sliding voice revenues will ultimately mean the data market swallows the voice market and all forms of mobile communications traffic gets carried across a single, converged, IP-based network is inevitable. But, says van den Bergh, it’s further off than what many people think. “Five years from now, I still see voice as a separately reported component – and furthermore, one that is carried differently across the network,” he says. “Beyond that, we might see completely converged IP-based networks making their debut in more developed markets. “It will take longer for this trend to hit the emerging markets though,” he adds.

DATA HUNGRY MARKET

In a sense, van den Bergh says the world has always assumed that the adoption of broadband data capabilities will be different – or at least take place at a slower rate – in Africa than what has been the experience in other markets. But, he says, if you look at what happened when large amounts of submarine capacity suddenly became available with Seacom’s arrival, it’s clear that the only difference is that the adoption rate is far more accelerated. “I was in Kenya when the Seacom cable came ashore and, it was like Christmas, a couple of national birthdays and a few other celebrations rolled into one,” he chuckles. “The rate of uptake in Kenya, Tanzania and neighbouring countries has been astounding and despite the dearth of voice and data communications there, the focus has been on data and not voice,” he adds. As the trend continues, van den Bergh says the undersea cables that have yet to land will add another dimension to what’s possible. “In today’s context, we’re finally becoming able to provide world-class access to parts of the continent where nothing existed before. “And believe me, looking at adoption rates thus far, the more we provide, the higher the uptake will be. “With that increase in usage, the rates will drop,” he says. “The elasticity of demand is virtually unlimited in our market,” he enthuses.

THE BUSINESS OF NETWORK SERVICES

Turning to Gateway Communications' use of Seacom and what it has used that influx of capacity to achieve, van den Bergh says the company has provided increased levels of connectivity to mobile operators and ISPs, up the East coast of Africa – something it would never have been able to do under any other circumstances. “In fact, the first tranche of capacity we ordered was completely taken up in the first month and we’re currently scrambling to get more,” he says. Van den Bergh says Gateway Communications has also used that new capacity to establish the first Multiprotocol Label Switching (MPLS) network up the East coast of Africa. “In the wake of the new capacity Seacom has on offer, we’ve seen ISPs we never knew existed before creeping out of the woodwork and a number of new ISPs being formed. “The market has literally mushroomed overnight,” he says. Van den Bergh says that the landing of the Seacom cable has also allowed Gateway Communications to gain a range of new licenses – in countries like Kenya – for the building-out and provisioning of backhaul capacity. “We’ve also learnt valuable lessons and seen the market learn a couple of its own, specifically with regards to redundancy, putting all their eggs in the Seacom basket and paying dearly when the cable experienced issues,” he says. Thankfully, because of its legacy van den Bergh says Gateway Communications had configured resilience into its offerings and could very quickly cut over to other cable systems and satellite, where needed.

THRIVING UNDER ADVERSE CONDITIONS

While Gateway Communications has by all accounts been through an interesting time over the past 18 months, van den Bergh admits that the effects of the world economic crisis was at times cause for concern. “Over the past two years, we’ve seen the market become a great deal more cost aware, something that was driven by the increasing pressure on sales margins,” he says. “And unfortunately, nobody is immune to this, as operators and businesses feel pressure from their customers and in turn, have to drop their margins and place pressure on their entire chain of suppliers,” he says. “The opportunity we had at our disposal however, was to make smart investments for the future – not just in terms of choosing the right technologies and business practises, but in choosing investments that would allow us to be far more cost effective into the future,” he says. “We had to re-assess our own market priorities,” he continues, “and that’s’ one of the primary reasons we split the business into those two areas. “It gave us more focus and made us far more reliant on what our customers actually needed, forcing us to make a real effort to understand our customers and how we could do a better, more cost effective job of helping them navigate their challenges,” he says. Some of those investments were obvious, like increasing the company's investment in submarine cables, but also focusing on terrestrial network build-outs and getting high capacity backhaul to areas where it was needed.

LOOKING AHEAD

While the developments in the market over the past 18 months have been significant and the next 18 months are likely to eclipse even that, van den Bergh says we can only truly understand how far we’ve come if we cast our minds back in time. “And the truth is, things have changed immeasurably,” he says. “Ten years ago, Africa was without a doubt the dark continent and you’d be grateful for whatever form of connectivity you could find. “Now we have cables everywhere and as a result of that, MNCs have the same connectivity expectations in any African country as they would anywhere in the developed world,” he says. “Now, if we look forward five years, we won’t recognise Africa,” he adds. “As more and more cables land, we’ll begin asking what today sounds like a ridiculous question, like: ‘how good is the average Cameroonian’s access to Youtube on their smartphone?’ “With world-class infrastructure we will also begin asking what new, innovative services can be built,” he says. “We’ve all heard the example of a rural fisherman using SMS to check the stock levels at a market and potential selling price of his catch before actually going to one or another market. “Add convergence and world-class infrastructure into the mix and suddenly that same fisherman is able to send buyers a picture or video of his catch and actively begin engaging with his customers,” he says.

CHALLENGES REMAIN

The biggest challenge the African communications market faces however is over-regulation and the fact that often regulators don’t understand the market entirely and as such, draw on greedy international companies for input. “One of the worst sins we’ve seen committed in this industry over the years relates to companies who come along to regulators and governments and convince them that more money can be made out of things like international termination,” van den Bergh says. “In turn, the regulators raise these rates, which initially makes the government more money, but very quickly also drives down calling rates,” he adds. It doesn’t end there however. Van den Bergh says you then see grey markets emerging, shortcutting the usual telecoms infrastructure to offer much cheaper calling rates, but shocking call quality. The result is that even fewer people make use of telecoms and the GDP of the country is affected negatively. “Why not focus on making less money per unit of calling or Gigabyte of data usage, but doing so across a much larger volume of calling and data usage?” he asks. “This allows you to focus on quality and deliver truly compelling service levels – in turn encouraging even more usage,” he says. Van den Bergh says there’s an annoying myth out there, that Africans will accept what they can get. “In our experience however, if you give someone a high-quality service they will use it for longer and more often. “And it’s our belief that the revenues grow for everyone and markets flourish if this happens,” he concludes.

Sidebar: Aligning with Vodacom

While van den Bergh doesn’t say it directly, another reason for the restructuring is in all likelihood the fact that Vodacom saw a ton of value in enriching its core offerings as a telco with the services and intellectual property Gateway Communications has at its disposal. “In October 2009 this restructuring process started with us separating the business into two distinct parts. “One is focused on the carrier and wholesale services portion of the business – or that part of the business that typically interacts with telcos and Internet service providers (ISPs) – and the other is focused on the business sector and as such, providing services into the MNCs, banks and other large enterprises,” he explains. That shouldn’t suggest that the one part of the business works closely with Vodacom and the other doesn’t however. Van den Bergh is quick to point out the part of the company that’s focused on the business sector, namely Gateway Business, works well with the effort Vodacom is itself putting into providing services to businesses under the Vodacom Business banner. “The restructuring was a great idea, since it gives our telco and ISP focused business unit – known as Gateway Communications – the ability to deliver a range of highly-focused services into Africa. While this will obviously assist all of Vodacom’s operations across the continent, it will also target every other mobile carrier on the continent. “We remain independent in that way,” he says. “Not only can Vodacom now draw on our expertise when it comes to fine-tuning their mobile network, it can leverage our expertise in the management of large satellite networks as well as mobile and terrestrial communications solutions. “It’s also no secret that Vodacom is keen on the converged communications space – and since a great deal of our expertise is squarely in this space, there’s a great deal of value we’ve already added here,” he says.