Kenya: Zain and Yu cut costs through infrastructure sharing

Having very recently been to Kenya for the first time, I now find stories from that country catching my eye.

One which has broken since my trip, reported by Telegeography among others, concerns a network infrastructure sharing deal struck by Zain Kenya and Essar Telecom Kenya (until recently known as Econet Wireless Kenya).

In February, I asked here whether 2009 will see arrangements of this type having a major impact in emerging markets worldwide. I cited recent examples from India, Bangladesh and Panama, but noted that in Zambia, Zain had declined to become involved in a network sharing project recommended by that country's telecoms regulator in order to boost rural coverage. Zain Zambia and prospective network sharing partner MTN Zambia preferred to spurn the approach from the regulatory agency on the grounds of guaranteed quality of service being a difficult issue.

Zain's Kenyan operation appears to have no such qualms, with reduced base station operating costs being cited in local reports as the principal driver for the cellco entering the infrastructure sharing deal with the Yu-branded recent entrant.

This presumably meets with the approval of the Communications Commission of Kenya, whose Assistant Director Susan Mochache spoke at the East Africa Com conference I recently attended. Ms. Mochache's presentation made mention of infrastructure sharing as a plank of the Commission's wider strategy of promoting competition. Ms. Mochache was asked during the conference about whether network sharing was something the Commission would be merely recommending or whether it might do some degree become mandatory. The answer, however, was not immediately clear to me. I think I understood that this is an issue which is still under discussion.

Kenya: Zain and Yu cut costs through infrastructure sharing

East Africa Com musings: Does it matter which submarine cable lands first?

The socio-economic impact of undersea cables in East Africa: the SEACOM view

Blogger Clement Nthambazale Nyirenda is a lecturer, researcher and consultant in Electronics and Computer Engineering at the Malawi Polytechnic, a constituent college of the University of Malawi. He is currently studying for a PhD in Japan at the Tokyo Institute of Technology. In February Clement wrote about the broadband speeds he enjoys in Tokyo and expressed his hope that a similar service might one day be available in his home country.

Malawi, as Clement noted, while usually considered to be part of Southern Africa, also lies in the easterly part of the continent, which is "the only region in the world that has neither intra-[continental] nor direct access to worldwide international cable networks." The region, Clement observes, "instead relies on expensive satellite communication" with "data costs... among the highest in the world."

Clement discusses the progress of the Eastern Africa Submarine Cable System (EASSy), "the first initiative proposed to connect countries of eastern Africa via a high bandwidth fibre optic cable system to the rest of the world." According to the EASSy website, the level of international telephone traffic per main line in sub-Saharan Africa is the highest in any region in the world, which is proof of there being "considerable demand in East Africa due to insufficient supply for telecommunications within the region." My own single experience of visiting that part of the world - last week's trip to the East Africa Com conference in Nairobi - does lead me to concur, as does the business of simply trying to make calls to other East African countries from the UK. As I noted in my most recent post here, the only frustrating aspect of my short trip to Kenya was finding it fairly difficult to stay on top of my day job via our company VPN. At both my hotel and the conference venue, Internet access was slow and unreliable.

My understanding is that there exists the hope that providing East African countries with improved connectivity could prove to be an effective catalyst for economic development in the region through the expansion of businesses based on the Internet, the provision of call centre services and the outsourcing of other back office functions.

EASSy is set to run from South Africa to Sudan, with landing points in six countries, and will be connected to several landlocked countries. A number of telecoms operators have invested in EASSy via WIOCC (West Indian Ocean Cable Company), which had a visible presence at last week's conference. These include state-owned wireline incumbent operators such as Botswana Telecommunications Corporation, Djibouti Telecom, Telecomunicacoes de Mocambique and soon-to-be-privatised ONATEL of Burundi.

Others in the WIOCC contingent are Orascom Telecom-backed MNO U-Com (of Burundi), Telkom Kenya, Dalkom (Somalia), Zantel, Uganda Telecom, Israel's Gilat Satcom and the Lesotho Telecommunications Authority.

From South Africa, direct investors in EASSy include Neotel, MTN and a consortium of Telkom (SA) and Vodacom. Futher direct investors in the project are Telecom Malagasy, Mauritius Telecom, SUDATEL, Tanzania Telecommunications Company, Comores Telecom and Zamtel (no, that's not a repeat of Zantel). From beyond the region, other backers are BT, Saudi Telecom, Bharti Airtel, Etisalat and France Telecom.

In his February blog post, Clement Nyirenda notes that EASSYy was once expected to be ready for commercial use in Q2 2007 but that construction did not get underway until March 2008. Clement reports (confirmed by a more recent Compterworld Kenya article) that the project is now slated for completion and commercial service in the second half of 2010 - three years behind schedule. "EASSy has not been EASY", comments Clement.

In Clement's opinion, "the major problems hampering the progress of the EASSy project stem from the fact that it is a joint venture of more than 20 largely monopolistic parastatal telecommunication bureaucracies." I shall leave it to individual readers to decide which (if any) of the project's backers fit this rather critical description. "In Africa," says Clement, "the culture of working together in such a large grouping is not common."

Wrangles between partners do seem to have been a feature of the project, at least as far back as June 2006, when a meeting of ICT ministers from Eastern and Southern African countries helped resolve disagreements among project participants, according to Sammy Kirui, the chairman of EASSY's project management team.

Regarding the most recently announced delays, the Computerworld article quotes WIOCC CEO Chris Wood, who said late last month that "the delays have been caused due to optimizing the cost structures and finalizing the agreements between all participating carriers". Wood, states the article, is not worried about the delays because the most important thing is the long-term stability of the financial structure of the cable system. "Time and again", Wood said, "the telecom industry has seen private equity financed companies build cables and then go bankrupt within a few years as their business model, hit by high costs, proved unattainable."

EASSy is just one of three submarine cables set to improve the region's connectivity. Another is TEAMS (East African Marine System). Etisalat appears to be spreading its bets in the race to connect the region, having a 15% stake in TEAMS in addition to its investment in EASSy. The other 85% of the ownership of the TEAMS project is split between a diverse group of interests including the Kenyan Government, Telkom Kenya (another one which is backing two horses) and Kenya's market-leading cellco Safaricom. Also involved from Kenya are the country's largest private data carrier Kenya Data Networks and most recent mobile market entrant Essar Telecom Kenya, whose billboards I saw all over Nairobi last week. The advertising of another TEAMS backer, the cable MSO Zuku, was also very prominent as I caught a glimpse of the city during cab rides between meetings.

Kenyan players dominate the consortium, with ISP AccessKenya and Jammii Telecommunications (which provides access to the Internet Backbone to telcos, ISPs, and large enterprises) also involved.

One more Keynan TEAMS backer is Flashcom, an integrated telecommunications solutions provider offering voice, data and SMS services with a collection of network assets including a CDMA2000 WLL and ISDN services over Fibre. Flashcom's CEO Joe Kimani was on the speaker panel at last week's conference, but unfortunately I didn't get the chance to catch what he had to say. From beyond Kenya, a small stake in TEAMS is held by Africa Fibrenet of Uganda.

The other submarine cable on the East Africa scene is SEACOM, whose investors state that the project will ensure access to low cost bandwidth, thereby encouraging the growth of existing and new industries, as well as education and e-government.

Does the region need three undersea cables? If all of this is thought of as a race to land the cables and start doing business first, will whichever project finishes last find itself out of the game? A Business Times (Tanzania) article of last Friday contends that the answers to these questions are, respectively, 'yes' and 'no'.

In this article, the scene is set with an illustration of the degree to which the current paucity of connectivity impacts upon businesses in the region. The claim is made that a large corporation in Tanzania can pay about USD 3000 a month just to ensure a reliable Internet connection for its network. According to the article, this figure rises to USD 7000 to cover a megabyte of bandwidth per computer in a medium-sized office in Kenya. "A business connection in an urban center in the US," continues the article, "can cost as little as USD 25 a month".

The article compares the economics of the VSAT and undersea cable industries and adds that "fiber optic cables are low latency: they can carry information more than ten times faster than a VSAT to satellite to cable connection."

When making a comparison between the three submarine cables, the article contends that they all have "roughly the same capacity", but notes that "each connects a different combination of countries and ownership."

The article acknowledges that "there has been much hype in the media about which cables will land first" but makes the argument that "the success of one cable does not render the others useless." The view expressed is that redundancy is needed to ensure the security of broadband supply and to stimulate competition, thereby reducing prices for users. "Tanzania will be able to make room for both the EASSy and the SEACOM cables, as well as any connectivity provided by TEAMS", concludes the piece. Plenty of room for all, then, it seems.

East Africa Com musings: Does it matter which submarine cable lands first?

East Africa Com report: Telkom Kenya positions as only convergence player in a competitive mobile market

TELKOM KENYA: ambitions of being East Africa's only quad-player

Last week I spent two days nipping in and out of the Com World Series East Africa Com conference and exhibition, organised by Informa Telecoms & Media in Nairobi, Kenya. I had hoped to share some of what was discussed here in real-time, blogging merrily away from the conference venue. A busy schedule made this difficult, compounded by the non-availability of a genuinely fast and reliable Internet connection at either the venue or my hotel.

Broadband speed and price in the region was a topic visited by a number of the conference speakers. Peter Reinartz, the Deputy CEO of Telkom Kenya/Orange Kenya, for instance, spoke about the effects of the long-anticipated arrival of submarine fibre optic cable. Reinartz poured cold water on suggestions that the retail price of broadband services would fall by as much as 90%, but did pick out the region's improved connections to the rest of the world as being a key driver of the kind of converged offerings his company is putting together.

Telkom Kenya was privatised in 2007, with France Telecom acquiring a 51% stake. The Kenya Government retains the other 49%. As part of the process, the company's controlling stake in market-leading cellco Safaricom was transferred to the Government, temporarily taking Telkom Kenya out of the GSM game. This brief period away from the heat of the battle in the mobile space ended with the September 2008 launch of Orange Kenya. With the later arrival of Essar-managed Econet Wireless Kenya (branded Yu), the country's mobile market is now home to four competing providers: Zain also has a presence.

As of March 2009, according to the World Cellular Information Service, the Kenyan mobile market is split as follows:

1. Safaricom: 76.79%
2. Zain Kenya: 17.41%
3. Telkom Kenya/Orange: 3.90%
4. Yu: 1.89%

The fourth player in the list above has recently been the subject of takeover speculation. On the day the conference opened, South African news portal Business Report was carrying denials from Yu CEO Srinivasa Iyengar regarding plans to sell the operation to MTN. If such a transaction were ever to take place, the Kenyan market would become the scene of a competitive struggle between only well-funded regional giants.

In his presentation, Reinartz spoke about not wanting to be Kenya's "third mobile operator", preferring to position the company as the country's only converged operator. 2009, he said, is to be a crucial year in the development of this strategy. Having launched a unified brand, a single touchpoint for customers and having "built an image as a full alternative to [the] mobile incumbents" in 2008, Reinartz set out his stall for this year: reinforcing existing customer retention initiatives and rolling out the first layer of convergent propositions. One of these is voice pricing unification across Telkom PSTN, Orange 'Fixed Plus' (CDMA WLL) and Orange mobile services. Customers can enjoy friends-and-family discounts across all these services.

At the conference, Zain was represented by Raed Haddadin, the group's Commercial Director for East Africa. A theme about which Mr. Haddadin spoke enthusiastically was mobile money. In this space, the Zain offering, branded Zap, enables under-banked people to desposit and withdraw cash, transfer funds to family and friends, top up mobile airtime and pay bills for goods and services.

Other tasks prevent me from rambling on at length now about other information I gleaned at the conference. I'll try to share more in the coming days.

East Africa Com report: Telkom Kenya positions as only convergence player in a competitive mobile market