International undersea fiber optic cable promises much needed bandwidth to East Africa but specter of monopoly pricing threatens project's benefits
May 31, 2006
By Charles Waltner, News@Cisco
There's a battle brewing over the future of Africa's telecommunications.
A consortium of companies is planning to build East Africa's first international undersea fiber optic communications line, which will complete a much needed fiber loop around the continent. Once in place, the cable will provide that part of Africa the broadband connection necessary for delivering the same affordable telecommunications advances now enjoyed by most countries in other parts of the world.
But many public policy and industry observers fear that monopolistic pricing practices will deaden the benefits of the landmark project. They say the venture's core group of investors is a club of incumbent telecoms looking to protect their entrenched interests and stifle competition. These companies, in turn, assert that as private businesses they have the right to seek a return on their investments and manage the project as they see fit. Proponents of fair and open access counter that the consortium needs to operate in the public's best interest, since the project is so crucial to the region's welfare. Also, they say, much of the funding for the project, one way or another, will likely come from public coffers.
While the project, known as the East African Submarine Cable System (EASSy), will by no means solve all of Africa's telecommunications problems, it is a foundational piece to the continent's communication infrastructure and a watershed event for African telecom politics. If the continent's governments cannot break such monopolistic practices now, Africa will continue to suffer from extraordinarily high telecommunications costs that will further isolate the region from the social and economic advances the Internet and other new communications technologies are bringing to countries around the globe.
Proponents for open access point to the history of African telecommunications as justification for their concerns. Africa's previous international fiber cable project, known as SAT-3, was installed in 2002 and heralded as the link that would revolutionize communications for West Africa. But it has fallen far short of expectations. Built by a similar consortium of old guard telecoms, SAT-3 has had only marginally improved pricing and services. As the gatekeepers to the international connection, the SAT-3 consortium has maintained high surcharges for any other telcos or organizations that want to use the connection, crippling competitors and keeping customers hostage.
"We don't want another SAT-3 cable situation," says Brian Cheesman, a consultant for the New Partnership for Africa's Development (NEPAD), which was created by African national governments as an independent, non-profit organization for fostering economic and social development throughout Africa. "The promise was that SAT-3 would bring down prices and improve telecommunications, but it didn't do that because the monopolies that control it have charged an arm-and-a-leg to competitors or anyone else wanting access to that international connection."
Russell Southwood, the publisher of Balancing Act, a newsletter covering telecommunication issues in Africa, says that costs for international "backbone" connections such as SAT-3 and EASSy have a ripple effect on all telecom costs, since any communications must travel over these routes when going beyond the continent. High costs for these routes makes it that much harder for Africans to connect to individuals and organizations outside the region. Because of this, few other countries or regions have permitted surcharges on such links. "I know of nowhere else where these arguments are going on," Southwood says.
African governments and public policy groups have been weighing in on the project for over a year but the EASSy consortium has yet to open any meaningful dialog with these representatives. Observers say the matter is reaching a critical juncture as some sort of decision about EASSy's management will likely be reached within the next couple of months. Governmental ministers from the various countries in East Africa will be meeting in the next two months to decide on how to address the EASSy project. Cheesman says that the EASSy cable will be beneficial to Africa no matter how it is managed but without an open access model, the impact of the project will be "less than optimal."
The battle over EASSy is a classic money and politics story. Jim Forster, a Distinguished Engineer at Cisco Systems who has been working with various African groups to address concerns about the EASSy project, says Africa is struggling to move past the vestiges of colonialism and institute telecommunications market liberalization that many other countries in North America, Europe and Asia have already established. "Protecting a few select companies is not fair to rest of the region," Forster says. "Key to the process is the creation and enforcement of 'fair play rules' that wrest market control from existing monopolies. In virtually every example around the globe, once such rules are in place and enforced, markets thrive while consumers and businesses gain enormous benefits.
"Other nations have reaped tremendous economic and social rewards from the burst of investment and productivity brought on by an open telecommunications market and a level playing field. Cisco strongly believes open markets make basic telecommunications far more affordable as well as boosting both the quality and variety of services available to consumers and businesses. Clearly, open access to the EASSy fiber cable is a crucial step towards bringing these same benefits to Africa."
Forster adds that liberalizing telecommunications markets not only creates excellent opportunities for competitors but also generates a much larger and more vibrant market for existing incumbent telecommunications companies. Such markets are also far more attractive to technology investors. "With open markets, investments can be made wherever the need and opportunity are the greatest," Forster says. "We've seen it time and time again in countries around the world. Once the proper fair play regulations are in place, telecommunications innovation and market investment explodes."
In addition to NEPAD, some of the backers for an open access model for EASSy include The World Bank, The Association for Progressive Communications (APC), the United Kingdom's Department for International Development, Canada's International Development Research Centre, and the Open Society Institute.
Specifically, these open access proponents are demanding that investment in the EASSy project be available to any entity, including any telecommunications company or other organization, such as university research groups. Just as importantly, they also want full transparency on how EASSy is run, specifically regarding pricing. Their bottom line is they want to eliminate any artificial barriers to bandwidth access and usage. Proponents say open access will guarantee the lowest basic rate possible for all types of telecommunications companies and network operators, including academic institutions, hospitals, local governments, and rural residents. Cisco also strongly supports such goals. Closing the digital divide and improving education and healthcare through telecommunications technologies are hallmarks of the company's corporate philanthropy.
The price of bandwidth is a significant barrier to such improvements for the region, says Anriette Esterhuysen, executive director of the APC. Without rapid improvements in its telecommunications infrastructure, Africa will continue to suffer economic and social isolation. "The cost of international bandwidth almost certainly directly affects how Africa works; whether through the high cost of international calls-particularly to other African countries-or through the cost and speed of the continent's Internet connection," Esterhuysen says.
EASSy consortium members include most of the national telcos from the various East African nations, including Telekom South Africa, Telkom Kenya, Zanzibar Telecom, Uganda Telecom, TDM Mozambique, Djibouti Telecom, Sentech, Telecom Malagasy, Rwanda Telecom, and Botswana Telecom, with about a dozen other likely participants. There are a few competitive carriers in the mix, but they are the small minority.
The boilerplate response of the EASSy consortium to critics has been that anyone can join the project, as long as they have an international telecommunications license. Unfortunately, because of Africa's history of monopolistic telecommunications markets, only a handful of companies have those licenses, basically one monopoly from each country. But there are no laws preventing anyone from investing in the project. The license requirement is strictly an arbitrary rule set up by the consortium, and one that is meant to keep out competitors, says Balancing Act's Southwood. In an interview with Balancing Act, John Sihra, the project coordinator for the EASSy consortium, has stated publicly that that the consortium will charge 25 percent above cost for any entity outside his group that wants access to the fiber link.
NEPAD's Cheesman says The World Bank has offered to provide as much money as necessary for the project as long as it follows an open access model, but EASSy consortium members have so far shunned help from the World Bank, insisting that they can fund the project themselves.
Southwood says more than a half dozen organizations in Africa, particularly universities, have tried to talk to EASSy members about investing in the project in order secure low-cost broadband access, but EASSy has not responded to these inquiries. The group also did not respond to a request for an interview from News@Cisco.
Many of the companies involved in the EASSy consortium are quasi-public entities, with national governments as their major stakeholders. This makes politicians hesitant to open markets for fear of losing revenue, Cheesman explains. Because of such history, the telecom executives often have deep political ties in the government, creating even greater barriers to meaningful reforms. "A lot of the companies are laws unto themselves," Cheesman says. "African governments historically have had a hard time controlling their telecommunications companies."
But such close ties to the government also means that these companies are de facto extension of the government. Often they are using public monies to finance their businesses. As a result, proponents for open access say these telecommunications entities have no grounds for portraying themselves as "private" businesses.
Southwood says not all investors in the EASSy project want to use the international fiber connection for direct profits. Unfortunately, EASSy is controlled by a dozen or so "old club members" that want to maintain the status quo and their monopolistic control.
Cheesman says Telecom South Africa is the most influential member of the EASSy consortium. The company is the richest and most powerful of the group, as well as having the most experience in building major infrastructure projects. Telecom South Africa drove the development of SAT-3 and maintains majority management of the cable as it continues to maintain artificially high access prices. Even today, the company is fighting its own government, the majority shareholder of Telecom South Africa. The South African government wants to regulate use of the SAT-3 cable in order to bring down the costs of Internet access and other telecommunications services in its country. The telco, however, has not responded to requests from the South African government for a copy of the agreement that governs the SAT-3 fiber line.
"We should be guided by the maxim that the more competition we have, the more opportunity there is to reduce telecom costs," says Roy Padayachie, South Africa's deputy communications minister in an interview with Balancing Act. "But we haven't been able to see the SAT-3 shareholder agreement, yet we are a 38 percent share holder in Telekom. It's crazy."
Without a doubt, Africa can ill-afford another step backwards in its efforts to develop a modern telecommunications infrastructure. The continent has some of the highest Internet and phone costs in the world, with one of the lowest Internet usage rates. Ninety percent of calls from African countries to other African countries are routed through Europe, at a cost of $400 million. Internet usage is only at 1.1 percent of population for the continent.
And while telecommunications quality varies widely among Africa's diverse countries, in general the continent suffers under virtually unviable telecommunications services. Roland Alden, a telecommunications consultant on Africa and the Middle East, estimates that Internet access is generally 2000 to 3000 percent more expensive than in other countries with competitive telecom markets.
African universities, for example, typically only have one or two-megabit connections for the entire campus, while individuals have to pay $500 a month for a 128 kilobit per second connection, Cisco's Forster says. That's compared to less than $50 a month for a 1 megabit per second (1000 kilobit per second) or greater cable or DSL connection in the United States. Individuals from South Africa to Ethiopia report that outlandishly poor service goes hand-in-hand with crippling prices. Consumers can wait months for installation and expect unreliable connections.
Business and individuals who do not wish to be at the mercy of the local telecom monopoly can turn to satellite connections, which are now the only broadband option for anyone in East Africa until the EASSy undersea cable is built. But satellite services are inherently more expensive and less flexible than fiber connections.
EASSy will bring direct broadband connections to most of the countries from South Africa to Djibouti along Africa's eastern coast, as well as many of the landlocked countries adjacent to the coastal nations. Planners expect the EASSy fiber cable to provide enough capacity for as long as 25 years.
Observers say it is very difficult to predict the final outcome of this telecommunications watershed. Most figure EASSy will offer better access than SAT-3, but how much better is unclear. Some members of the consortium have said they will allow other entities to invest in the cable, "but the problem with such promises is that they are all verbal," Southwood says.
It is also uncertain whether the EASSy consortium can raise all the funds it needs without help from The World Bank or various African national governments. Southwood says the group has raised about $110 million, while costs for the project have escalated from $200 million to nearly $300 million.
"It's like a game of poker," Southwood says. "It's pretty hard to know how it will turn out since you can't see their hand. But we are starting to see some of their cards."
Charles Waltner is a freelance journalist in Oakland, Calif.
