When you live in a pulsating business hub like Lagos, Nairobi or Johannesburg, it’s easy to forget that an estimated 57% of Africans still don’t have any teleconnectivity. Yet the vast tracts of land that cellular signals have failed to reach are a concern – not only to the operators chasing fresh revenue or obliged to meet universal service obligations to cover unprofitable rural areas. They also worry governments and organisations concerned with economic and social development. Imagine the good it would do those unreached individuals and their local economies if they had the power of communication in their pockets. With Africa’s teledensity standing at 43%, according to Delta Partners, operators can expect significant subscriber growth over the next few years. But the cost of reaching and serving those new subscribers amid impending price wars will put tremendous pressure on their margins. As ever, it’s very obvious that new tactics and cheaper technologies are needed to reach rural communities.
Share and Pare
We’re finally seeing some progress. KPMG recently released a report recommending infrastructure sharing as a way to establish networks in far-flung areas without too much expense. Although operators fight fiercely for subscribers, they are finally recognising that they can slash their costs by sharing some basic infrastructure. The need to trim both capex and opex is persuading operators to treat tower sharing as a viable option, says Johan Smith, director of KPMG’s African Telecoms Group. The move can cut infrastructure costs by 16% to 20%, and the accumulated savings run into billions of dollars. As well as expanding their coverage, operators must also upgrade older networks to take data services to rural areas. Sharing towers – or outsourcing the whole task to a third party tower specialist – cuts their costs and allows them to reach new users. Savings come not only from avoiding erecting separate towers, but by splitting the site rental and fuel bills too. Operators in Africa have been slow to wake up to the potential, but some multi-billion dollar deals are now being discussed, Smith says. Several tower specialists are eagerly bidding to acquire the base stations owned by African operators. In December 2010, American Tower Corporation (ATC) agreed to acquire a stake in almost 2,000 of MTN Ghana’s transmission towers, and to take responsibility for managing those assets. ATC has also acquired 1,400 towers from Cell C in South Africa. Vodafone Ghana has outsourced 750 towers to Eaton Telecom to cut costs and improve coverage. Eaton will also lease spare capacity to other operators to broaden their coverage too. Nigeria’s Helios Towers Africa has signed similar deals with Millicom Ghana and Tigo DRC. These deals are the start of an unstoppable trend, Smith says. It’s partly driven by regulatory pressure and social responsibility obligations to cover unprofitable areas, which may make tower sharing crucial by allowing operators to jointly enter remote regions without punitive rollout costs. The International Telecommunications Union (ITU) stressed that infrastructure sharing was sensible for Africa way back in 2008. Yet progress so far has been limited, with Bharti Airtel, Millicom, MTN and Vodacom the most active co-operators. Airtel’s cost-cutting strategy relies heavily on outsourcing, so its tower division, Bharti Infratel, is expected to make some aggressive inroads.
On the technology front, several innovations are boosting rural connectivity. One is power line communications (PLC), which adapts existing power lines to carry broadband data packets. This system can quickly cover any region served by the main electricity grid. Wireless mesh technology is another innovation bringing more outlying areas online. That technology creates ad hoc chains of normal Wi-Fi routers to multiply the reach of the signal. Mesh networks require each router in the chain to see the next, and some communities are ingeniously using mirrors to reflect signals when line of sight is impossible. In Botswana, Orange is installing Ericsson’s Expander cells that have a range four to five times greater than traditional transmitters, allowing Orange to reach rural users previously too remote for cost-efficient coverage. Village Phone initiatives are also becoming commonplace, and are supported by many operators in many countries. The idea is simple, as successful ideas often are. Rural entrepreneurs buy a phone and act as the local operator by letting people make calls for an affordable but slightly marked-up fee. Often the entrepreneurs can buy the phones with a small loan from one of the charities involved, such as the Grameen Foundation in Uganda. The owner quickly pays off the loan and then has a profitable business. It’s been recognised as a sustainable development tool by numerous governments and agencies such as the World Bank and the United Nations. In Ghana, a more ambitious scheme called the eCare initiative will grant loans of up to 90% for rural entrepreneurs to buy small ICT centres. The kit in a modified cargo container has three fixed cellular phones, a solar panel system, a computer, printer and a desk. The proposed site must have Ghana Telecom coverage, but does not require electricity as the centres are solar powered. Partners in the project include the United Nations Foundation, Ghana Telecom and Kumasi Institute of Technology and Environment. Towers have also become cheaper to run, thanks to newer technologies. MTN recently installed a mast to take connectivity to Riemvasmaak, a remote community in South Africa’s Northern Cape. There is no mains electricity, so the tower uses wind and solar power, and stores the energy in maintenance-free batteries.
MTN has spent R18 billion in the past two years to take 3G broadband to rural South Africa, and has built a 900Mhz network to do so. It also upgraded its existing network with UMTS for wireless broadband in rural areas. The 2.1GHz technology it had used didn’t give it the footprint to reach the furthest rural areas, but 900MHz technology does, and negates the need for building more towers in those regions. Wireless broadband is the most effective way to take data services to rural Africa, says Karel Pienaar, MD of MTN SA, and the development of pioneering solutions and technologies will enhance that progress. “It has been a long-term vision for us to develop a data network that extends into the rural communities.” Delivering broadband data would really help bridge the digital divide, he says. Many communities are not being reached through commercial efforts, but through charitable initiatives. Intel and MTN have jointly agreed to accelerate broadband access by supporting WiMAX rollouts, affordable PC bundles for consumers and entrepreneurs, and by developing cost-effective internet browsing devices. The companies are also collaborating to equip students and teachers with technology skills. Moreover, they are investing in emerging innovative technology companies that are developing products to resolve rural Africa’s business and social problems. Meanwhile Airtel has rebranded the operations in 16 African countries that it acquired from Zain last year and has promised to improve their infrastructure. It will extend into more rural communities, says Manoj Kohli, CEO of its international operations. “We remain committed to offering affordable services, deepening our network coverage to include the rural population and enhancing the digital experience through 3G across the continent,” he says. “We want to be a partner in Africa’s growth and will work closely with governments and regulators to enable the telecom networks to touch all parts of society.”
Rival operators are watching to see how and where Airtel begins to play more strongly. Its strategy of outsourcing some operations to gain economies of scale and expansion has already seen Airtel award a contract to IBM to manage its computing technology and services. Part of the aim is to make services more affordable for rural communities by installing advanced technologies created by IBM Research. Breakthroughs include Spoken Web, a voice-enabled internet technology that lets users access and share information simply by talking over the existing telephone network. This initiative is particularly compelling for illiterate populations or people with no access to computers. Airtel also says partnerships with Ericsson, Huawei and NSN will dramatically improve the quality of its networks and expand its 3G footprint. “The partnerships take us closer to our vision of making telephony available and affordable for everyone across Africa, even in the most remote areas which are at present disconnected from the world,” says Kohli. “We are also laying the foundation for the introduction of 3G HSPA wireless broadband as access to content is the right of every African citizen. Many of our new customers will have an online experience for the first time in their lives.” The company is also launching Airtel Money, which lets unbanked customers use their handsets for person-to-person money transfers, bill payments, point of sale purchases in supermarkets and to pay utility bills. Airtel also contributes to rural development through social responsibility initiatives to provide schools with equipment and broadband access. In July, members of South Africa’s ICT industry and the Department of Communications pledged to work together to accelerate economic growth and job creation by setting some specific targets. They include achieving 100% broadband internet coverage for the entire population by 2020 and creating at least one million new jobs. Vodacom CEO Pieter Uys said getting a decent connection speed to everyone demanded mobile technology, which could cost hundreds of billions of rands. Given the limited radio spectrum available with which to do that, the operators must collaborate, he said. There also needed to be a coherent policy framework on spectrum allocation and broadband rollout, which does not currently exist.
Two months earlier, Vodacom had emphasised the important role mobile technology could play in Africa’s development in its 2011 SIM Report, researched in conjunction with the World Wide Web Foundation. “Access to telecommunications and relevant content will significantly help in crossing the digital divide in South Africa and Africa, furthering education and creating jobs,” said Uys. The report urged regulators to focus on consumer welfare when allocating spectrum to service providers. Treating spectrum as a source of short-term government revenue by auctioning it to the highest bidder could cost the economy billions more in lost economic value compared to allocating it to the most compelling service offerings. “Affordability for low income users will require innovation that does not place most of the burden of access costs on the user,” said Steve Bratt, CEO of the Foundation. “We hope regulators allow innovations in this area to flourish and not inhibit them by preconceived notions of the right model or pricing.” In May, Vodacom introduced Airtime Advance, a service that lets customers use voice and data services even if they run out of airtime. Prepaid customers with a proven track record can request R10 worth of advance airtime, and Vodacom will deduct the amount from the customer’s next recharge. Another innovation Vodacom launched this year is the Web Box, which provides affordable and easy internet access using an ordinary television set. That innovation could change the face of internet connectivity said Romeo Kumalo, executive commercial director at Vodacom South Africa. “Just over 10% of the population has access to the internet; this device will ensure that internet access is available to many more who previously had limited or no access.” The Web Box at R749 was developed specifically for lowincome emerging markets. It is a keyboard with a SIM card and inbuilt modem, and a simple user interface that lets users navigate easily between services including internet browsing, SMS and email, an FM radio, online photo album, games, videos and music players. It uses the Opera Mini browser that compresses data by up to 90% for faster and more affordable browsing. “The value that this product will add to schools, homes and small businesses is potentially dramatic. The wealth of knowledge that is available on the internet can now be accessed by millions of South Africans, which will add greater value to the economy,” said Kumalo.
Redressing Rural Neglect
Yet despite efforts by operators to expand their footprint, and efforts by socially aware companies to play their part, rural Africa remains neglected. In August the Commonwealth Telecommunications Organisation (CTO) staged its annual Connecting Rural Communities Africa Forum in Dar es Salaam, Tanzania. As usual, the conference featured discussions on innovative strategies, business models, financing mechanisms and technologies for improving ICT access and realising the socioeconomic benefits. Speakers reported that governments were stepping up efforts to roll out mobile and internet connectivity to rural areas. Representatives from Zambia, Tanzania and Zimbabwe said they were making a push to establish telecentres with internet access. Zimbabwe’s Post and Telecommunications Regulatory Authority said it had earmarked US$10 million from its Universal Access Fund (UAF) for rural connectivity. Tanzania has also established a UAF to connect rural and underserved areas. “Tanzania is making steps to address a rural connectivity backlog, but Africa still faces challenges in its policy frameworks, power and skills,” said Tanzanian President Jakaya Kikwete. Access to electricity hinders the rollout of cellular services in many countries, but this is changing as most governments have started electrification projects to connect rural areas to the power grid. Zambia’s government is being particularly inventive. It has pledged US$10 million for national cellular connectivity and is distributing internet-ready computers to rural areas. The Zambia Information and Communications Technology Authority (ZICTA) is using cash from its UAF to erect telecoms towers in rural areas to help operators quickly roll out their networks. Cleverly, those towers are a shared facility, and ZICTA will earn revenue from the operators that use them. Zambian operators already have infrastructure sharing agreements to help them cover some rural regions. Even so, they have been unwilling to enter rural areas as there would be no return on investment. So the Zambian government introduced tax breaks in August to companies that import telecoms equipment for rural areas. The tax break has already seen Airtel Zambia extend its network to 88 more communities. Its rival, MTN Zambia, has pledged to spend US$40 million on rural expansion this year. Network expansion in Rwanda and Zimbabwe is being aided by US$40 million in loans from the Export-Import Bank of China. A loan of US $60 million will be used by Zimbabwe’s state-owned NetOne to develop its broadband infrastructure and connect to the EASSY submarine cable to boost its ability to compete with private operators. China is the largest single investor in Africa’s telecom sector, and in return, Chinese companies including Huawei and ZTE have won more contracts than any of their rivals, as the loans stipulate that supply and installation contracts go to Chinese firms. That condition naturally causes controversy, since no other player can hope to win the tenders. The Ugandan government has blocked a loan from China after complaints about unfair business practices. Still, the biased loans are allowing Africa’s telecoms players to expand into rural areas, and most governments accept the Chinese dictum as a fair price to pay.
Role of Governments
Further help is coming from the Commonwealth Telecommunications Organisation (CTO) and USAID’s Global Broadband and Innovations (GBI) programme. They recently ran a training workshop for Africa’s Universal Access policy makers and other rural communications stakeholders. The GBI programme advises governments on best practice regulations and broadband strategies, and encourages the use of appropriate software applications, low-cost technologies and cloud services. “Access to telecommunications has enormous benefits, both socially and economically, to rural communities,” said GBI programme manager Joe Duncan. “This is a great opportunity to bring what we know about universal service to the men and women working so hard to provide rural connectivity in their countries.” Dr. Ekwow Spio-Garbrah, CEO of the CTO, has said one factor accounting for Africa’s lower economic growth is the weak uptake of e-progress. Africa needed new e-leaders capable of transforming their country by taking full advantage of all the e-tools available, he urged. And yet, he pointed out, many nations were bogged down by leaders who did not know how to send an sms or e-mail, had not heard of MySpace, and until some counterparts were overthrown by popular uprisings, had not taken seriously social media like Facebook, Twitter or YouTube. “Now that social media have shown their power and capacity to overthrow governments, let us hope that African leaders are listening, and will take prompter action in their own interest,” Spio-Garbrah said. He then announced that the CTO would raise US$300 million over the next few years to invest in a Commonwealth Telecom Development Fund to make member countries more capable of e-transformation. The CTO has also created a commercial subsidiary, CTO Ventures, to make equity investments in small companies that aim to expand in emerging markets, but lack the capacity to do so.
Africa’s Unresolved Challenge
In 2008 a CTO report confirmed that rural connectivity remained an unresolved challenge in Africa. Problems included the lack of electricity, the low income in rural areas, high opex and capex costs of infrastructure, and low skills levels. The research also reiterated that affordable connectivity is critical to improve the delivery of government and business services to isolated communities and to empower people through education, employable skills and wealth creation. “Nowhere is access to and effective use of ICTs less pervasive and more needed than in the rural and isolated areas of sub-Saharan Africa,” the report said. It recommended liberalising and privatising the telecoms sector, and having independent regulatory authorities capable of establishing and enforcing impartial rules. Several regulatory authorities in Africa were still subject to direct government oversight, which could be detrimental to competition and to achieving rural connectivity. That was a particular risk when the state still had a financial stake in the incumbent operator, the report warned. The economic viability of telecoms in rural regions depends on favourable interconnection terms with the fixed-line operators, the report found. So it suggested that regulators might need to enforce skewed interconnection fees to reflect the higher operation and maintenance costs of rural networks. Operators should also be encouraged to share infrastructure to reduce capital expenditure, and be given preferential access to universal service funds and tax breaks. The CTO report also encouraged the authorities to allocate licence-free spectrum to operators willing to set up wireless local area networks. It then warned that universal service obligations imposed with each licence must be accurate and flexible to be achievable. Universal service funds may be more effective if operators can bid for the cash to subsidise their work in rural regions, the study suggested. The Ghana Investment Fund for Telecommunications (GIFTEL) awards grants on a competitive basis to operators providing public telephony kiosks or telecentres in neglected areas. Another problem still not addressed since the CTO report highlighted it in 2008 is that operators struggle to expand into rural areas if there are insufficient skilled people to install and maintain their equipment. “There is a sizeable gap between the existing ICT skills and those necessary to accelerate rural connectivity,” the report said, recommending that governments urgently address the skills gap.
CTO report revisited
Three years later, little has changed. Many African universities still lack adequate ICT laboratories and affordable high-speed internet access. Many pupils leave school without having used a computer. Rural schools are even more ill equipped, making ICT lessons impossible. The strategies to overcome all these challenges remain the same, yet African citizens are still waiting. Solutions include implementing simultaneous rural electrification and connectivity programmes, infrastructure sharing and skills building. There is no single best path for all countries to follow, and each national rural connectivity plan must be tailored to that country’s circumstances. That said, the CTO recommended tactics that have proven successful in comparative countries. It is worth repeating them now: Its recommendations to governments are:
• To establish an independent regulator able to establish and enforce impartial rules, and with jurisdiction over both telecoms and broadcasting as these technologies converge.
• Implement technology-neutral licensing to promote competition and the provision of services by the most costeffective means.
• Encourage local participation when installing ICT infrastructure to enhance local skills.
• Equip universities and tertiary educational institutions with modern ICT hardware and high-speed internet to create skilled ICT graduates.
It urged regulatory authorities to:
• Put regulations in place to ensure affordable services in rural areas.
• Encourage favourable interconnection terms that reflect the higher costs of rural networks.
• Provide incentives for infrastructure sharing to reduce duplication and increase cost-efficiency.
• Allocate unlicensed spectrum to encourage the use of innovative technologies.
• Ensure that licence obligations are feasible, flexible and technology-neutral.
It urged the body responsible for universal service funds to:
• Disburse funds by competitive tenders, and ensure funds go where they are needed most.
• Prioritise funds for bidders offering rural solutions such as public kiosks and telecentres.
• Strive to meet the rural connectivity targets in their licence conditions.
• Provide reliable, high-quality services with the most costeffective technology available.
• Cooperate to share their infrastructure.
• Establish employee training programmes to build skills.
• Prioritise services to rural government headquarters, educational institutions, hospitals, post offices and other public access points, including kiosks, telecentres and payphones.
• Negotiate interconnection terms that reflect the higher costs of rural networks
Technology manufacturers should strive to:
• Step up research and development in technologies for rural connectivity, including solutions suitable for rough terrains.
• Focus on renewable energy, such as solar, wind or hydroelectric power
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.
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).
Congratulations on your prestigious award from WTA as Teleport Executive of the Year. Can you give our readers some insight into the teleport sector and why NewCom International is one of the fastest growing companies in the sector?
The teleport sector is a growing business in the regions we cover and there are huge opportunities, particularly in niche markets. A lot of people have no idea what the teleport industry is about. They think antennas and television. Teleports are platforms that deliver telecom solutions via satellite. At NewCom, we are more than a teleport. We are a service provider and integrator of numerous value-added solutions that extend the US backbone to various countries.
Can you explain how NewCom International can bring added value to satellite carriers, fibre providers, technology providers, systems integrators, and a broad variety of specialized service providers?
We offer added value through our quick response times, our efficiencies as an organization and as a comprehensive solutions provider. Throughout the continent, and particularly in Nigeria, people are desperate for integrated solutions such as video streaming and content. We sell the transport of voice and data that is so critical in today’s market, but we also provide the value-added services that everyone wants. I was in Nigeria when the Iceland ash cloud caused such disruption to travel. I happened to be demonstrating our video conferencing and collaboration tools and everyone was clamouring for it.
In the last issue of Africa Telecoms, we focused on satellite and fibre in Africa. Do you think that these communication technologies will work together concurrently in the future or will one or the other dominate in the African context?
I think they will have to work hand in hand. In Latin America, for example, fibre networks already go to all the major cities – which is critical because of the huge amount of bandwidth they can bring. But the cities only make up 30 percent of the country. To reach the rural 70 percent, the only solution is satellite. It would take considerable time and money to have fibre going to those areas. And although fibre exists in the cities, it isn’t very reliable, making satellite backups critical. In some cases, satellite is the primary solution. I see Africa going the same way. Today, due to lack of fibre infrastructure, satellite is the dominating force. But fibre will come because it brings the bandwidth required to help developing countries make big changes. Integrating the connectivity with satellite gives carriers full country coverage because it doesn’t make sense to route networks to remote areas. And beyond the huge cost factor is the problem of maintaining fibre lines: thieves dig them up, thinking they are copper.
How extensive are NewCom’s operations in Africa?
With the recent activation of the AMOS5-i satellite in England, NewCom now offers extensive satellite C band coverage across Africa. NewCom, which has been a leading provider of satellite services for governments, vertical markets and GSM operators in Northwestern and Central Africa, now has full reach into Eastern Africa and extended coverage throughout the Central and Southern region.
What do you think the differentiators are between satellite and fibre connectivity?
Satellite connectivity isn’t affected by natural or man-made disasters. Obtaining service is a matter of pointing an antenna. Fibre connectivity is at the whim of disasters or other issues and can often go down. In Lagos, Nigeria the sat-3 fibre goes down at least four days a month. As a result, many corporations have installed satellite hubs for backup protection. Fibre can facilitate huge amounts of bandwidth for large cities. While satellite will continue to be the primary source of connectivity for the next five years, I see fibre becoming the main pipe into large cities – with satellite reaching out to the remaining 70 percent.
While NewCom has been a provider of satellite communications in Africa, to what extent is the continent still a focus area? What are the strategic focuses for NewCom in the region?
Africa is our main focus because the bandwidth requirements are huge as fibre does not provide full coverage. It comes down to supply and demand, and right now there is huge demand in Africa for our services. Our strategic focuses for the region are to support governments through initiatives in education, health, border patrol and the military; vertical markets like offshore gas and oil rigs; and GSM operators. The cellular market is the fastest growing telecom market in the region.
Historically, satellite communication has understandably always been more expensive than other options. How do you plan to become more price competitive? Is it possible to reduce costs as you build capacity and the number of satellites in service?
The answer is yes. In the past five years, there has been a lot of focus on developing technologies to bring more cost-effective solutions to the region. Especially with the depressed market and economy, we at NewCom have been investing in technologies involving megahertz that create efficiency. Because of these solutions, MB pricing has dropped 70 percent over the past five years, making it possible for more people to use voice and data. But now I think we are at the bottom of the pricing curve because we’ve maximized the efficiencies the existing technologies provide.
Can we envisage a time when satellite prices per MB could be comparable to fibre prices? Never. Why?
Because the demand for satellite will continue to increase. The priority throughout Africa is voice and data, but once that is in place, it will be content. People are hungry for content. In some places in Africa, there are only two TV stations available. Satellite is the most efficient way to deliver video content and there will never be enough satellites to meet the demand, so the price will increase. That’s the case in Latin America.
Considering the economic climate in the past 12-18 months, NewCom has performed remarkably well. To what do you ascribe this success?
There are several factors. The first one is cost efficiencies. We have a lean, experienced staff conscious of keeping down operations costs; and we have implemented bandwidth optimization technologies that allow us to be competitive. The value-added solutions that we have integrated with our different transport platforms have made us more ingrained with the end user because we offer solutions that other providers don’t have – and sometimes that’s the key. I think our commitment to customer service and getting the job done quickly has also played a role in our success. Finally, it has to do with relationships. We receive great word-of-mouth referrals from people in the region whom we’ve worked with and known for many years.
What are the main drivers of demand for capacity in Africa and how do you see this evolving over the next few years?
Right now it’s voice and data, but it will move into video and other content because a lot of multinationals from Europe are coming into the region to facilitate the massive build-out taking place due to the rich reserves of oil and gas. These people demand high-quality content services, which will drive the demand for satellite.
How much of NewCom’s African capacity is utilized for cellular backhaul?
Currently only 10 -15 percent, although we are actively growing that area.
How have recent events in Haiti and Chile highlighted NewCom’s emergency response and disaster recovery services?
In both Haiti and Chile we were able to serve the needs of people that required services immediately. We managed to provided connectivity for voice, data and email, either the same day or the day after. Fibre breaks can take weeks to fix, while satellite is not affected by anything happening on the ground. We just point an antenna to a satellite and they are connected. Satellite services enabled broadcasters to report live from those earthquake-devastated countries within hours of the tragic events.
Mobile technologies pioneered in Africa and other emerging economies are finally getting the rest of the world talking.
Third World mobile banking systems are piquing the attention of international operators and international banking organisations. The result – if all goes well – could be a fresh influx of investment and technological know-how poured into an arena where third world countries are the innovators. Hopefully, the interest being shown by regulators will also create legislation that encourages innovation and allows more players to enter the fray. The fear, of course, is that new legislation may stifle these developments if banking organisations regard them as unwelcome incursions into their hallowed territory. Europe and the US have made little progress with mobile banking because there simply isn’t much need for it. At best, it’s an add-on service for people who already have plenty of physical branches and good internet access if they choose to bank online. Yet, in the emerging nations, massive populations have no access to banks and so little money to spend that the cost and hassle of opening a bank account has never been worth it. Yet everyone needs to give money to someone else, whether it’s to pay for a bus ticket, a grocery bill, or to send money to their relatives.
BANK ACCOUNT, WHAT BANK ACCOUNT?
Being able to use a cellphone to make purchases or transfer money has rapidly won an enormous customer base. Ease-of-use, speed, price and accessibility may have overshadowed the concerns about security that would be raised in countries where this is far from an essential service. So as the user base grows and money starts crossing borders, the authorities as well as the banks and global operators are paying attention. Gartner estimates the number of mobile payment users worldwide will top 108 million in 2010, up 54.5% from 70.2 million in 2009. It expects Europe, the Middle East and Africa to account for 27.1 million of those, representing just 2.1% of all mobile users in the region. Yet Nigeria alone has 25 million people with a cellphone but no bank account, says Rosemarie Pringle-Smith, a Senior Vice-President for m-banking applications developer Fundamo. And the operators are keen to capitalise on that. “African mobile operators have identified a gap in the market to provide customers with an affordable service they need, leveraging on their brand, large subscriber base and distribution capabilities,” she says. “The minute people are able to do financial services on their mobile handset, a mobile operator’s subscriber churn reduces immensely.” Nigeria’s banking regulator is giving more freedom to mobile operators, while the local governments have started paying social grants to the unbanked via mobile services. The global awakening of interest is highlighted by the numerous conferences being held to debate mobile banking and thrash out strategies for its regulation. In August, financial regulators attended a seminar in South Africa to improve their understanding of these new technologies and business models. The event staged by the Centre for Financial Regulation and Inclusion (Cenfri) welcomed delegates from 12 African nations, and further afield including Mexico, Malaysia, Russia, the Philippines, Pakistan and Ecuador. “During the last few years there has been a growing interest globally and specifically here in Africa to provide financial services to people that have traditionally not been served by banks,” said Doubell Chamberlain, Executive Director of Cenfri. “Recent developments in mobile phone-enabled financial services suggest we are on the cusp of a revolution in the way we deliver financial services. Any individual with access to a mobile phone - no matter how poor or how far away from a bank they may be - will soon have a safe place to store their money. Regulators now have to deal with the challenges of regulating unconventional, innovative financial services that are being created in response to this need.” Delegates debated ways to enable innovation without creating undue risk to operators or their customers, while adhering to national and international security standards including preventing money laundering and the financing of terrorism. Their worry is that operators introducing financial services to millions of unserved people may expose the financial sector and payment systems to new risks that existing regulations do not address. Or perhaps they are just worried that the banks they regulate are under threat from new rivals they are too slow and staid to retaliate against. The seminar culminated by establishing a Working Group on Mobile Financial Services, to allow policymakers to continue sharing their experiences in this rapidly evolving area. Harnessing the power of technology could dramatically increase access to financial services for poor people, says the Consultative Group to Assist the Poor (CGAP), a microfinance group within the World Bank. But it can only happen if regulators and private firms strike the right balance between protecting customers and allowing innovation to flourish. “Poor people need a safe way to save and send money, and African innovations like M-Pesa and M-Kesho are showing us how to reach the billion people worldwide who have a cellphone but no bank account,” says Alexia Latortue, acting CEO of CGAP. “Millions of people could be given access to safe, low-cost financial services using mobile phones and other technologies, giving them opportunities to manage their financial lives.” Some of the most innovative solutions for financial inclusion have come from Africa and people need to learn from these experiences and examples, says Alfred Hannig, executive director of the Alliance for Financial Inclusion (AFI). The experiences in Africa will accelerate the exchange of knowledge and best practices and help identify key opportunities to drive more financial inclusion initiatives.
POWER TO THE PEOPLE
The mobile phone is a pervasive device that has penetrated the poorest economies due to the overwhelming demand for communications. That makes it a useful tool for banking as well. Africa’s abundance of people untouched by traditional financial services is usually viewed as a challenge, when it is actually an opportunity to explore new ways to bring people into the financial environment though mobile banking, says Hannes van Rensburg, CEO at Fundamo. Financial institutions in Africa recognise that to achieve greater penetration and greater profits they need to explore new methods of banking. “Africa is a cash-based society, and companies are proving it can be used as a tool to facilitate virtually any form of payment, directly from a mobile phone,” says Van Rensburg. As an example, FNB-owned Celpay in Zambia and the Democratic Republic of the Congo offers virtual bank accounts via a cellphone with features that compare to many normal accounts. Account transfers, bill payments, cash deposits, withdrawals and prepaid airtime vending are all supported. Celpay has also developed an m-banking cash-on-delivery payment that BP, MultiChoice, supermarkets and O’Hagan’s in Zambia are using. A thriving network of agents is vital to the success of mobile banking, but building and sustaining that network is challenging. In a survey of Safaricom’s M-Pesa service in Kenya, CGAP found it had successfully established large agent networks, but they were not all profitable. M-Pesa has more than 5 million users and handles about 160,000 transactions per day worth US$4 million. Agents earn a commission on each transaction, and a typical agent generates more than twice as much revenue through M-Pesa than by selling airtime. But some rural agents lost money because they used up their cash float and had to travel to the nearest bank, which swallowed up their commission, CGAP found. CGAP also looked at why M-Pesa, which lets people safely send money to family and friends, was nowhere near as successful for Vodacom in neighbouring Tanzania. People assumed that what happened in Kenya would be replicated in Tanzania, yet there are important differences in demographics and cultures, market structures, business models, and strategic implementations that make them quite distinct. Tanzania is almost twice the size of Kenya and is less densely populated, with only three main urban centres, so Kenya’s geography lends itself much more readily to establishing agents. Moreover, when M-Pesa launched in Kenya it had no rivals. Players in Tanzania had time to defend themselves, so Zantel and Zain launched their own m-banking offerings while two of the largest banks, NMB Bank and CRDB, also launched m-banking. Safaricom has a better distribution network and charges a flat fee. In Tanzania, it is more affordable for customers to move small amounts of money but it gets more expensive for larger amounts. While Kenya’s experiences may serve as a useful guide for other countries introducing m-banking, a carbon copy replication is impossible even next door, CGAP warns. Several developing countries have issued regulations, yet there are challenges in ensuring adequate consumer protection. The services have been available for only a short while, so there are no “off-the-shelf” regulatory frameworks to mitigate risks and address problems in complex branchless banking systems.
BUT IS IT SAFE?
Regulators can also expect new security issues to arise, as an increasingly complex financial system triggers more sophisticated frauds. CGAP says the first step is to define the activities subject to licensing, regulation and supervision by the financial authorities. Service providers must also clearly disclosure their prices and offerings, and abide by data privacy and security rules. All players agree that policymakers must ensure the needs of the poor remain central as they develop regulations for this innovative sector. “Mobile banking holds great potential, and CGAP is encouraged to see that governments everywhere are being deliberate and thoughtful as they merge the domains of finance, payments and telecoms to create a framework that balances customer needs with concerns around security and prudential regulation,” says CGAP. Special challenges will include allowing local merchants to conduct transactions directly with customers, ensuring effective consumer protection, and making sure payment systems are open to all players and adequately supervised. Prof Louis-Francois Pau from the Rotterdam School of Management recently presented some European findings to students at Johannesburg’s Gordon Institute of Business Management. The Euro-centric research highlighted major differences between developed and developing nations. It also probed whether banks or operators are in the best position to offer mobile banking, but didn’t reach a solid conclusion. There are pros and cons no matter which side tackles the challenge. Operators are keen to explore mobile banking to increase traffic, boost customer loyalty and improve their service offerings, and obviously because their portion of the relatively cheap transaction fees mount up.
The greatest beneficiaries are undoubtedly customers in underdeveloped countries, who can now make or receive instant payments easily. M-banking services and technologies can be complicated as there are numerous players in the ecosystem, including network operators, banks and financial institutes, payment and credit card providers, payment processing systems, merchants that collect payments via mobile terminals, terminal vendors, chip vendors, SIM card manufacturers and security companies. Pau believes mobile operators should automatically get limited banking licences to offer short-term loans, overdrafts and handle payments for their customers, while banks should be given communications licences to run secure hotspots to increase the range of services they can offer at ATMs. The Group of 20 (G20) Leaders has developed a set of principles to support innovative efforts to accelerate the delivery of financial services to the poor. The principles emphasise the need for strong leadership, product diversity, proper incentives for financial institutions to get involved, and sound consumer protection. The principles urge policymakers to harness new approaches to reach more than 2.7 billion people who are unable to open a bank account, get insurance, or receive loans to invest in their homes or businesses. The next step is to formulate concrete actions so policy makers and the private sector in every country can move towards delivering financial services to the unbanked.
Sidebar 1: Is there demand?
A study by CGAP and the GSMA in 2009 concluded that a billion people do not have a bank account but do have a mobile phone, and by 2012 that will grow to 1.7 billion, making mobile phones a direct conduit to nearly half of the world’s unbanked. As many as 364 million low-income, unbanked people will use mobile money by 2012, generating $7.8 billion in new revenue via transaction fees, improved loyalty, and more cost-efficient airtime distribution, the report predicts. Those projections are based on relatively conservative assumptions about the number of operators that will launch such services and the percentage of customers who will use them. To successfully capture this opportunity, operators must understand the financial lives of unbanked, lowincome consumers. Most of the target market receive their incomes in cash, and keep their money at home in a hiding place, or join a saving club. When asked what additional services they may use, low-income users asked for a saving facility so they could safely store their money and access it via a handset.
Sidebar 2: Europe vs Africa
“In under-developed countries they are just going ahead with what’s available, like SMS, not caring much about the technology hurdles,” Pau said. In comparison, operators in developed countries see it as a technology project demanding security and additional capacity. “The progress isn’t in Europe, its elsewhere, including Africa and South Africa,” Pau said. Among the banks, the most visionary recognise it as a way to win more customers and lower their operating costs by reducing their dependency on branch infrastructures. But most banks – in Europe at least – are reluctant at best and obstructive at worst. “They don’t see it as a way to increase customer acquisition and few of them have back-end systems geared up to deal with the security issues. The only people pushing it are some operators in the developing world,” Pau said. Many banks are also using old systems that are not as scalable or adaptable as the technology architectures of the mobile networks. Not surprisingly, only 20% to 25% of banking customers in European countries use mobile banking, although that is up dramatically from less than 6% three years ago. Yet Pau expects mobile banking to become as important as internet banking in Europe within five years. He predicts that it will overtake internet banking in Italy quite soon, “because it’s a society where mobility and agility are key behaviours.”
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.
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.
Shortly before the long-serving CEO of South Africa’s largest cellular operator retired, he declared that the industry would have fared much better without a telecoms regulator. Outspoken Alan Knott-Craig said the Independent Communications Authority of SA (Icasa) would have served the sector better by staying at home rather than going to work each day. Knott-Craig had led Vodacom for 15 years, and had endured the consequences of many bad decisions from Icasa, including the number of licences it issued, the time taken to issue various licences, the criteria for who could apply, and the miserly amount of spectrum some were granted. Other problems included its inability to ensure fair play from the state-owned fixed line entity Telkom, and its inertia or indecisiveness over crucial issues such as local loop unbundling, interconnection fees and number portability. Those are common problems throughout Africa, where telecoms regulators tend to be run by inexperienced staff, have any good staff poached by industry players, suffer from inadequate budgets, and often have a high degree of government interference in their activities. The only need for a telecoms regulator was to issue spectrum and allocate phone numbers sensibly, Knott-Craig declared. If a regulator had to exist at all, it had to be run by experienced and successful industry executives, so it would regulate with the common sense of people who understood economics, and not with the mentality of government officials. Even when a regulator thinks it’s doing good, it may be making poor decisions. Icasa belatedly tried to increase the level of competition in South Africa by issuing six new national licences to operate networks using WiMax wireless technology. Yet many industry players agreed that each licence came with too little spectrum to be useful. “When you license too many players, all you are doing is condemning 90% to bankruptcy,” Knott-Craig warned. “If you license too many people with too few resources you make them uncompetitive before you even start. It is not an intelligent thing to do.” Market forces should prevail so the industry could operate “without miles of red tape around its throat”, he added. Vodacom grew into a massive pan-African player often in spite of, rather than thanks to, efforts of the industry regulator. In dozens of other countries the industry players hold equally disparaging opinions about their regulator, and often their anger, despair or impatience is even more understandable. AfricaNext Investment Research ranks African regulators according to four main criteria, says Managing Partner Guy Zibi. Firstly, it judges the regulator by how autonomous it is in practice. How much flexibility and independence does it have on key decisions such as licensing? How progressive, effective and up-to-date are the regulatory frameworks and policies that support the regulator? Does its funding structure actually allow autonomy? The second criterion is how effective the regulator is in day-to-day industry management. Are its decision-making and its rules structured and clear, and do they take industry and public input into account? Is the process transparent? The third criterion is resources: Does it have adequate financial and human resources to fulfil its mission? Using those criteria, AfricaNext places African regulators into three main groups, says Zibi. The most admirable are ranked as Leaders and Beacons. “These are the most progressive. They tend to lead the way in their level of autonomy, their effectiveness in decision making, moving their markets towards increased competition and higher service adoption levels,” says Zibi. He cites Kenya’s CCK, Nigeria’s NCC, Uganda’s UCC and the ICTA in Mauritius as the leaders. Sadly that is a miniscule group in a continent with 54 countries.
The next group are Followers. They are good in certain respects, and may be autonomous, but lack resources, or be fairly effective despite limited resources. Their level of innovation and ability to pre-empt trends generally lags market trends, making them only moderately effective, Zibi says. Examples include South Africa’s Icasa, Ghana’s NCA, Tanzania’s TCRA and Senegal’s ART. The third group are the Laggards. They are not autonomous and lack at least one of the other attributes, and very often lack them all. “Most other African regulators fall here,” Zibi says. The regulators that AfricaNext ranks as leaders also have two other attributes that make them effective. “They are empowered from the top to do their work, and the people – the leader of the regulatory body in particular – are high quality with a progressive mindset,” Zibi says. These regulators have led the way on issues such as cutting mobile termination rates, raising the level of competition in the marketplace and licensing new technologies, which all drive growth. The impact they have had has been remarkable, Zibi says. Mobile penetration is high, the rate of growth is higher than average, competition is intense, no single player has a massive monopoly over market share, prices are competitive, and the licensing of new 3G spectrum is more advanced than in other African markets. The result is an increased level of service affordability, a dynamic telecoms sector, and the adoption of new technologies and applications. These leading regulators have moved beyond merely playing the role of market enforcer or awarding licences. They now spend more time driving industry growth by monitoring competitive dynamics, which is a sign of maturation, Zibi says. African countries with weak, underfunded or just plain incompetent telecoms regulators have suffered as the industry is stifled. A great operator can still manage to thrive in a badly regulated country, but it’s tough. “A market can have an ineffective regulator and still fit some of the above characteristics, but markets with leader regulators tend to lead the way,” Zibi says. “The truth is, most mobile markets have developed strongly, often in spite of ineffective regulation, so the negative impact may not always be obvious. Markets like Angola, Gabon or Cameroon, for example, perform poorly in the face of the regulatory criteria above, but Angola is one of the largest mobile markets in sub-Saharan Africa, Gabon has penetration levels of more than 100% and Cameroon has seen some strong growth.” The difference under a “beacon” regulator is that the degree of dynamism is not widespread; it’s usually confined to only the mobile market. Other industry segments may still be stifled by factors like anti-competitive behaviour, slow licensing of new technologies, or sluggish moves to foster competition. Most people accept that there needs to be a regulator to set the ground rules, ensure players stick to the rules, encourage free and fair competition and allocate spectrum. But how well they do it clearly varies enormously, and a poor regulator can stifle the very market they are supposed to be promoting. Zibi says there isn’t necessarily a contradiction between letting the market work and establishing some rules. Growth in the telecoms industry needs market forces, and market forces need rules if they are to perform effectively and benefit the majority. “A lack of clear rules and strict enforcement leads to dysfunction, anticompetitive behaviour, discourages investment and is ultimately ineffective,” he says. “Effective regulation is a critical piece of growth in a competitive environment; you need the market, but can’t let it dictate the rules.” The rules also need to work in the country where they are applied. That’s sometimes a problem in Africa, where the lack of experienced staff within some regulators makes it tempting for them to import rules and regulations developed by more advanced nations – only to find circumstances on the ground here are different. “It’s a fine line that regulators have to straddle,” Zibi says. In an industry where technologies move quickly, it’s helpful to understand how other markets have addressed similar issues. “But it’s obviously a bit silly to merely transpose ideas to environments that are starkly different, and with objectives that are extremely different.” Some principles are mostly universal, such as the belief that fostering competition is better for growth than having monopolies, or that lower interconnection fees lead to increased usage. But most regulations have to be tweaked to fit the local environment. “You get a bit of a mixed bag in Africa, between regulators that do a lot of foreign transposition and those that do adjust to the local environment,” Zibi says. African regulators have been wise to adopt some best practices from beyond the continent, agrees Richard Hurst, Senior Analyst for Emerging Markets with Ovum. Now more individual authorities are devising country-specific regulations as players in their countries begin to develop their own solutions, he believes. Telecoms regulators across Africa generally exist to promote the government’s policies and objectives for the telecoms sector, says Hurst. “In Africa we have seen various approaches to market regulation, such as the so-called big bang approach of the Nigerian Communications Commission, which sought to quickly open the market to additional competition in the anticipation that competition would make communications services available to a wider portion of the population,” he says. Compared to its peers the NCC is extremely proactive and effective in regulating the sector. “It has opened the market for competition yet sought to also protect consumers by enforcing issues such as quality of services and implementing some form of price control,” Hurst says. Other regulators that have adopted similar approaches are Uganda, Kenya and Tanzania. In contrast, the ‘soft touch’ regulators include South Africa’s Icasa, which has been stifled by the government’s policy of managed liberalisation that imposed a controlled opening of the market. “That has led to a stifling of the sector as competitors fail to gain traction due to various regulatory hurdles such as access to spectrum,” Hurst says. Several countries have a dire need for effective regulatory intervention in the telecoms sector, such as the DRC. While there is an open and competitive environment there, the market is mired in confusion and murky policy, Hurst says. Another example is Ethiopia, where the state-owned network still enjoys a monopoly in fixed mobile and internet services.
A healthy telecoms environment needs a balance between regulatory intervention coupled with an open market where the competitive element dictates the cost of services and the pace of rollout, ensuring that more people are able to benefit from the choice created by competition. “Perhaps the biggest regulatory challenge for Africa is the need for clarity, and this stems all the way from policy to implementation,” says Hurst. Analyst John Strand and his team from Strand Consult visit more than 30 countries on four or five continents each year. “Among the things we often hear when travelling around the world is that the local political system is not doing enough for people and companies that want to focus and invest within the mobile area,” he says. He hears hundreds of excuses when people try to explain why small “innovative” companies have not been successful. Always an acerbic commentator, Strand blames their lack of success not on politics or policies, but on a lack of innovation and imagination from the individuals and companies. “It is very seldom we hear a discussion based on the level of innovation in a country and whether mobile start-up companies in that country are innovative and creative enough to become successful. The truth is it is very seldom we meet companies that offer something unique, and we are sad to say the level of mobile innovation in many countries is very low.” One problem is that too few companies really examine the industry and analyse what customers are actually doing to see how trends are developing and where the most lucrative cash flows lie. Strand says few companies truly understand how to develop exciting and innovative new services that take advantage of the intelligence of mobile networks. “Our analyses show it is not the lack of political support that is the problem: it is the lack of creative and focused people that have the ability to develop, market and sell interesting services to the 4.8 billion mobile customers around the world. In many countries there have been so many mediocre attempts at starting businesses in the mobile area – not due to their political system, but simply because the really creative and innovative people that have the ability and willingness to create something new and big in the mobile area are few and far between.”
This Issue of Africa Telecoms is focusing on Backhaul as a subsector of the Telecoms Market in Africa. What do you think the most challenging area is for Mobile Operators in Africa when it comes to Backhaul?
Mobile operators in Africa are facing the same issues as network operators in many parts of the world: building their networks to meet the quality of experience their customers expect while earning the profits their shareholders demand. From the vendor perspective, it’s whether you make your customers money or save them money. Backhaul is frequently seen as a spiraling expense, we believe we have a solution that gets that situation under control at a cost that is very attractive compared to the alternatives.
CBNL is also stated at having 30 deployments around the world and helps 2G,3G, HSPA, Wimax and LTE Networks. How many of the deployments are in Africa? Can you provide further insight into your operations in Africa?
Certainly, our presence in Africa has grown considerably over the last three years. We currently have five network deployments with MTN in countries including Rwanda, Nigeria and South Africa. All in all, we have eight networks operating in Africa including deployments with Vodacom, Gateway and Inwi. We also recently renewed our framework agreement with MTN group which was announced in October last year. Each of MTN’s operating companies now has access to a range of pre-approved VectaStar microwave backhaul equipment which has been validated for a range of applications, including backhaul of 2G, WiMAX and 3G network traffic, and the provision of broadband Internet access services to businesses. The FIFA World Cup was a significant catalyst for growth of South Africa’s ICT and mobile telecoms sector. Operators have made substantial infrastructure investments and service upgrades that will benefit subscribers for years to come. In particular, HSPA+ has given consumers significant improvements in data speeds.
CBNL states that it is a market leader in Point to Multi Point backhaul solutions. Can you explain the differences between the CBNL products and traditional solutions?
There are a few fundamental differences between our products in comparison to traditional solutions such as Point-to-Point (PtP), but let me briefly highlight how VectaStar works. Our technology uses transmission architecture similar to broadcast standards, where a central hub communicates with a number of remote terminals within a sector. Spectrum and capacity is shared across the sector giving operators the flexibility to manage network resources and provision those resources to a certain cellsite, if and when, required. This is inherently different to PtP which uses two radios per connection on a one-to-one basis. Spectrum is tied to each of these connections and is unable to be reassigned to another cell site that maybe experiencing a higher footfall. Essentially VectaStar is different because it simplifies microwave backhaul networks, reducing the number of radios needed to create each sector, which in result makes them cheaper and faster to build and reduces backhaul costs by up to 60%.
At the end of 2010, CBNL had a major round of financing that was raised, and Graham Peel, CEO, stated that the financing would be used to drive product development as well as sales and support. Is Africa one of the regions that CBNL will be focusing on in 2011?
Absolutely, our growth plans include increasing the scale of our operations across Africa, particularly in the Sub-Saharan region and Nigeria. With mobile internet access in Africa growing exponentially and with many operators in the region deploying or looking to deploy 3G services over the next few years, CBNL has a strong opportunity to help operators manage and provision their enterprise access and backhaul networks for this increase in lumpy data traffic.
The ever-growing data market in Africa is a great opportunity for CBNL as backhaul becomes more and more important for network operators. Where does CBNL see this market moving to, and how is CBNL helping operators face the issues of mobile data backhaul?
You’re right there is a great opportunity. We’ve seen a huge amount of optimism from mobile operators in the uptake of mobile devices including tablets across Africa. Bringing ‘mobile to the masses’ in Africa has a significant upside for all concerned. For operators and device manufacturers, as well as all other companies involved in the installation and operation of the networks and services, there is obviously an opportunity for new revenue growth, as well as the economic benefit it will provide to a much wider community. To help operators meet the demand that this growth causes, our technology is ideal for African operators as it allows them to make efficient use of scarce spectrum resources and at the same time, ensure that provision is made for peak data throughput.
How does CBNL ensure the quality of service of data and/or voice running through its Microwave point to multipoint system?
VectaStar offers four priority classes which are numbered 0 (the highest), to 3 (the lowest) and each service is allocated to one class. Therefore, bandwidth is firstly offered to the highest priority class and the remaining bandwidth is then offered to the next class. Prioritisation is used in conjunction with Adaptive Modulation. All radio links suffer from fading and typically the longer the link and the higher the frequency, the more frequent the fading will be. Therefore, radio links are planned to take account of the inevitable fading to ensure that they are reliable in the presence of a fading environment. When they are properly designed, radio links can provide 99.999% availability. With seven levels of adaptive modulation built into VectaStar, the system ensures the best possible performance in all weather conditions.
How well does the CBNL Microwave systems integrate with existing legacy terrestrial networks?
VectaStar is actually a new topology for microwave backhaul. Therefore the most efficient way to integrate it with existing terrestrial microwave systems would be to use VectaStar as an overlay in dense urban situations. This overlay can also be applied to support the deployment of 3G networks throughout the region leaving traditional point to point microwave to deal with the rural situations where it is still efficient.
Does the CBNL Vectastar platform increase or decrease OPEX and CAPEX and what payback period can the operators expect?
It decreases both CAPEX and OPEX. It does this by reducing the amount of equipment that needs to be deployed – thereby reducing installation labour which is a major contributor to CAPEX. Once installed, VectaStar has a smaller footprint, reducing site and antenna space rental costs. It uses a lot less radio spectrum which reduces annual costs as well. It is difficult to give an exact ROI figure that applies to every situation, but we frequently find that the reduction in CAPEX and OPEX as well as the time to build the network is 50% less than the alternatives so you can see that the improvement in ROI is significant.
With Infrastructure sharing becoming more and more important internationally, does the Vectastar system allow for the potential of Mobile Operators sharing backhaul infrastructure?
Good question. It really depends on how the sharing is structured by operators. If they are using a common RAN the process of sharing is relatively simple for VectaStar to support. However, if the sharing is only site based then the different equipment at each site could present issues for any backhaul vendor. Our answer would be to work with operators to come up with the right solution-but it’s fair to say that we haven’t found a network that we can’t backhaul, yet.
Can the current price curve of mobile backhaul keep up with the cost of flash memory and broadband data to ensure that the end cost to consumers remains on a downward curve?
Absolutely, in all cases microwave capacity is growing faster than the aggregated traffic coming from cell sites. In fact, CBNL has been developing a new radio controller that will eventually achieve 1GB/s throughput per sector – with the first inclination doubling our current throughput level to 300mb/s. The biggest challenge for the industry is reducing the cost and time spent in building the backhaul network in the first place. That is an area where our product, VectaStar, excels: our product takes a fraction of the time to provision a connection when compared to the alternatives – enabling our customers to build-out their networks quickly and capture the market from their competitors.
Does the Vectastar system allow for the use of Carrier Grade Ethernet as well as Microwave transmission?
Yes it does. All our VectaStar platforms include Ethernet interfaces and offer throughput of 150mb/s. With the recent introduction of the VectaStar Radio Controller, based on a Gigabit Ethernet backplane supporting up to 10GB/s sustained operation, we will increase throughput to 1GB/s per sector.