Mobile phones offer the best chance for much of africa to gain access to financial services according to a recent study by Research ICT Africa.
Across Africa many more people possess mobile phones than bank accounts. Mobile banking services are already offered as an addition to existing bank accounts. Instead of adding a mobile phone as a complementary channel to a bank account, why not add a bank account to an existing mobile phone number? This would narrow the access gap to financial services considerably, allowing mobiles to be used to provide services to those without bank accounts.
There are two ways in which this could be done: first, airtime cash convertibility, already a de facto practice in many parts of Africa; and second, the mobile wallet, which would allow full banking services to be performed on the basis of a virtual wallet linked to a SIM card. While the role of the informal sector in promoting economic growth in Africa is increasingly acknowledged, access to capital remains one of the biggest obstacles hindering the development and growth of the sector. Africa is struggling with access to formal financial services for its citizens and the informal sector. In addition to the underlying structural limitations of poverty; risk-averse bankers, unsuitable financial products and high bank charges have also been blamed for this state of affairs. Poor people with irregular income and informal businesses often have no choice but to make use of informal financial services, which are many times more expensive than formal ones. Formal financial services are usually only extended to those with regular income or collateral. Yet informal businesses often lack the required accounting skills and systems to generate necessary data to convince a bank to extend loans to them. A critical issue to overcome is that of asymmetrical information. Someone without a bank account approaching a bank for a loan is likely to be rejected unless collateral is at hand. The bank has no transaction history for this person or informal business and hence does not know anything about the applicant’s creditworthiness. Transaction patterns can be used to predict whether or not a customer will be able to repay a loan. Absence of a transaction history means that the ability to repay loans is unknown to banks, making it risky for banks to serve such a person unless the loan is fully collateralised. This is where m-banking could step in and move beyond simple payments and transactions to possibly provide an alternative banking system that provides access to formal financial services to the unbanked, such as credit, which may be easier to extend to the unbanked once they have built up a transaction history, through the use of m-banking and m-transfers: transactions over mobiles that go beyond the usual voice communications.
Access gap in Africa
Within the informal sector in Africa, mobile phones play a prominent role in creating and exchanging information. The RIA 2005/6 e-Access & Usage SME Survey revealed that 83.3% of the surveyed business operators owned a mobile phone, while 95.6% of all business operators rated mobile phones as either important or very important for their business operations. The results from the RIA 2007/8 e-Access & Usage Household Survey show that mobile telephony is the most used ICT in Africa and also that there are more people with mobile phones than there are with bank accounts (with the exception of Ethiopia and Rwanda where mobile penetration is minimal). Sometimes the differences are very pronounced – for example, less than every fifth mobile phone user has a bank account in Benin, Cameroon, and Senegal. Results from Research ICT Africa’s 2007/8 e-Access & Usage Household Survey indicate that significant reasons for not having a bank account are a lack of regular income and the perception that a bank account is either not needed or too expensive. In Africa, people usually only get a bank account once an employer requires it. Another main obstacle is the distance to banking facilities or ATMs. Particularly in rural areas, it is not only transaction costs and service fees, but also the cost of transport to reach banking facilities that made people not want a bank account. Conversely, in Africa banks charge high transaction fees often even for depositing money. High deposit and transaction fees ensure that banking remains the preserve of the relatively wealthy (i.e. the existing customer base) and high profit margins for banks. This is mainly possible because the banking sector is not as competitive as in the developed world.
Money transfer in Africa
Significant amounts of households receive remittances from another household, either in a different city or a different country. The cost of remittances however is a concern for those sending money home. International airtime transfer is therefore an efficient and cost-saving solution. Several multinational mobile operators, such as Zain, already allow cross-country airtime transactions. The role of international remittances in developing economies is gaining increasing global recognition and economic significance to national economies. Estimated at about US$221 billion worldwide in 2006, sub-Saharan Africa accounted for only US$9 billion or 4% of the total (World Bank, 2006). As a whole, developing countries received more than twice as much inward-bound remittance than official development assistance (ODA), excluding debt. In sub-Saharan Africa as a whole, inward-bound remittances were over three times larger than ODA. On a country-by-country basis, however, it is by no means the norm for developing countries to receive more remittances than ODA. This is the situation in Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Ethiopia, Mozambique, Namibia, Rwanda, Senegal, Tanzania, Uganda and Zambia. Nonetheless, international remittances are becoming increasingly significant to national economies. However, the actual size of remittances would be much higher if informal remittances were taken into account. The large amounts of money that are remitted home by economic migrants each year are not sent home without cost and concerns. According to the UK Department for International Development (DFI D) the largest concern for those sending money is whether it will arrive home safely, followed by concerns over excessive charges and delays in receiving the money. Money transfer agencies in the UK have signed up to a new Customer Charter that commits them to provide transparent information on these issues. Charges for sending money internationally are dependent on whether sender and recipient have bank accounts, the speed of transfer, destination country, amount sent, exchange rates, and so on. The smaller the amount of money sent, the higher the charges (expressed as a proportion of money sent). The cost of sending £100 can vary from four to 40%. Results of Research ICT Africa’s household survey reveal many households receiving money from, or sending money to another household. In all countries in the survey, between 8.5% and 39% of households have received money from other households. Although it is more common to receive money from a household in another village or city, significant amounts are received from abroad (except in Burkina Faso and Ethiopia, where more households receive money from abroad than they do from another village or city). In most of the countries surveyed, remittances were more often received through a money transfer agency like MoneyGram or Western Union than through banks. In Mozambique, Namibia, Nigeria, Tanzania, South Africa, Uganda and Zambia, remittances were more often received from a bank account, reflecting either the better-developed banking systems and higher bank penetration in these countries or else the absence of Western Union and MoneyGram services. Notably however, banks and agents such as Western Union and MoneyGram together make up only a small fraction of the transaction channels used. Sending money in person, through a friend or family member, or through other informal channels is more popular. Similar trends can be observed for households sending money to another household. There seems to be substantial demand for a service that meets the concerns of people regarding security and costs. In addition, institutions that reduce the costs of remittances can expect a higher-thanproportional increase in the value of remittances – in other words, remittances display negative cost-elasticity.
Airtime transfers in Africa
In all 17 countries surveyed, 7.4% to 53.9% of respondents indicated that they had transferred airtime to someone else’s mobile phone. The majority of the transfers conducted were as a favour to family and friends – however there is also significant usage of airtime to pay for goods and services in a few countries. In Ghana, Nigeria, Tanzania and Zambia, 4.2% to 14% respondents indicated that the transfer was to pay for goods and services. On the other hand, 4.8% to 68% of respondents across all countries surveyed indicated that they had received airtime from someone else before. The most prevalent type of transfers were those received from family or friends or airtime received as part of a financial transaction with someone else. In all countries except Burkina Faso and Rwanda, 0.3% to 9.9% of respondents indicated that they had received airtime before as payment for goods or services. The survey indicates widespread use of airtime transfer, but not such a widespread use of airtime to pay for goods or services. For example, 88.3% of people in Kenya that had received airtime received it as a favour from a friend or family member, compared to only 1.2% who received airtime as payment for the provision of goods or services. 24.8% had bought airtime from an independent source (i.e. from someone that was not a family member or a friend, most likely an electronic re-fill or top-up).
Mobile payment systems for Africa
In order to use the mobile phone as a strategy for the integration of the unbanked into the world of formal banking, instead of adding a mobile phone as an additional channel to an existing bank account, a more transformational option would be to add a bank account to an existing mobile phone. This should be feasible since each mobile phone number is unique and would push the access frontier considerably by turning each mobile phone number on an operator’s network into a bank account number. Currently mobile operators already maintain some kind of bank account for each of their subscribers in order to track their airtime usage. When airtime is purchased these accounts are credited and when calls are made or SMSs sent they are debited. These airtime systems could be extended to cater for add-on financial services, which extend to the unbanked and the informal economy. Such a strategy would help leapfrog some of the existing obstacles to getting a bank account and other financial services (depending of course on the national regulatory environments). It would mean establishing an alternative transaction mechanism to the expensive formal banking system, one that makes transacting electronically as convenient and cheap as dealing in cash. Alternatively, using the conception of such an account, an individual can easily have multiple accounts associated to their mobile phone, one for airtime, one for money value and another one for savings, for example. The saving sub-account would be money value as well, but not immediately accessible depending on the savings account conditions. In the case of only one account, airtime and cash would need to be convertible. This raises a couple of issues that will be discussed in the next section. Using several sub-accounts may help avoid many conceptual and regulatory issues. In the subsequent sections, we’ll look at the implications of these two models. Firstly, airtime-cash convertibility – using only one account on the mobile network servers, and secondly, Mobile Wallets – sub-accounts on the mobile network servers. In both models transactions would need to cost very little or nothing, and banks or operators would make their money from extending financial services and in other novel ways.
Demand for mobile banking & payments
In Kenya, which has one of the most successful m-banking applications in Africa, banks are complaining to the financial services regulator that mobile operators are unfairly competing against them. John Wanyela, an executive director of the Kenya Bankers Association argued in The Sunday Nation that ‘you do not allow innovation to outsmart regulation’. This is precisely the point: innovation often outsmarts regulation. It is up to policy-makers to create an environment that supports innovative applications and to adjust regulation to evolving innovations. Results from RIA ’s e-Access & Usage Household Survey indicate that there would be significant interest in some of the above-mentioned options being offered as m-banking services. It is individuals’ attitudes to mobile banking in Botswana particularly that point to the opportunity for mobile operators and banks to cooperate. Between 19.7% and 26.3% trust mobile operators and banks respectively, but together 44.4% state that they would consider depositing their salary into a mobile bank account. A similar picture emerges in Ghana and South Africa.
The challenge to policy-makers and regulators is two-fold: firstly, to encourage banks and mobile operators to develop solutions that are not proprietary, and secondly, to allow access to potential new entrants that can disrupt the lucrative business models of the banks and mobile operators. The key challenge is to do this while at the same time ensuring high levels of security and trust. Just like convergence forced the integration of broadcasting and telecommunications, so mobile banking is forcing the convergence of the financial and telecommunications sectors. Unfortunately, the convergence of two such heavily regulated industries means that this potential is unlikely to be met unless policy-makers lay the ground rules for innovation. Recommendations could include encouraging the development of industry standards for mobile banking security based upon open access principles and changing regulatory systems to allow mobile operators to become banks, or banks to operate Mobile Virtual Network Operators (MVNOs). Banks need to get back to basics and focus on making money through financial intermediation rather than through transaction fees. Policymakers and regulators need to ensure that evolving systems serve the broader objectives of economic growth and development as well as protect consumer interests, while creating an environment that encourages and rewards innovation. The unbanked are unbanked for a reason. They will only transact electronically if there are limited or no transaction costs involved, and if doing so is convenient and secure. Serving the currently unbanked profitably and sustainably requires a radically different approach. A complete paradigm shift needs to occur in order to determine how the poor can be profitably brought into the banking sector.
Sidebar: Model 1 - Airtime cash convertibility
Airtime is already being used in several African countries as a form of currency. In most cases it does not substitute for cash but rather complements it. Initially developed to enable friends to share airtime across multiple prepaid SI M cards, the absence of convenient alternatives to transferring money over long distances has led to this airtime exchange becoming a cash remittance substitute. In fact, remittances from family members living abroad, transferred as airtime, are fast becoming an easy and popular means of sending money. The way it works is that the person abroad purchases airtime online or at dedicated agents and this airtime is then immediately transferred to the receiver’s phone. The receiver can then either use the airtime for calls and SMSs or sell it on or purchase goods with it. This points to the crucial success factor for airtime being accepted as an alternative to cash – either airtime needs to be widely accepted as an alternative currency, in that transactions can be made, and goods and services can bought with airtime – or airtime needs to be convertible backwards to cash. If airtime could be used to pay for any product, there would be no need to convert airtime back into cash. If people could pay for day-to-day shopping with airtime they would build up a transaction history. If salaries could be paid in airtime, the loop would be complete. Airtime would move in this closed loop and liquidity would be increased by new airtime being bought by mobile users and reduced by airtime being used to make calls or send SMS. The key success factor for airtime to be accepted as a means of payment is that it must resemble cash, i.e. there should be no transaction costs for the end-user and it must be widely accepted. All other forms of credit (such as credit cards and cheques) have substantial charges associated with their use. Currently, there are no formal avenues to change airtime back into cash, though a vendor might convert airtime to cash by selling it to someone else that needs airtime. Transaction histories however could be built up through airtime transfers, regardless of whether it is backwards compatible to cash or not. Cash convertibility would be much more attractive however, but there are three obstacles that need to be overcome to allow for backwards convertibility:
• If airtime is convertible to cash, then selling airtime would be equivalent to accepting deposits and mobile operators would require banking licences. Alternatively banks could cooperate more closely with mobile operators or become virtual network operators themselves (like Virgin Mobile in South Africa – and in many other countries worldwide – where it does not own any mobile infrastructure).
• Value added tax is charged on airtime. Some countries, like Uganda, also charge customs and excise duties. The value-added tax obstacle could be overcome by negotiating with the receiver of revenues to treat the VAT part of bought back airtime as input VAT. This would usually not be possible since private individuals are not registered for VAT and hence cannot issue VAT invoices. However, it should be possible to get to a special agreement for airtime given its potential for poverty alleviation.
• Value is currently lost in the distribution channels for airtime. Mobile operators pay resellers a commission for selling it. The value lost in the distribution channel can be 20%. That is, for every 10 US $ airtime sold the operator receives only 8 US $. If the operator would buy the airtime back it would make a 2 US $ loss.
Currently retailers sell airtime because they get a commission. It is clear to see that if retailers are to become the cash-out points and banks the cash-in points then everyone will benefit. Retailers benefit because the cash they take in is instantaneously transferred into their bank accounts. Banks benefit since they can raise capital cheaply and get an additional tool to evaluate the creditworthiness of informal businesses and the unbanked (a critical future customer base). The informal sector and the unbanked benefit from gaining access to formal financial services and being able to transfer money nationwide and beyond to family members and business partners. The RI A household survey asked respondents what factors would make them prefer to receive airtime rather than cash. In all countries except Botswana, the transaction costs were more of a source of concern for the respondents than its acceptance as a means of payment, reflecting both the widespread acceptance of airtime as a means of payment, as well as fear of the charges involved – charges associated with formal banking.
Model 2 - Mobile Wallets
The second model is based on the concept of several sub-accounts or wallets being associated with a particular SI M card. From a software and hardware perspective, it would be straightforward to give the user a second or third wallet that stores money electronically. Administered on a secure server, money can be transferred using the same channel and technology as for airtime transfers. Airtime purchase could then be a transfer between the two wallets. At that point of transfer, VAT would be applicable and a reverse transfer would not be possible. This resolves the VAT problem of Model 1 and also addresses the loss of value in the distribution channel. VAT would only be charged at the transfer from the money wallet to the airtime wallet. Mobile operators benefit from this system since they can cut out the distribution channel as users can now charge their phones with airtime anytime without the involvement of third parties. In this model, airtime and cash are not the same thing, even though they use the same technology. Banks and users still benefit in the same way as they do for Model 1. The GS M platform is already being used in Africa as a transfer mechanism for virtual currency which is convertible to cash, against transactions fees. Kenya’s MPES A, for example, is a mobilebased alternative for non-bankaccount transfer mechanisms such as Western Union and MoneyGram. It is clearly cheaper, but not yet cheap enough to function as an alternative currency. The charges are too high for micropayment (i.e. to pay for small items such as bread or milk). As the amount of money transferred increases, the transaction costs become more reasonable. Mobile wallets could be operator or bank specific or they could be completely independent, operating on servers that communicate with banks, individuals and companies across operator networks.
In light of our feature article in this edition of Africa Telecoms, briefly describe how you feel about Seacom assisting with breaching the digital divide in Africa?
SEACOM is providing a large broadband connection to global networks. Consumers will be using the internet in ways they wouldn’t think of today: on-demand movies, music, home-made video, watching news programs, etc. With new web applications and uses being discovered daily, the potential economic benefits of affordable bandwidth are endless. In Africa, it is projected that there will be a major demand for bandwidth driven by some of the following “hotspots”:
• Tanzania is growing a logistics hub for eight East & Central African countries
• Uganda and Zambia are set to develop strong pharmaceutical research centres
• Kenya is looking at becoming a call centre hub with a major focus on Small & Medium Enterprises
• Rwanda, which has developed a visionary broadband strategy, is looking to establish a hub of bilingual call centres.
SEACOM often hears stories about the impact of inexpensive bandwidth on global Internet content in Europe, North America and Asia; however, SEACOM has seen much African-produced content that will vastly benefit the world. Recently, we met with a research group that is gathering data from traditional healers on homeopathic medicines. We were amazed to learn of the information being gathered and the potential to add to medical research globally. SEACOM’s partnership with southern African research and education networks through TENET (Tertiary Education and Research Network of South Africa) will facilitate faster development by providing subsidised international bandwidth to research and education networks across 40 universities. These education and research institutions now have 50 times more bandwidth at the same annual cost prior to the arrival of SEACOM. Bandwidth now equals the amount which was available to the entire Southern African population in 2008. TENET owns the capacity for the remaining life of the cable, resulting in substantial annual savings whilst enabling the affiliated institutions to develop and increase their international research collaborations and distance learning programmes. SEACOM is working to replicate this programme in East Africa.
Do you have an example of this scenario already or is it too soon?
We’ve already seen a decline in international long haul prices at the end consumer level. In East Africa specifically, Kenya’s progressive approach to telecoms, has resulted in large amounts of bandwidth being made available at a fraction of the cost, resulting in a reported 200% increase in data traffic within 14 days of SEACOM’s launch. South Africa has disappointed SEACOM in translating low cost international bandwidth into reduced consumer price. This is largely due to the major operators investing in their own cables and slowing any adoption of our cable. They also have a large consumer dependence on the incumbent’s terrestrial backhaul and last mile, limiting the ability for ISPs and operators to pass on savings. There has been a marked improvement though. In September 2009, for example, MTN announced a 50% increase in capacity for certain corporate clients in South Africa while Telkom and M-web also announced similar increases. Connectivity is now available, and it's up to governments and internet service providers to pass on savings and capacity to their customers, circumventing constraints and bottlenecks wherever possible.
What is your opinion regarding cheaper broadband which will benefit those who already have access to the internet against those of those who currently have no access ?
Through supplying plentiful bandwidth at a fraction of the current cost, there is no doubt that SEACOM’s arrival opens up unprecedented opportunities for governments, business and ordinary citizens alike. They can finally make use of a network which forms a platform to compete globally, drive economic growth and enhance quality of life. Providing broader access to Information and Communications Technologies (ICT) in Africa is a catalyst to unlocking sustainable economic and social development. By supporting a broad range of stakeholders its possible to develop, create growth and promote the continent as a serious player in the global economy.
From this point onwards, what do you think the next step is?
Now that Africa has a solid fibre backbone what more is needed in order to finally bridge the digital divide? An open and liberal approach to telecommunications is essential. Governments hold the key in allowing businesses to exploit ICT-linked opportunities which will enable the acceleration of broadband penetration. There is also the catalyst effect that needs to be considered. Undersea cables will justify an investment in national fibre, fibre to the home, new wireless networks, data centres, call centres and BPOs.
What has been the biggest hurdle thus far with the Seacom Project?
SEACOM is offering one, seamless product to end-users, across 11 sovereign nations. Some of our challenges were tax and contract related. SEACOM, as an international entity, had to figure out how to sign contracts at a local level and then deliver that product throughout all the countries we were involved with. SEACOM had to use its subsidiaries and local partners in each one of these countries, who were already licensed and established, to carry communication infrastructure. You're trying to set that up in a very short period – keeping in mind that construction of the cable is really only 18 to 24 months. The availability of human resources which could interact with a venture such as SEACOM was also a challenge in some countries.
With only a small amount of capacity sold thus far and a total expected capacity of 1280Gbps, what is the projected time-frame that Seacom is working towards in having the full capacity sold and used throughout Africa?
We have seen capacity purchase continue at a healthy pace since the launch. In fact, we were pleasantly surprised to see East Africa leading the charge. As demand increases and users find new ways to utilise the Internet and overall connectivity, we will experience an exponential trend in capacity requirements leading to more purchases. From an investment perspective, we expect a return on this investment within five years.
In your estimation, what effect will the partnership with Altech’s KDN have on Broadband access in Central Africa?
From the outset of the project, we realised the importance of connecting inland countries to the international network and many countries set out to deploy massive terrestrial networks in anticipation of the arrival of real and affordable international bandwidth connectivity. With more and more countries getting connected to the rest of the world via the SEACOM system, it is only a matter of time before we see the direct socio-economic benefits this will have on the entire region. The African market for international bandwidth is expected to swell within a short period of time, with a significant portion of this new demand coming from East and central Africa. Altech and SEACOM have taken a giant step towards unlocking this enormous potential in East Africa. Our success would not be possible without the infrastructure which links our beach landing stations to metropolitan PoPs (Point of Presence). KDN’s extensive inland infrastructure in East Africa will link our landing station in Mombasa to Nairobi, then on to Kampala and Kigali. In addition, we hope to connect Kigali and Addis Ababa soon and will continue to explore further opportunities across central African countries.
Are there future plans to extend the SEACOM network to the west coast of Africa or is the current network as far as the project is planned at the moment?
Although no specific plans are in place at this point, we will continuously evaluate all opportunities and strategic options to compliment and improve our current offering.
What impact will SEACOM’s cable have on traditional voice communications in Africa or is SEACOM purely going to provide data services to the continent?
Access to previously unobtainable, cheap and easily available broadband will allow East and Southern Africa to connect to international broadband networks. The infrastructure should see Africa becoming a major competitor for call centres/business process outsourcing (BPO), research and education. Financial, manufacturing and other sectors will bring down their cost of doing business while increasing their productivity. This will, in part, be possible through the provision of cheaper traditional voice calls using fibre networks. As an example, Gateway Communications has purchase significant capacity on SEACOM.
Resistance to the introduction of Voip on the African continent is showing signs of weakening, but many countries still resist due to self interest.
Africa is slowly beginning to accept retail VoIP. True, there is still a long list of countries on the continent that ban consumers and businesses from using voice over IP – usually because state-owned operators fear their lucrative international call revenue would be eroded if it were allowed – but equally there is a growing number of countries that have made it legal over the last few years.
In North Africa, Algeria, Egypt, Morocco and Tunisia permit VoIP. In Sub-Saharan Africa, countries that have given the green light to retail VoIP include Angola, Botswana, Burkina Faso, Cape Verde, Gabon, Ghana, Kenya, Nigeria, Tanzania, Somalia, South Africa, Uganda and Zimbabwe. Where VoIP is legal, however, there is usually no specific regulation. “VoIP is still very much an unregulated segment, particularly in sub-Saharan Africa,” says Thecla Mbongue, a senior research analyst at Informa Telecoms & Media, a research and consulting firm. In one way, the absence of a specific regulatory framework for VoIP could be a sign of a progressive regulator. With technology developing all the time, simply allowing competing operators to offer a voice service – whether it is delivered over VoIP or not – looks to be a sensible and pragmatic way of opening up the market to competition and promoting cheaper voice calls. There is no need to re-visit licensing legislation when technology moves on. “In Tanzania, the regulator doesn’t have any plans to specifically regulate VoIP or issue VoIP licences for the simple reason that – like many other sub-Saharan African markets – they are moving towards a technology-neutral regulatory framework,” says Mbongue.
The flipside of no specific VoIP regulation is that there can be ambiguity about what is allowed and what is not. This can cause confusion in the market and might even frighten off foreign investors. “There are some countries in Africa that are keen to show they are very progressive on VoIP, but when you read the small print it is very difficult to determine whether VoIP is in fact allowed,” says Phillippa Biggs, an ITU economist who tracks the VoIP markets worldwide. One example of VoIP confusion has been in Morocco, says Biggs, where the regulator (ANRT) has issued a lot of detail surrounding the use of VoIP but there is still wide scope for different interpretation on the exact circumstances where VoIP can be used legally. Looking at sub-Saharan Africa from a broad regulatory perspective, Biggs says the region can be split roughly into two segments: the former British colonies in East Africa and the former French colonies in West Africa. Under the British definition of law, if something is not explicitly stated as being legal then it is presumed to be illegal. Under the French definition of law, the opposite is true – if something is not explicitly stated as being illegal then it is presumed to be legal. “These are two very different regulatory philosophies,” says Biggs, “and the problem is how to interpret where VoIP stands within those two frameworks.” Adding to the potential for confusion is that a lot of telecom regulation on the continent is outdated, which, although not a unique phenomena to Africa, threatens to dampen enthusiasm among foreign investors who are eying up the African markets. “When looking at African telecom regulation, a lot of the time IP networks aren’t even mentioned and so there is a lack of clarity,” continues Biggs. “For new service providers who want to offer new services, whether they can or not often depends on their approach and who is in charge of them. It is not necessarily anything to do with existing legislation.” With no specific regulatory framework in place for VoIP, the thorny issue remains of coming up with IP interconnect agreements between the VoIP providers and incumbent operators. In the likely event that discussions on these matters will not be resolved to the satisfaction of both parties without any thirdparty mediator, regulatory intervention will be required. Russell Southwood, an independent telecoms consultant specialising in coverage of the African providers are now offering calls to mobile, national and local numbers at lower rates than the incumbents. “These rates are likely to fall even further as a result of regulatory interventions in the interconnect environment,” he adds. With a VoIP solution, a single broadband telephone line can be used to provision several VoIP lines, each with its own telephone number, which allows for “dramatic cost-savings” according to Massel. Companies can also avoid the expense of buying a PBX (private branch exchange) through using standards-based software and hardware, or even opting for a hosted VoIP solution that can be rented on a monthly basis from the service provider. Helping VoIP take off in South Africa, notes Massel, is that VoIP operators now have access to geographic number ranges, which means customers no longer need to dial a special prefix before calling. As from next year, Massel expects that geographic number portability will come into effect – customers will then be able to change providers yet still keep their numbers. “VoIP solutions are flexible, scalable and cost-effective replacements for legacy switched telephony solutions,” says Massel. “The variety and affordability of the services available on the market today from ISPA’s members is testimony to how a more deregulated and equitable telecom environment promotes choice and lower costs for South Africa’s telecom users.” Other African countries are making VoIP strides. Teledata, for example, a Ghana-based ISP, announced in November 2009 that it will be offering VoIP solutions for its business customers. Using VoIP equipment from VocalTec Communications, an Israeli company, Teledata says it will be able to add value to its existing PBX hosting services. Among the additional features brought about by VoIP are click-to-dial, attendant console and auto-attendant. Ghana, however, has still to permit retail VoIP for consumers. There are no such limitations in Uganda where a technologyneutral framework is in place. VoIP is regarded as simply a voice service and licensed operators are free to use it. And this is exactly what Smile Telecom is doing. A South African and Saudi Arabian owned consortium with headquarters in South Africa, Smile Telecom claimed it was the first ever VoIP provider to use WiMAX in Africa after launching its service in Uganda in early November 2009. The service reportedly operates in the same way as Skype in that phone communication over the internet is free except when calling a mobile phone or landline. Informa’s Mbongue says that a France Telecom subsidiary in Mali is also using a WiMAX network to offer voice and data services (and has around 1,000 VoIP customers). Africa Telecoms was not able to confirm this at the time of going to press. And in Zimbabwe, according to local reports, VoIP has made recent headway. Eight VoIP companies were granted licences in September 2009 to operate international VoIP telephony services (although regulations dictate that the licensees must be at least 51% Zimbabwean-owned). Until this latest round of licensing, companies were restricted to providing domestic IP-based services as international VoIP calls were previously banned. Zimbabwe’s regulatory authorities, according to local reports, say that no more VoIP licences will be awarded as the market is now “saturated”. “VoIP, or IP networks as a whole, offer – or can offer – significant competitive advantage as it takes the cost of service provision down between a quarter to a third of the PSTN,” notes Biggs. “There are significant cost savings to be had.”
Despite the growing number of VoIP bright spots in Africa, large swathes of the continent are still suffering a VoIP blackout. According to statistics gathered by ITU, of the 49 countries that don’t yet permit VoIP worldwide nearly half of them can be found in sub-Saharan Africa. ITU figures reveal that 24 countries in sub-Sahara Africa have banned VoIP. Moreover, of the some 200 million VoIP subscribers worldwide today (an estimate from IDATE, a France-based consultancy) Africa doesn’t even register on pie charts that depict the regional distribution of VoIP subscribers. According to Point Topic, a market research firm, Western Europe (38%), North America (27%) and Asia-Pacific (26%) had bagged the largest regional market shares of VoIP subscribers by end Q1 2009 as countries in these regions have liberalised telecom markets early and issued specific VoIP regulation. Southeastern Asia (5%), Latin America (3%) and Eastern Europe are the VoIP subscriber laggards in the Point Topic survey. No mention of Africa. A survey of registered subscribers clearly does not include unregistered users that are using VoIP as an ‘over the top’ service across broadband connections. This could make some difference to Africa’s slice of the VoIP usage pie (by individuals and businesses), but probably not by much as there is still a dearth of broadband access availability on the continent (a minimum 56Kbps link is required to use VoIP). According to figures from ITU, there is only one fixed broadband subscriber for every 1,000 people in Africa; in Europe there are 200 fixed broadband subscribers for every 1,000 people. “The contrast between Europe and Africa is all the more striking when you consider that average incomes are so much higher in Europe yet people have access to low-cost voice calls through VoIP,” says ITU’s Biggs. “Africa, with much lower incomes, has to pay some of the highest international calling rates in the world.” It might be understandable that some operators resist the introduction of VoIP if it means that customers are able to avoid paying for higher-priced circuit-switched calls. And where incumbents are state-owned, that resistance may well be much stronger. “PSTN revenues can be fantastic for governments in that they are very regular and they are very dependable,” says Biggs. “They are a major source of tax revenue, particularly in countries where the informal economy dominates.” But to cling on to higher-priced PSTN calls, argues Biggs, is short-term economic thinking. To attract FDI (foreign direct investment), countries need to offer businesses low-priced VoIP-based international calls and IP VPNs (virtual private networks) – developments that usually arise from liberalising telecom markets and allowing service providers (using IP networks) to compete in the marketplace. Some island countries off mainland Africa, once heavily dependent on circuit-switched international call revenue, look as if they are beginning to see the bigger economic picture and are starting to wean themselves off their dependency on PSTN revenue. These include Mauritius, which legalised VoIP as far back as 2001; Seychelles, which followed suit in 2005; and Madagascar, which, following the liberalisation of the island’s telecom market in June 2008, also allows consumers to make VoIP calls. However, the respective regulator in each island imposes some requirements on VoIP providers: in Mauritius and Seychelles, VoIP providers have to provide emergency access (although they do not have any universal service obligations); in Madagascar, VoIP providers are required to contribute to a universal service fund (as well as provide emergency access). Given the high level of resistance to VoIP in large parts of Africa, a lot of countries clearly need convincing that VoIP is a step forward. But that does not necessarily mean that government resistance is universal in countries where VoIP is banned. “Sometimes the minister of trade or economy sees what needs to be done, because they want to attract FDI,” says Biggs, “but they can’t always persuade the ministry of communications that VoIP is the way to go, particularly if the incumbent is state-owned.” Where VoIP is not permitted in Africa, however, it is generally in countries where ICT infrastructure is sparse, even by African standards: Eritrea, Ethiopia, Lesotho, Liberia, Senegal and Swaziland each say no to retail VoIP. “Banning the use of VoIP [in these countries] is really not a major issue yet, but once broadband is rolled out, incumbent operators may well try to block or ban it, as has happened in some Middle Eastern countries,” says Kalyan Medapati, a research analyst at Informa Telecoms & Media. “This will require a response from the regulator.” If the poorer nations of Africa are to attract foreign investment and boost their economies, then a liberal response to VoIP may well have to be the answer.
Sidebar 1 - UNLIMITED VOIP IN COTE D'IVOIRE
Two of the country’s leading ISPs, Aviso and AfNet (controlled by France Telecom and South Africa’s MTN respectively) are offering flat rates for unlimited VoIP calls to certain destinations, including North America, Europe and China. Buckets of minutes are also available for calls to India, Japan and Australia. “This development is remarkable, since broadband services in general are still relatively expensive in Cote d’Ivoire,” says Peter Lange, a senior analyst at Paul Budde Communications, a research and consulting firm. “The two international telecom giants are working to integrate their fixed, mobile and broadband/internet operations in Cote d’Ivoire more closely in a bid to transform themselves into true converged service providers.” CI-Telecom – the fixed-line incumbent in Cote d’Ivoire – was privatised as far back as 1997 when France Telecom bought a controlling stake. Notably, there has been no fierce resistance to VoIP from the incumbent. Now, through its Aviso subsidiary, France Telecom is aggressively supporting it. According to Paul Budde Communications, Cote d’Ivoire has become West Africa’s third largest internet market after Nigeria and Ghana, with services superior to those in many other African countries, including ADSL with up to 8Mbps. Moreover, the expected arrival of more international fibre-optic submarine cables to the west region in 2010 and 2011 is expected to lead to significantly lower prices for international bandwidth. Currently there is only one cable – SAT-3/WASC – that serves West Africa. In East Africa, the landing of the Seacom cable in Kenya in July 2009 marked the first time that fibre-based international bandwidth has been available in the entire region. More and cheaper international bandwidth in Africa will help to push VoIP prices down still further.
Sidebar 2: VOIP turns to grey
Incumbent operators in Africa that do use VoIP technology – which has a cheaper cost base than circuit-switched calls – don’t necessarily pass on those cost-savings to customers. As a result, Paul Budde Communications, a telecom consultancy, estimates at least 10% of international calls in almost every African country are carried by the unlicensed grey market. The grey market’s appearance is down to the significant price arbitrage opportunity that exists when there is a large difference between the price of retail and wholesale voice calls. In short, unlicensed players buy international wholesale minutes at a low price in one market yet they can still make a reasonable profit margin by substantially undercutting the retail voice call prices in another market (namely in the African countries where incumbents charge high retail prices for voice).
Until recently, Africa had some of the highest international bandwidth costs anywhere in the world. Although it varied from country to country, the international element of the cost to the consumer was a significant proportion of the overall cost he or she paid. The same was true for institutional users like governments, or for those in the private sector. This cost affected both voice (fixed and mobile) and data users alike. With International trade and the exchange of ideas essential to Africa’s success, this high cost of international bandwidth posed a significant barrier to African countries’ ability to participate in world trade and to increase its capacity and skills. Without cheaper international bandwidth African countries ran the danger of being left behind in the global race. In the past year, many African countries have gained access to fibre-optic international submarine cables for the first time: some directly and some, like landlocked countries, via terrestrial fibreoptic links with neighbouring countries. Other countries are gaining access to a second or even third international cable. The arrival of fibre-optic technology has not only improved Internet connectivity, but prices have come down and service levels have increased – especially in the East African region, which in the past year has seen two submarine cables arrive on its shores. The arrival is a culmination of the long-awaited undersea fibre-optic connection to the region – which was the only part of the world missing such a link, thus leaving satellite technology as the only means of connecting to the rest of the globe. These multimillion-dollar undersea fibre-optic cables are expected to create jobs; as well as provide reliable Internet and telecommunication services to industry stakeholders by minimizing the difficulties of switching traffic between African countries and eliminating the inconveniences and added cost of first routing traffic to Europe – as was the case before. With affordable and efficient ICT infrastructure, African countries will also be able to venture into the field of business process outsourcing, a rapidly growing global industry. Improved connectivity has made broadband Internet access affordable to a much wider range of the population. The Internet has brought access to education, unbiased information, and improved competitiveness in the global marketplace: factors that are expected to empower and revolutionize African economies and societies. However, for the full benefit of the new international fibre-optic connectivity to unfold, all the other elements along the supply chain to the end user need to be developed.
• National fibre backbone networks to take the new cheap bandwidth to population centres around the country. For example, in Kenya the National Optic Fibre Broadband Infrastructure (NOFBI) connects major towns and border points, while connections to district headquarters will provide links to other small arteries that connect the end users to the main cables;
• Policy, legal and regulatory regimes for fair and open access to the international fibre-optic cables and the national backbone; and
• Wireless mobile broadband infrastructure (and competition) on the access level.
The connection to the submarine cables does not necessarily spell the demise of satellite connectivity. With fibre-optic technology alone, only the users in urban areas will benefit from this Internet revolution. The last mile connectivity is still a challenge and this is where satellite broadband services will be invaluable in empowering thousands of Africans with high-speed Internet.
As this issue of Africa Telecoms is focusing on satellite and fibre in Africa, do you feel that these communications technologies will work together concurrently in the future or will one or the other dominate within an African context?
We are already seeing the migration of international connectivity from satellite onto submarine fibre, with many carriers having announced plans to terminate satellite circuits at the end of existing contracts. As the availability of diversely-routed international submarine connectivity continues to expand, we would expect to see this trend continuing into the foreseeable future. Satellite will still have a part to play in extremely remote areas, but we expect to see fibre dominate in the future as we have seen in the rest of the world.
What do you see as the key differentiators between satellite and fibre connectivity?
Mainly, delay: for international connections satellites introduce long delays because of the often long communication path between the two locations. Fibre-optics tend to be deployed to minimise route distance, and submarine cables typically follow the most direct coastal route between major coastal locations, resulting in much lower delays. Secondly, scalability: fibre-optic systems are extremely scalable - once installed, fibre-optic connectivity is relatively cheap to upgrade. Capacity upgrades continue to be possible, even on old submarine systems. Once deployed, satellites cannot be physically upgraded. Lastly, cost: satellite costs are not distance dependent, making them particularly suited to delivering service between remote locations and where demand is low. The build cost of fibre is directly related to distance, so it is most costeffective when demand is high or growing fast and for meeting long-term, rather than low-demand, short-term requirements. Both are susceptible to service interruption, although weather features are much more common than earthquakes! In both cases, an alternative route is required for back-up.
Could you give us a synopsis of the rather complex ownership structure put in place for the construction of the EASSy cable and how WIOCC fits into this as an special purpose vehicle (SPV)? Was the creation of the SPV a regulatory requirement and/or why was it instituted?
Following extensive dialogue amongst all of the stakeholders, a mutual understanding was reached by governments concerned, telecom operators and a number of Development Finance Institutions (DFIs) in June 2006 around a hybrid project structure involving both direct consortium members and an SPV that met the Governments’ developmental objectives of ensuring low-cost open access to international connectivity, while providing for financing flexibility and maintaining the commercial appeal of the EASSy Project. The SPV was established to create a vehicle to leverage debt financing from the DFIs and to reduce the upfront equity requirements of certain operators who wished to avail themselves of financing. Thus, in this “hybrid” structure, the larger telecom companies invested directly in their own right, while a number of smaller ones invested through an SPV, named WIOCC.
How active, as a shareholder, has WIOCC been in the construction phase of the EASSy cable?
WIOCC has been extremely active, particularly in its chairmanship of the EASSy Technical Working Group and co-chairing of the Procurement Group. This involves directing the progress of engineering, provisioning, installation, bringing into service and the continued operation of EASSy. Specifically, WIOCC has driven negotiations on construction in Somalia, marine contracts, testing, landing station construction, Data Communications Network management and Operations & Maintenance budgets. WIOCC also chairs the Investment & Assignment sub-committee and co-chairs the Operations & Maintenance sub-committee.
The relationship between WIOCC and EASSy is quite an interesting one, particularly as WIOCC is still reselling capacity in the EASSy cable. Does this offer any benefits to WIOCC clients? Considering this, why would an operator work with WIOCC as opposed to directly with EASSy?
There are two key reasons for an operator to work directly with WIOCC: Firstly, as an SPV, WIOCC is able to offer connectivity into all nine landing countries (and onward to a further 11 countries), whereas other EASSy shareholders are only able to serve their own markets. For an operator this means simplification - they can buy connectivity into many locations through a single relationship (with WIOCC), and avoid having to maintain relationships with a number of different organisations. Additionally, WIOCC is the largest shareholder in EASSy, owning nearly a third of the capacity on the system. Whilst many other shareholder have invested for their own use (and this will take preference), WIOCC's capacity allocation is more than sufficient to service shareholders and other operators wanting EASSy capacity.
When is the cable expected to go live?
We are completing the construction phase right now. This will be followed by two months of comprehensive end-to-end testing of the system. The System Ready for Service Date is 30th June 2010.
With the Seacom cable having landed and a number of other cables being planned, does this change any of the initial business objectives set out by WIOCC?And will WIOCC be looking to invest in additional capacity on any of the other cables?
The short answer to the first question is “no”. There was never any doubt that East Africa would become a competitive market for submarine connectivity; the only question was when and how long would it take. WIOCC is backed by some of the key carriers in the region, and we believe that we offer customers a clear and compelling business proposition compared with competing systems. EASSy is being constructed with a high degree of resilience built in, but we are also considering options to further improve the physical diversity of our routing. Clearly, other cables along the east and west coasts present us with a variety of options that we are exploring.
With the EASSY cable having landed in Kenya, is WIOCC able to currently offer capacity to clients in East Africa? If so, how much capacity has already been sold? What percentage of WIOCC capacity has been taken up by your shareholders and how much is available to the open market?
As you would expect, WIOCC is working closely with its shareholders to quantify their needs, as well as meeting with other prospective customers to further discuss their requirements. WIOCC shareholders have all signed up to significant amounts of capacity, but as WIOCC has the largest shareholding in the EASSy system there is plenty of capacity to satisfy the demand from the open market.
WIOCC seems to have a number of key differentiators to its competitors. Could you please talk us through how you feel these aspects will benefit WIOCC customers as we move into the future?
There are a number of ways in which customers will benefit:
a) WIOCC will be the first to offer direct connectivity to Europe from East Africa. Unlike our competitors (who route via the Middle East or India), EASSy will connect directly between East Africa and the key internet exchanges in Europe and the US. This will offer WIOCC customers the opportunity to differentiate their services by offering the fastest possible route to many of the most popular sites on the Internet.
b) WIOCC customers will be able to take advantage of high-speed international connectivity from a wider variety of locations. Our 12 shareholders' extensive terrestrial, fibreoptic networks are being interconnected to create the most comprehensive access network in the region.
c) WIOCC offers customers truly affordable international connectivity, with a very different pricing model to our competitors. Our flexible contract terms enable carriers to start small and increase their connectivity in line with demand. This provides a level playing field for small, medium and large service providers to compete head-to-head, encouraging them to develop cost-effective, highperformance business solutions and services for the end user. We offer contracts as short as one month, and for as little as 2Mbps of capacity.
d) WIOCC will deliver very high levels of resilience and reliability. The way in which EASSy has been designed minimises outages. The cable itself is based on a 'collapsed ring' structure, meaning that we can route traffic the opposite way around the ring in the case of a cable break. Whilst this may increase delays a little, it means that a single break in the cable will not result in a complete loss of service. Interconnection of our shareholders' terrestrial networks will also offer alternative routes between many of the landing stations should there be a more extensive break in the cable. Finally, WIOCC is negotiating interconnection agreements with a variety of international cable operators, which will enable us to take advantage of a variety of international routing options. The key benefit to our customers is reduced risk of complete service outage, without having to purchase capacity on multiple cable or satellite systems.
Are there any plans in the future for the EASSy cable to be extended to continue up the West coast of Africa? If not do you feel there would be merit in evaluating the viability of a continuous fibre ring around Africa?
We have no plans to physically extend the EASSy cable up the West coast. However, there are clear benefits to our shareholders and customers in being able to extend their reach to other parts of Africa; and in having access to a diverse route for resilience. We are therefore exploring options for meeting these requirements with a variety of organisations.
With WIOCC’s Onward Connectivity seemingly having direct backhaul access to Europe, Asia, North America and notably in the Eastern and Southern regions of Africa, are there plans to link into the Central African Backbone (CAB) project once completed? Then, are there any plans to extend this connectivity through to Western and Northern Africa?
WIOCC has already announced that it will offer connectivity between 20 countries in Africa, including landlocked countries such as Uganda, Rwanda, Burundi, Zambia, Zimbabwe and Botswana. One of the countries to which we will connect is Sudan, which is eligible to participate in the CAB project. Whilst there are no formal plans in place right now to interconnect with CAB, we are exploring many avenues to broaden coverage including connectivity to other regions of Africa.
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.
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.
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.
The past 12 months can be written off as a dull kind of year for the telecoms industry, with economic turbulence making many players happy to survive rather than thrive. The chief development for Africa was undoubtedly the belated entry of the Indians, as Bharti Airtel took over the bulk of Zain’s African activities. Other than that there were a few price skirmishes, the axing of the telecoms minister in South Africa and the surprisingly low-key landing of the Eassy cable. Here’s a brief reminder of a few or the more interesting moments in a year that most of us have probably forgotten already. Let’s hope the industry regains its usual energy and joie de vivre in 2011.
The year began badly for Vodacom’s subsidiary in the Democratic Republic of Congo (DRC). A bitter clash with its 49% shareholder Congolese Wireless Network (CWN) saw CWN file papers in a Kinshasa court accusing Vodacom of “plundering” the company. CWN claims Vodacom illegally took up to US$180 million out of the DRC and repatriated the profits instead of reinvesting in the operations. Vodacom denied the allegations and initiated arbitration through the International Chamber of Commerce, which could take years to be resolved. Both parties agreed to keep discussions open to keep Vodacom DRC running, although Vodacom may decide to pull out of the country if arbitration looks likely to take too long, or if the relationship deteriorates further. South Africa’s third cellular operator Cell C had a better start to the year and awarded a US$378m contract to China’s ZTE Corporation to supply equipment and managed services to roll out a national 3G network. While ZTE was welcoming more open communications with the west, the Chinese government was less keen to embrace decadent western ways. Cyber attacks on Google and other companies led to escalated tensions between the US and China, although the government claimed it wasn’t to blame. US secretary of state Hillary Clinton called on the communist country to end online censorship, but Chinese officials said they would not tone down the way they censor the internet. The internet also went down for parts of Africa, although by error rather than design. A planned interruption on the Sat-3 cable connecting South Africa to Europe caused chaos with users unable to access international websites. Traffic was routed over a different cable to Asia, emphasising the need for multiple cables.
Nigeria’s government made yet another attempt to sell off its ailing incumbent operator Nitel. MTN Nigeria and Globacom were among six shortlisted bidders for a 75% stake, or to bid for stakes in some of its subsidiaries, including mobile arm M-Tel and its international gateway. The government went on to approve a US$2.5bn bid for Nitel, which was five times the US$500m that industry experts considered its maximum value. The deal went to the New Generation Telecommunications, a consortium of local and foreign investors including a Dubai investment house, Minerva Group. But by November, sources were saying some of the backers were getting cold feet and wanted an extension on the payment deadline. GiCell, a Nigerian company in the consortium, blamed the government for taking almost eight months to give final approval, making the foreign investors jittery about what exactly they were getting into. Further afield, the first images were transmitted back to Earth from South Africa’s Sumbandila satellite, a project that cost more than ZAR20 million to build and ZAR12 million to launch. The satellite is designed to strengthen the country’s technological capabilities, space resources and satellite engineering skills. Sumbandila can also collect imaging data during a national emergency such as floods. While the government can organise a presence in space, it’s struggling with the more mundane concept of TV. Plans to migrate from analogue to digital transmissions were delayed until April 2013 at the earliest, at least 18 months later than originally envisaged. The regulatory authority partly blamed anticipated delays in the availability of the set-top boxes needed to receive the new digital signals. It forgot to say that the delays were being caused by the government prevaricating over which technology standard to adopt.
After two aborted efforts to merge with MTN, the Indian operator Bharti Airtel finally began its African adventure by acquiring Zain’s African activities. The US$10.7 billion deals saw Bharti take over operations in 15 countries, and excluded Zain’s operations in Morocco and Sudan. Bharti is handing over a tidy sum of US$9 billion in cash and discounting US$1.7 billion of debt. Hopefully it still likes what it got, because the remaining US$700 million is due this March. Zain had been trying to sell its African networks for more than a year, despite initially denying that any such plans were afoot. Bharti now has 163 million subscribers, with Zain Africa’s 41.9 million looking rather paltry compared to Bharti’s home-grown user base of 121 million. So at least the feisty Indians should teach Zain a thing or two about economies of scale and serving low-income consumers. Bharti is expected to be a more formidable operator than Zain was, and is now a rival to MTN instead of the potential partner it tried to be. Yet MTN CEO Phuthuma Nhleko described suggestions that Bharti posed a serious threat and could trigger potential price wars as “exaggeration and oversimplification.” His comments were based on the opinion that a business model that works in India may not transport easily to a totally different environment. How well Bharti will manage to replicate its operations is still playing out, with a business model designed to serve millions of people in densely crowded areas now having to adapt to sparsely populated regions lacking basic facilities. Zain has rebranded as Airtel and has already slashed prices in Kenya to steal market share from Safaricom, Kenya’s dominant player.
After two aborted efforts to merge with MTN, the Indian operator Bharti Airtel finally began its African adventure by acquiring Zain’s African activities. The US$10.7 billion deals saw Bharti take over operations in 15 countries, and excluded Zain’s operations in Morocco and Sudan. Bharti is handing over a tidy sum of US$9 billion in cash and discounting US$1.7 billion of debt. Hopefully it still likes what it got, because the remaining US$700 million is due this March. Plans for Egypt’s Orascom Telecom to sell all or some of its African assets suffered a setback when the Algerian government said it would block the sale of Orascom’s subsidiary in that country. Orascom is the majority owner of Algeria’s Djezzy network, which is a key part of its operations and contributes 47% of its revenue. Algeria’s government would rather buy Djezzy using its pre-emptive rights as a minority shareholder than see it sold to a foreign entity. Analysts warned that the inability to sell Djezzy could scupper the sale of Orascom’s assets to potential buyers including MTN. That proved true, with MTN walking away from the deal. By November Russia’s Vimpelcom had agreed to buy a controlling stake in Orascom for US$6.6 billion. But as the year drew to a close those plans began to look increasingly shaky as Algeria remained a hurdle and regulatory issues also emerged in other countries. Orascom operates GSM networks in Algeria, Tunisia, North Korea, Canada, Pakistan, Bangladesh, the Central African Republic, Zimbabwe, Burundi and Namibia. As usual, Africa’s elite got looked after a whole lot better than its poor, when wellheeled consumers welcomed Apple’s new iPad device. The first models arrived via the grey market without the official support of Apple. The tablet computer is a multifunctional device with a 9.7-inch high-resolution screen, making it perfect for watching podcasts, videos, browsing the web, checking e-mail, reading magazines, watching movies and listening to music. It also runs close to 200,000 applications.
Network operator MTN said it had invested nearly ZAR450 million specifically for the 2010 Soccer World Cup in South Africa. It rolled out infrastructure to all the stadiums so fans could make calls and connect to the internet without sucking up all the bandwidth from businesses and consumers in the neighbourhood. At Soccer City in Soweto alone it erected 22 base stations. May also saw two of those occasions where something we already know is finally admitted in public. Firstly, the outgoing chairman of the Independent Communications Authority of South Africa (Icasa) admitted that the regulatory authority had failed the sector. “I concede we have failed you,” Paris Mashile told his stakeholders. In reply to complaints about how long Icasa took to deal with industry issues, Mashile said its performance had been “inexcusable and unacceptable” and had affected the telecoms companies in very serious ways. Mashile complained that the industry poached Icasa’s best staff and that it was beholden to the government for its budget. “We are not serving the sector well and it requires a turnaround strategy,” he said. The mea culpa was welcome, but there was little clue as to when or how a turnaround strategy may begin. The second “yes, we already knew that” came when a study by Ookla confirmed that Africa is poorly served for broadband. Ookla’s Net Index, based on millions of tests, ranks South Africa 93rd in the world for broadband download speeds. Uganda fares just a fraction better in 92nd place. The index found the average global consumer download speed is 7.7MB per second. The average in South Africa is 2.2Mbps. The worst countries in which to attempt a data download include Mali and Sudan.
June was a month in which plans went awry for several companies. MTN formally ended negotiations to buy the African assets of Orascom Telecom. The deal probably fell through because the Algerian government blocked the sale of the Djezzy network, which was perhaps the asset MTN most wanted to get its hands on. MTN instantly bounced back by declaring that growth in Nigeria is far from over, and announcing that it had raised another ZAR16 billion to expand its network there. The new infrastructure investment follows heavy investments in 2008 and 2009, which now lets MTN cover 83% of Nigeria’s land and 84% of its people. While MTN was raising money, Neotel was losing it in vast amounts. The operator licensed to rival Telkom in South Africa suffered a net loss of nearly ZAR1.6 billion in the 2010 financial year. It was the first time its majority stakeholder, India’s Tata Communications, had revealed the extent of the losses being clocked up by its subsidiary. Neotel was initially seen as a much-needed, much-delayed alternative to Telkom, so businesses and consumers had high hopes of enjoying decent competition at last. But Neotel has failed to set the market alight. Plans at Telkom also went wonky when the company announced that CEO Reuben September was resigning – in other words, his contract wasn’t renewed. Politics turned out to be the chief reason, with September and his chairman:
– government appointed Jeff Molobela
– repeatedly clashing.
He was replaced by Jeffrey Hedberg as acting CEO, with no news yet of who will become the permanent head.
The East African Submarine System (Eassy) undersea cable started commercial operations on July 30, remarkably ahead of schedule and about 10% below its US$300- million budget. Not bad for a project that’s literally been in the pipeline for seven years. The 10,000km fibre optic cable on Africa’s east coast links South Africa, Mozambique, Madagascar, Tanzania, Kenya, Somalia, Djibouti and Sudan with other submarine cables from Europe, Asia, the Middle East and the US. One change of plan was unexpectedly caused by pirates, as the consortium has chosen not to build a landing point in Mogadishu in Somalia yet because of pirate activities. About 25 telecoms operators are buying its bandwidth so far, and its investors include international bandwidth prices, as Eassy, Seacom and Sat-3 cables all charge roughly the same. Hay said Eassy simply wasn’t big enough to make a large impact, but it was a valuable redundancy option for telecoms operators and internet service providers, which still have vivid memories of the lengthy breakdown of Seacom. South Africa’s MTN, Vodacom, Telkom and Neotel, as well as Dalkom Somalia, Comoros Telecom and Mauritius Telecom. Chairman Trevor Martins said the cable had been launched with an initial 60Gb per second of capacity, which would be increased as demand grew. He expects to see a broadband capacity explosion in Africa between 2012 and 2014. Although Martins said the cable would provoke another sharp reduction in wholesale international bandwidth prices and cheaper broadband for consumers, that hasn’t been particularly noticeable. South African internet service providers say the cable has had little impact on the price of bandwidth so far. Neotel’s Angus Hay agreed that Eassy’s arrival hadn’t had a big impact on international bandwidth prices, as Eassy, Seacom and Sat-3 cables all charge roughly the same. Hay said Eassy simply wasn’t big enough to make a large impact, but it was a valuable redundancy option for telecoms operators and internet service providers, which still have vivid memories of the lengthy breakdown of Seacom.
South Africa’s largest cellular network Vodacom teamed up with Nedbank to launch the M-Pesa money transfer service. M-Pesa is already enormously popular in Kenya, where it’s operated by Safaricom and used by 10 million people. It’s also available from Vodacom in Tanzania. The technology was developed by the Vodafone Group to let cellphone users transfer money quickly, easily and securely from person to person. Vodacom CEO Pieter Uys said: “The beauty of this service is the ease and speed with which people can send money to each other anywhere in the country. As anyone can receive M-Pesa without having to be an M-Pesa customer or even a Vodacom subscriber, it has the power to reach all cellphone users.” Only Vodacom customers can send M-Pesa, but anyone on any cellphone network can receive it. Nedbank chief executive Mike Brown said cellphone penetration was extremely high in South Africa, but banking was far less widespread, with more than 13 million economically active South Africans not having a bank account. M-Pesa would make basic financial services accessible to all and help bring marginalised individuals into the economic mainstream, he said. Customers can register for the service and deposit money into their M-Pesa account at outlets including shops, spazas and all Nedbank branches. Once they have money in their account, they can send it to any other cellphone user in South Africa, and the receiver can collect the cash at any M-Pesa outlet or a Nedbank ATM. Customers access their accounts using a four-digit PIN code and as long as that PIN remains secret their transactions are secure.
Price war skirmishes have become a regular feature in East Africa, and bubbled up again as Kenya made some drastic cuts in mobile call fees. Analysts said that posed a huge competitiveness challenge to its regional counterparts following the launch of the East African Common Market. High cross-network call rates force many subscribers to buy multiple Sim cards to call cheaply on one network then swap cards to call another network. Kenyans had been making crossnetwork calls at the equivalent of Ushs 300 a minute, with Uganda charging Ushs 340. But the price difference changed dramatically after the Communications "South Africa’s largest cellular network Vodacom teamed up with Nedbank to launch the M-Pesa money transfer service." Commission of Kenya halved the interconnection rate. Kenyans now call for an equivalent of Ushs 75 a minute across all networks. In Rwanda, the rate is about Ushs 270 a minute, while Tanzanians pay about Ushs 7.5 per second, and MTN Uganda charges Ushs 9 per second. When the Uganda Communications Commission tried to force down interconnection rates from USh180 to Ushs 131 last year it was immediately sued by MTN, which claimed that was well below the actual cost of the service and the fee should not drop below Ushs 151. Then Warid Telecom instigated a price war by slashing cross-network calls to Ushs 5 per second, making it the cheapest in the market. Warid said the new rate was half its previous fee, and was designed to make cellphone services affordable to more people. Next Bharti Airtel led a price war in Kenya by cutting call rates by up to 45%. Bharti said usage soared by 50% after the cuts, and within eight weeks its revenue was back to normal as higher usage offset the lower call fees.
Few tears were shed when a shake-up in South Africa’s cabinet saw Communications Minister Siphiwe Nyanda unceremoniously axed. Nyanda was replaced by the former deputy communications minister Roy Padayachie, seeing the return of a man who once showed far greater promise than the late minister he served under, Ivy Matsepe-Casaburri. Nyanda had allowed the department to totter from crisis to crisis. First he bought two extravagant BMWs then racked up massive hotel bills at the taxpayer’s expense. He never shook off allegations that he benefited from dodgy tenders. Then a spectacular clash saw him fire director-general Mamodupi Mohlala, who wanted to change the tendering processes. As internal wrangling absorbed much of the minister’s time, the state-owned signal distributor Sentech and the SABC were allowed to keep spiralling downwards through mismanagement, corruption, boardroom spats and failure to deliver on business plans. Analysts agree that Padayachie is a great choice, but given the department’s appalling track record for more than a decade, anyone with a touch of common sense and motivation ought to be an improvement. October also saw South Africa’s fixed line monopoly Telkom launch its new mobile services. The mobile offerings, dubbed 8ta, include a full range of prepaid and contract packages for consumers and corporate customers. Its “ultra-competitive contract offers” starting at R90 a month were designed to encourage more usage of mobile voice and data services, said 8ta’s Managing Executive Amith Maharaj. “We will provide more minutes for your money than any other network.” Telkom has erected 800 base stations of its own and has a roaming agreement with MTN to cover areas it has not yet reached. The initiative has already cost ZAR205m in operating expenditure and a further 3,200 of its own base stations are planned.
The long-awaited switch from analogue to digital broadcasting in SADC countries by 2015 looked set to be delayed by another five years as countries argued over which technology to adopt. The prediction of long delays came from Mgqibelo Gasela, head of regulatory affairs for MultiChoice Africa. He advised SADC leaders not to bow to pressure from Japan and Brazil to adopt a technology that is cheaper but less robust than the one they initially supported. Engineers in the Southern African Digital Broadcasting Association strongly recommend the adoption of DVB-T over the Brazilian and Japanese ISDB system, but politicians were being swayed by political pressure from those countries. “SADC should choose a standard that is the best standard worldwide and the latest,” Gasela said. And that meant DVB-T. He urged ministers to vote in the best interests of the region and not for political expediency. In January 2011, everyone breathed a sign of relief when South Africa’s Communications Ministry announced that SA would adopt DVB-T2, the latest version of the European standard. The Southern African Digital Broadcasting Association called the decision “visionary. Meanwhile, research by Informa Telecom declared that Africa now has 506 million active cellphone subscribers. Africa accounts for 10% of the world’s mobile subscriptions as user numbers in the continent rose 18% from last year due to demand for new services such as mobile internet access. In Ghana, a change of ownership took place as Kasapa Network was sold to Dubaibased Expresso Telecom. Kasapa serves 400,000 customers as the fourth operator behind MTN, Tigo and Vodafone. Expresso operates the Intercellular network in Nigeria and holds new licences in Mauritania and Senegal. CEO Isham Ayub said his company would upgrade the network across Ghana to enhance coverage, attract more users and offer a more customer-oriented service.
As the year limped to a close, MTN finally declared that outgoing CEO Phuthuma Nhleko would be replaced by Sifiso Dabengwa on Apri 1. Nhleko will stay on as non-executive deputy chairman. Dabengwa is currently the chief operating officer (COO) and was seen as the obvious choice, since he worked closely with Nhleko in driving MTN’s growth strategy. The COO position will be scrapped and a new position, CEO of MTN International, will be created to focus intensely on opportunities abroad. No candidate has been name for that yet. Christmas was grim for employees at South Africa’s fixed and mobile operator Neotel with retrenchments looming. Neotel has more than 1,000 staff, which cynics would say almost outnumbers its customers. The company’s debt providers have apparently brought in independent management consultants to assess the situation. Neotel will consult staff in January and February, with retrenchments expected in April. Neotel says it is evaluating its business strategy, operational performance, efficiency and competitiveness with a view to achieving long-term sustainability. Staying in South Africa, the government pledged to build 18 information and communications technology centres in 2011 to take technology to the rural poor. The ZAR180 million scheme will provide broadband internet access and computing resources in underserviced areas to help raise the country’s appalling low broadband penetration rate of 4% to double digits. Bringing us full circle, we end back in the Democratic Republic of Congo (DRC), where Vodacom and its minority shareholder Congolese Wireless Network (CWN) have agreed to appoint investment bank NM Rothschild & Sons to explore options to settle their acrimonious dispute and keep their network viable.
And a quick look at what's brewing for 2011:
Bharti should make a big impact in the countries where it aquired the networks of Zain. Expect more price wars, more innovative offerings and a general slashing of any flabby bits in the operating expenses. In South Africa the mobile interconnection fees finally fell, but the Independent Communications Authority of SA (Icasa) didn’t really get its way against wily operators Vodacom and MTN. It will try again in 2011 with plans to cut call termination rates in March. Consumers are advised not to hold their breath.
More than Mobile
Qualcomm, one of the communications industry’s foremost technology providers, gives its forecast for the future. A future that will be about more than just faster phones, Christo van Gemert explains, thanks to the company’s lineup of powerful and multifunctional mobile chipsets, designed to fulfil its vision of an “Internet of Everything”.
Cast your mind back to the phones from a few years ago: before we had our iPhones, Androids, ’Berries and Symbians. While phones were slowly starting to gain smart features – features that took them beyond just being used for text messages and phone calls – they were still hamstrung by the older technologies. Data connectivity was the limiting factor. Without a faster connection to the Internet, the average user was not going to bother using his phone to retrieve a party invitation via email and then use online maps to get him to the destination. Once there, he would probably have shot some video of the fun, but chances were slim of it being uploaded to YouTube. Nor was he going to update his Facebook status to let people know about the good time he was having.
Jing Wang, executive VP and president of global business operations for Qualcomm agrees. He says: “The wireless experience has gone through a radical change over the past decade. If we take a quick step back, 10 years ago the mobile device was just a phone – voice was the dominant application. Data was around but still in its infancy. Today, innovations and technology advancements have enabled the wireless industry to impact almost every aspect of our lives. This evolution has also created huge demand for wireless data.” This new demand, driven by smarter consumers and innovative services, needed hardware to back up its growth. If people were going to start using Twitter and Facebook every day, from their mobile devices, they’d need faster connectivity. General Packet Radio Service (GPRS) was the first of the faster data connectivity services, but this second generation technology was quickly replaced by 3G. Now, we have 4G knocking on the door. And we’re seeing this need for ubiquitous connectivity spread – it’s no longer just our phones that we want connected to the Internet, but also bigger, smarter mobile devices with more functionality. Tablets, for example. Wang agrees. “The next big industry shift we see is integrating connectivity into all types of consumer electronic devices. Mobile devices — particularly mobile phones and tablets — are poised to become the user interface for consumers’ connected, digital worlds. Effectively, these devices will become remote controls for your life, allowing you to manipulate, control and interact with the things around you. They’ll also provide real-time access to a variety of information, from the Internet to hyper-local content.” New services are being introduced each week. Consumers want different ways of experiencing online content that suits their tastes. Whether it’s reading news, watching video or keeping in touch with others. People are not necessarily finding new ways to use their devices – their needs are driving what these machines are capable of, including being integrated with existing daily routines. “Accomplishing this will require some innovative new capabilities. Peer-to-peer communications without the need for intermediate infrastructure will enable people to connect their devices to one another on an ad hoc basis. Consumers will also need devices that support multipleradios frequencies – including various flavours of 3G and 4G, Wi-Fi and Bluetooth – and which can move seamlessly between these technologies. Qualcomm has excelled in integrating its software and hardware to provide these capabilities, so we’re in a good position for this next evolution of the wireless industry,” Wang adds.
Power for the people
Qualcomm’s solutions aren’t just those that power the wireless radios in mobile devices. At the 2011 International Consumer Electronics Show (CES) the company launched its new Snapdragon chipsets – superfast processors with integrated functionality. These will enable future devices to do more than what we currently see, or expect of them. Wang points out that tablets are one of the devices that will be driving adoption of the new, faster chips. He highlights that the evolution isn’t going to see tablets replacing smartphones or computers, but rather complementing this existing ecosystem. “The tablet meets the needs of users who want more multimedia capabilities and who are demanding a device that is designed for a personal experience on the go. Over time, some users may feel that a tablet can serve as their primary device, and this may also be the case for emerging markets,” he states. Backing up this prediction is a stable of more than 10 different OEMs, with over 20 tablet designs – all based on Snapdragon chipsets. These are big companies, like Dell with its Streak and China’s Huawei and its S7 tablet. These and others boast Qualcomm’s next-generation dual-core chipsets that run at speeds between 1.2GHz and 1.4Ghz. And that’s just for 2011. Contrasted with the processors in desktop computers, which breached the 1GHz barrier in 1999 (with only a single core), these advances in mobile technology are nothing short of remarkable. They’re bringing desktop-like speeds and experiences to mobile devices. Wang hastens to add that the processor-speed wars of years gone by were fought at the expense of efficiency and battery life. “For fully mobile devices such as smartphones and tablets, power efficiency is very important,” he says. “With Snapdragon, we’ve taken a different approach to the market by providing an unprecedented combination of 3G, powerful multimedia capabilities and optimised power consumption – all in a single chip – to enable a new generation of smart mobile devices.” This is in contrast to desktop and notebook computers, which both still use discreet components for each of these duties. Separate chips are required for networking, general processing and graphics. Qualcomm focuses on offering a single-chip solution, drastically reducing power consumption and design complexity. All of this means that it’ll be easier for a consumer to take more of their digital life with them, wherever they go. Games, videos, Internet access and more – with the same speed and responsiveness as they’d get on a desktop computer. The silicon onslaught doesn’t stop there, though. Wang holds out the promise of even more power, speed and battery life with an upcoming offering. “In February, we announced our new Krait family of quadcore chipsets based on a new 28-nanometer micro-architecture. The first chip products in the Krait family will deliver speeds of up to 2.5GHz per core, but it will also minimise power consumption and heat generation. The small size and power efficiency make the Krait chips ideal for new devices that are thin and lightweight.”
A view of the real world
More speed and lower consumption are all good, but Qualcomm isn’t resting on its laurels. It works closely with its customers to solve technical challenges and bring products to market even sooner. Wang says that the company’s vision of the future is for all devices to be connected, be it traditional consumer electronics, appliances, vehicles or healthcare devices. It wants to create an “Internet of Everything”, where devices all talk to one another and provide seamless access to all the content and services people use, no matter where they are. One of the technologies it’s working on to realise its future vision is augmented reality. This technology merges real world information with that in the digital world, through the cameras in mobile devices. Users can fire up their cameras and get information on their surroundings: tourist attractions, shops, restaurants and more. Instead of giving people a map of a city, a smartphone can be loaded with an interactive city tour. Travellers can use augmented reality to get a closer and more detailed look at fascinations, rather than driving past in a tour bus.Wang provides more examples, such as games that use a player’s environment, along with camera-equipped smart toys. “Media publishers can add new experiences to paper and print material such as magazines, books and newspapers. Marketers can create more interactive marketing pieces and product packaging. There are lots of possibilities – the only limit is the imagination of developers.” That last bit is quite important, as Wang points out that augmented reality in mobile applications is a relatively new market. Vision-based systems, using multi-megapixel cameras, require high processor speeds and powerful graphical capabilities. Devices with the necessary memory and processing potential have only recently come to market, many based on the Snapdragon processors. To help those developing applications and services optimised for the Qualcomm platforms, the company has released a free software development kit. Wang reasons: “By making it easy and cost effective for developers to create augmented reality applications, we’re aiming to give consumers more functionality in their smartphones and ultimately increase the benefits of having our Snapdragon chips in these devices.”
Seeing in the sun
All of these exciting technologies can still be let down by the weakest link in the chain. In the case of mobile devices, their limited use in outdoor environments is a big focus area for technology companies. We’ve seen manufacturers provide tougher devices, with dust- and water-proof seals or shockproof designs. Corning has made its name with Gorilla Glass, the scratch and shatter-resistant touch panels used in many manufacturers’ mobile handsets. Qualcomm also has something up its sleeve to help overcome one of Mother Nature’s hazards. In this case: the sun. For years it’s been nearly impossible to use full colour liquid crystal displays in sunlight. Turning up the brightness to maximum could alleviate the problem to a degree, but hampered visibility in direct sunlight is something we’ve become used to. Qualcomm’s answer is a new display technology called Mirasol. Mirasol displays use very little power and one of the inherent design advantages is a highly reflective internal structure that enables viewing even in direct sunlight. Wang says the company’s main focus for Mirasol is in the e-reader market, where it aims to offer full colour displays that are viewable in direct sunlight, with refresh rates capable of displaying video – without adversely impacting battery life. Wang is confident that no other display technology offers these four key traits. With demand growing for multimedia devices capable of displaying video content, Qualcomm has invested US$975 million in a facility to boost production of Mirasol displays. It will come online in 2012.
Connectivity: now and tomorrow
Augmented reality and more-usable displays are important advances, but both still rely on web connectivity to perform at their best. That Mirasol display is useless if it’s not letting you watch YouTube videos while you lounge next to the pool, and an augmented reality application is only as good as the information it downloads from Google or Wikipedia. Wang is enthusiastic over the changes taking place in Africa. Not only have the undersea cables given the continent immensely fast connections to the rest of the world, the wireless infrastructure has also grown. He points out that 2G to 3G migration is healthy in Africa, citing market competition and the availability of affordable handsets that drive the shift to wireless data. 3G and other wireless technologies have already overtaken fixed-line installations simply because they offer more economic efficiency. Wang quotes analysts who say that 3G connections are expected to grow by more than 25% in 2011, with a big part of the growth coming from regions that are still on 2G technology. Asked about 4G, he says: “From our perspective, we feel good about 4G, both as an extension of the 3G network as operators around the world deploy HSPA+, and as a nextgeneration solution with LTE. In terms of the chipsets, we’re sitting in a very good position because operators need to have backward compatibility to maintain the continuity of their services. They need multimode devices that support 2G, 3G and 4G in the chipset and make it seamless to the consumer. That’s what we’ve focused on.” The various generations of data connectivity aren’t interoperable, and require separate chipset features to ensure compatibility. Qualcomm has built both chips and software to make sure that people moving between regions that have new, 4G technology and older 3G technology will not have to deal with any complications. They will simply experience slower speeds on the older networks. Wang is really excited over his company’s cheaper 3G technologies, though. He says that in the past year Qualcomm has introduced new base designs for low-cost 3G handsets – something with direct benefits for Africa. He gives examples of Qualcomm working together with handset manufacturers and providers in countries like Kenya and South Africa, where solutions have been custom-designed for the market’s needs – be it for affordable 3G-enabled feature phones, or video streaming services. “Working with our partners, we’re developing technologies that will help make 3G services more accessible to everyone,” he says. Qualcomm is clearly driving progress in the right direction and securing its place in the technology history books. Dual and quad-core processors in mobile devices were unthinkable just a few years ago, but here we are on the eve of a more converged computing lifestyle than we ever imagined. Wang is almost hesitant to make a prediction for the future, given the radical changes we’ve seen in just the past five years. He also points out that there is a finite amount of wireless spectrum and a theoretical limit to wireless data speed. “We’re working hard on developing ways to use spectrum more efficiently and to support more capacity and more subscribers. As mobile data usage grows over time, improving network performance will require moving antennas closer to the end-users,” he explains. “It will be interesting to see how people use their mobile devices a quarter century from now!”
In just ten years, Africa has gone from almost relying almost solely on satellite connections to the rest of the world, to a blooming ecosystem of undersea cables that are changing the way almost
everything is done.
When the SAT-3/SAFE cables came online, in 2001, their design capacity of 120Gbit/s and 130Gbit/s was projected to be more than enough for the coming years. In fact, the long-awaited SEACOM cable, which went live in 2009, only has about 110Gbit/s lit up – or made active – of its total 1.28Tbit/s capacity. But are these design capacities, and current utilization, indicative of the demand? The past few years have seen some fantastic activity along the African coastline. While the rest of the world surged ahead, bolstering infrastructure with fibre-to-home offerings and investing in cross-Atlantic links, the African continent hobbled along on hamstrung international connections. Slow link speeds provided little incentive for telcos and governments to offer faster connectivity options, which saw little progress in the early 2000s. This was also not helped by exceedingly expensive bandwidth costs on the ageing SAT-3/ SAFE link – monthly costs for 1Mbit/s block could be up to 50 times more expensive than a similar link in Europe or North America. However, when SEACOM landed in 2009 it was hyped to be the solution for Africa’s Internet requirements. This fast, open link running along the continent’s Eastern coast was the first major new cable in about 8 years, and spearheaded the arrival of cables we’ve heard more about, since then. 2009 saw two more cables: LION, a 1.28Tbit/s system linking Madagascar, Réunion and Mauritius, and TEAMs, a 40Gbit/s direct link for Kenya to the Middle East. The U n c l u t t e r e d Cables following year saw three major links go live. MainOne is another 1.28Tbit/s cable running from Spain, along the hump of Africa, and terminates in South Africa. EASSy (3.8Tbit/s) comes down along the East coast, from Sudan to South Africa. MainOne is supplemented by a different cable system, GLO1 – a 640Gbit/s link that runs from the UK all the way to Nigeria. Later this year will see the arrival of the biggest fibre link, yet. The 5.12Tbit/s WACS undersea cable is scheduled to go live. It will link South Africa, Namibia, Angola, DRC, Cameroon, Nigeria, Togo, Ghana, Ivory Coast, Cape Verde and the Canary Islands with Portugal and the United Kingdom. Despite its high design capacity, it’s expected that only a fraction of this will be made available at first. Joining WACS is the EIG (Europe Indiage Gateway) cable. Despite its name, this 3.84Tbit/s cable will shore in Libya, Egypt and Djibouti. Later in 2011 the SEAS cable will link the Seychelles to Kenya, for access to its outgoing cables. It’s clear, then, that the last two years have brought a surplus of connectivity to Africa. Most of the cables mentioned are running below capacity though. African countries are equipped with the backhaul capacity to bring the world to their doorsteps, and offer both businesses and citizens with fantastic, high-speed access to the growing pool of information on the Internet, but there are still major obstacles to be overcome. Each country has its regulations and rules that determine how telecommunications operators may go about their business. Stephen Song, a South African broadband activist, says, “The biggest challenge we face with all these multiterabit cables is stimulating effective competition in national distribution of international bandwidth.” It is up to the governments and regulatory bodies in developing countries to make sure that they nurture an environment where growth will be promoted. Regulations need to change swiftly, to accommodate the rapid adoption of new technologies. Song adds, “Both Seacom and MainOne have been stifled by incumbents who own the national backbone infrastructure and have not bent over backwards to be helpful because of their interests in other cables.” Companies that are stakeholders in existing, older cables stand to gain more from sticking to the bandwidth or services from that connection, rather than forking out cash for capacity on an alternative solution – especially if there’s no need to. It also highlights how the success of an undersea cable is dependent on a healthy backbone infrastructure. Stephen goes on to say, “Governments face the challenge of addressing the clear strategic need for investment in national fibre infrastructure without disincentivising industry investment. Getting public-private partnership right in this area is essential.” How this is approached is not set in stone. A one-sizefits- all solution cannot be used, especially with drastically different economical and geographical factors playing a role. One country might need a full wireless deployment to reach communities in far-flung areas, where it may be uneconomical to deploy fibre or copper cables. Another country could be more suited to the conventional cable deployments. In both cases it is up to the governments, with the regulations they’ve put in place, to help promote the technologies. Once the stage has been set, it will be up to telecoms operators and ISPs to toe the line. How will they make better use of the bandwidth that’s being provided by the undersea cables? What sort of offers can made available to users, to promote usage of the services? It’s all good and well if we’ve been given unlimited high-speed Internet access, but after we’ve browsed a thousand sites and checked all our free e-mail accounts, what is left to do? Assuming a metropolitan area has had its roads dug up and an extensive fibre network has been constructed, with the co-operation of all parties that stand to benefit, they will want to start looking at ways of making that investment work. One of the best value-add propositions is a triple-play offering. Traditional use won’t see home users saturating a 50Mbit/s fibre link with regular Internet usage on two computers. But present consumers one link, with a fixed price and multiple services, and things start making more sense. A portion of that downlink can be dedicated to browsing and high-speed download services, while the rest can be reserved for additional services. Highdefinition digital TV can be delivered on a fibre connection, and internationally there are many established services offering video entertainment over an Internet connection. In the US, services like Netflix and Vudu provide on-demand streaming of full-length movies, while Hulu is a free solution that cable TV subscribers can use to watch television shows online. The examples cited are US-specific, but show how an open market and highcapacity local loop can provide more business opportunities. Internet subscribers may not have paid a telco more for the privilege of consuming entertainment, but they’re happy to pay a separate content provider a reasonable subscription fee for guaranteed entertainment. The third component of this triple-play solution is voice. There are already hardware voice-over-IP solutions that just require an Internet connection to replace analogue voice equipment. Marketing this as a cheaper solution for calls will see people use the service more often. Telcos can also remove themselves from the direct retail chain. Rather than monetizing and managing a number of services, they should see themselves as a provider of a raw material – bandwidth – while a middleman takes care of packaging and selling the product. Even in the example of a triple-play solution, an operator can give consumers the choice of who they’d like to provide e-mail, video and voice services. In essence, they can go wholesale. Let’s say a telecoms operator has a data centre with huge data capacity. They don’t have to deal with a consumer customer base, but instead let out the capacity to smaller companies that are willing to be facilitators. A video streaming service can choose to set up customer operations and a call centre, while it pays for servers and bandwidth, without having to worry about maintaining the hardware or infrastructure. The more successful the video service, the more servers and bandwidth it has to pay for. It’s a mutually beneficial relationship. One example of where triple-play has already been deployed is Kenya, through Zuku. At its most expensive, with 82 English TV channels and an 8Mbit/s Internet connection, this fibre service costs home users less than US$70 a month. Zuku’s coverage map for fibre-to-home is very limited, but it’s a great example of fast deployment and value-added services. Stephen Song also points out how certain countries have immediately recognised the strategic importance of national broadband, citing Rwanda and Kenya as examples. He says that these countries have quickly realised what is needed, and those results are now being seen. He points out that South Africa, one of the continent’s strongest economies, has sacrificed its leadership position in this area because there is no one politician or company championing the cause for highspeed Internet. It boils down to the fact that the Internet isn’t just there for watching YouTube videos and browsing websites. There are a number of services and devices that offer content to an increasing number of smart devices. High definition televisions are now being equipped with technology that will make it possible to access services like Skype, Flickr and Picasa. In jurisdictions where it is offered, video services are bundled with the TVs. The most important feature of a smartphones is no longer how it handles phone calls and text messaging, but how well its data services and application ecosystem perform. Surveys consistently show smartphone users to use more data than users of regular phones, something that is made possible by having better access to the Internet. Even more traditional services are now in need of fast, reliable Internet access. Hotels, coffee shops and conference venues can lose a customer just on the basis of wireless access. People do not want to be limited in how they use the Internet, and if more venues can affordably offer these services, the ultimate usage will escalate and the company running the cables will see more traffic – which means more money. Looking back ten years, Africa now has more than 30 times the bandwidth it had in 2001. Technology’s also become a lot cheaper, and consumers smarter. It’s been pointed out many times before that the lack of legacy infrastructure in many African countries makes it easier to adopt newer technologies and rapidly deploy them. At the moment, the biggest hurdles we face are anticompetitive practices and ageing regulations. Broadband has become a necessity, rather than a luxury. Governments can use Internet access as a tool to educate people and create a skilled workforce that will draw foreign investments. International companies no longer need to import talent, but should be able to draw from a local pool of experts, adding true diversity. Jobs can be created by having an open resource that is fairly regulated and policed – entrepreneurs should not need to worry about the insurmountable obstacles and red tape, should they decide to start an Internetbased venture. Be that venture to supply information and entertainment, or setting up a cable or wireless infrastructure for connecting citizens to the fast-expanding online world.