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Telecoms invest billions in fibre optic cables

By | November 15th 2011 at 00:00:00 GMT +0300

By Jevans Nyabiage

Competition in the inland fibre optic cable network is set to intensify as telecommunications firms sink billions of shillings to consolidate their presence in the data market.

Kenya boasts of three undersea fibre optic cables: the government-led East Africa Marine System (Teams), privately owned cable Seacom and operator-run EASSy.

Workers lay a submarine cable. The Government is keen to take Internet access to rural areas to allow it offer services such as registration of births and deaths. [Photo: File/Standard]

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However, even with this international capacity, the challenge has been around backhaul, which remains an expensive barrier in extending the fibre optic cable network.

There are disparities in nationwide connectivity with urban areas significantly better connected than rural areas.

Peter Wanyonyi, a telecoms analyst, says the main hurdle has been the high cost of infrastructure investment required to make money from corporate data business.

He says the price war in mobile calling rates disrupted the pricing structures in telecoms — and revenue expectations — resulting in a re-evaluation by each operator of their capital expenditure costs. The con sequence is that no operator is willing to stump up the extensive outlays necessary to make data work independently.

However, as the cost of international bandwidth comes down, more operators (government included) have started and others expressed interest to roll out national and inland fibre backbone networks to take bandwidth beyond the capital cities.

The wholesale prices of bandwith on international fibre optic cables have come down to below $400 from $3,500 previously charged by satellite service providers since Seacom, Teams and Eassy gave Kenya undersea fibre connections.

"I think data, particularly heavy home use data will be challenging for telecos delivering it wirelessly. Home use data will be best served by fibre optic and copper," says Eric Musau, research analyst at Standard Investment Bank.

Mobile operator, Safaricom has become the latest firm to announce plans to build its own inland fibre optic network estimated to cost more than Sh1 billion.

The aim is to get a larger share of the data market and reduce its reliance on the voice market that is faced with increased competition and shrinking margins.

Last week, when the firm announced its half-year results, it reported a 36.3 per cent growth in mobile and fixed data revenue to Sh3.1 billion as voice plummeted by 5.5 per cent.

"We have seen a lot of gaps as many places are yet to be connected via fibre and last mile solutions," said Nzioka Waita, the director of corporate affairs at Safaricom, "We want to fill those gaps." Waita says the firm is in search of the contractor who will build the cable and bids submission is to end in January next year and the winner of the contract will be probably known towards the end of February.

"This is our strategic decision for a much higher pipe. We will cover major metros and trunk routes in Nairobi and other towns," he said.

He estimates that by 2015, it will be a 50:50 data-voice contribution at a minimum.

Safaricom plans to lease excess fibre capacity to the Government and companies such as banks and Internet Service Providers.

Safaricom will be following in the footsteps of its competitor Telkom Kenya in building its own inland fibre optic as mobile telephony firms increasingly look at the data market for growth.

"I think the data growth curve remains hyper growth and part of the Safaricom offensive play. Interestingly, I think the potential competitor is in fact Telkom Kenya," says Aly Khan Satchu, Nairobi-based Investment analyst.

NSE listed Internet firm, AccessKenya built its own metro fibre to serve the growing corporate clientele in Nairobi and recently expanded to Mombasa.

Kenya Data Networks has extensive fibre countrywide with Telkom Kenya also owning the lion’s share in data investments. Apart from its own fibre, Telkom Kenya also manages the government’s National Optic Fibre Backbone Infrastructure (NOFBI) cable.

Jamii Telecom has also an extensive fibre. The firm’s chairman Mr Joshua Chepkwony says the firm has expanded to major towns and the aim is to cover all counties.

Early this year, JTL announced that it had entered into an agreement with a Chinese giant ZTE to connect 100,000 homes to fibre optic cables in a Sh1.2 billion deal.

Wananchi group has also plugged a number of estates in Nairobi for its cable TV plan.

"The existence of several "carrrier’s carriers" are essential to the Internet eco-system in East Africa. In order for ISPs to succeed there must be "dumb pipe" companies operating in the market to carry their traffic," says Timothy McGinnis, a Nairobi-based telecoms analyst.

"We look at the market for opportunities and we have a strategy for that," said Yonas Maru, managing director of Bandwidth and Cloud Services (BCS), when asked whether his firm is likely to invest in its own cable.

BCS is a shareholder in Teams and is a wholesaler reseller of capacity. "Prices have come down and we have seen volumes go up," Maru said.

"I think there is room for increased sharing of infrastructure among the operators, and I believe this is the way forward: Safaricom, with the most extensive infrastructure in the market, might want to assure revenues by selling capacity directly to the other operators," Wanyonyi says.

On its part, the Government is investing $60 million in the NOFBI in an effort to boost access and lower the cost of Internet.

Some 5,000km of the cable had been laid down by June last year.

The government earlier with other private telecom operators invested in Teams cable which links Kenya and UAE.

Information and Communications PS, Bitange Ndemo, says 37 counties are hooked to the NOFBI network. Telkom Kenya currently manages the on behalf of the Government.

"Our priority now is a robust last mile solution on an open access platform. This is not compromising existing providers but opening up the market. If funds are available, we may take fibre to the remaining 10 counties," Ndemo says.

The Government is keen to take Internet access to rural areas to allow it offer services such as registration of births and deaths, passport issuance and tax collection under the e-Government plan.

Kenya is expecting a fourth undersea fibre optic cable to land next year. France Telecom, which is committing 14 million euros to extend the "Lower Indian Network 2" (LION 2) submarine cable to the LION cable to Kenya via Mayotte.

With the LION and LION2 cables, France Telecom will have access to three telecommunication highways, enabling it to route voice and data telecommunications via La RÈunion and Mauritius.

As Internet connectivity improves, multinationals are looking to tap on the regional market and also bid for contracts.

Others are positioning themselves to supply equipment in the extensive investments around data centres, network expansions, digitisation and many more.

When the Government called for firms to bid for the construction of the lucrative super-fast fourth-generation network, multinationals were among the applicants.


Telecoms fibre optic Seacom EASSy
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