~ Archive for Infrastructure ~

The Unicornization of African Fintech

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The first quarter of 2021 ended on a great note as two African fintech businesses gained unicorn status, a rare fit amidst a raging global pandemic which is finally being aggressively tackled by the speedy supply of much-needed vaccines. Such is the African story – a trail of surprises in the midst of uncertainty. On 18th March 2021, Airtel Africa announced it had received a $200M investment from TPG’s Rise Fund at a valuation of $2.65B making it the latest African unicorn. Exactly a week before, March 10th, 2021, Flutterwave from Nigeria also announced a $170M investment from Avenir Growth Capital, Tiger Global Management and others at a billion-dollar valuation. In the tech world hitting a billion-dollar valuation is a big deal – you earn the name Unicorn, a mythical animal that represents the statistical rarity of successful ventures coined in 2013 by Aileen Lee of Cowboy Ventures. Most global technology companies strive for unicorn status preferably before they go public. As of March 2021, there are about 614 unicorns globally with a total valuation of $20041B according to CB Insights. Given that the Africa tech ecosystem is maturing we are now seeing the manifestation of this mythical animal which is the subject of this essay to start the second quarter of a defining year.

These developments brought into sharp focus the uniconization of African fintech, ignited the debate whether unicornization abroad is the way to go for African tech ventures or whether according to Marieme Diop of the Dakar Network Angels, the focus should be on Gazelles (i.e. companies valued at $100M with $15M to $50M in revenues listed on the local stock exchanges) to boost the African market and create liquidity at home? There is yet a third animal in the African kingdom introduced by Keet van Zyl of Knife Capital who argues that Zebras are less spotted profitable sustainable businesses that have an impact stripe – they solve really meaningful problems. In my view we are going to have the manifestation of all three and even more as different entrepreneurs and investors pursue different approaches. After all Africa is large enough to accommodate many unicorns, gazelles, zebras, etc. What is important to all businesses is the need to build strong unit economics at the foundation as Reid Hoffman’s blitzscaling is now giving way to Tim O’Reilly argument. More importantly the recent crush of WeWork has everyone going back to the fundamentals – positive unit economics. This is more so apparent in the African context given the dynamics and challenges of operating in our markets, which led to the construct of the zebra and gazelle. Not so long ago the unicorn was a sought-after mythical construct in the African context, which has now been found.

With the addition of Airtel Money and Flutterwave, Africa now has six fintech unicorns making fintech the leading sector in Africa’s digital economy. The other four are Fawry, a local Egyptian payment company that listed on the Egyptian Stock Exchange in 2019, that started as a gazelle and became a unicorn last year at the height of the pandemic. This is a strong case study that highlights a firm’s ability to start as a gazelle (or zebra) and become a unicorn. Unicornization through acquisitions was successfully demonstrated by Vodacom and Safaricom that completed the acquisition of MPESA, which has more than 41.5M customers across Kenya, Tanzania, Lesotho, Democratic Republic of Congo, Ghana, Mozambique and Egypt processing more than $12B in transactions, from Vodafone last year during the pandemic. Interswitch also gained unicorn status with the $200M investment from Visa that valued the firm at a billion dollars. Finally, there is the debatable “Africa unicorn”, Jumia (an e-Commerce company which could fall in the fintech category) who debuted on the New York Stock Exchange (NYSE) in the second quarter of 2019 but has since been in and out of unicorn status. It is no surprise that the unicornization of the African continent started with fintech enterprises since every economy thrives on payment for goods and services and the innovation in Mobile Money (MoMo) changed the dynamic in Africa significantly. In the past, commercial banks have struggled to introduce electronic payment systems like debit and credit cards, however MoMo from the Mobile Network Operators (MNOs) came from nowhere as a surprise in Kenya. During the 2007/8 election violence in the country, MoMo suddenly became the only efficient means to make payments and MPESA (M for “Mobile” and “PESA” for Money in Swahili), the Safaricom brand took off. It has since been replicated by many MNOs and successful global fintech startups such as Stripe. The global GSMA 2021 MoMo report has Africa leading in growth.

Airtel Africa’s variant is Airtel Mobile Commerce BV (“AMC BV”), a wholly owned subsidiary of Airtel Africa Plc which trades as Airtel Money – the entity into which the TPG Rise Fund invested. Airtel Africa (originally Celtel which was acquired by Zain and then sold to Bharti Airtel of India) brought in Chidi Okpala from United Bank for Africa (UBA) in 2012 to join Airtel as the founding CEO of Airtel Money. Chidi was the right man for the job, having spent twelve years at UBA and Accenture with extensive knowledge and hands-on experience. This was a brave move which panned out well, resulting in a roll out across 17 countries. At the time of Chidi’s departure from Airtel Money in December 2015, he had set the business on the right footing, with 30M customers and $2B in monthly transactions. Today, Airtel Money is a unicorn and according to Chidi “I am delighted with the exceptional foundational work myself and team did back then, and the current phenomenal work being done by the current team.” Chidi has since gone on to launched Asante Financial Services, which he hopes to make a unicorn by 2025. He reckons that his Airtel Money experience prepared him for the Asante journey giving him the first taste of entrepreneurship albeit within a larger corporate.

Olugbenga Agboola (aka “GB”), Co-Founder and CEO of the second unicorn, Flutterwave, had a similar career path. He started as an Applications Engineer at Paypal (under the Paypal Mafia..;-) with a brief stint at Google Wallet Product Management then moved into the banking sector in Nigeria where he held positions with GT Bank, Standard Bank and then at Access Bank as their head of digital factory and innovations. While at Access Bank he saw the fragmentation in payments across Africa and together with his co-founder, Iyinoluwa Aboyeji (aka “E”) who had then exited his first startup, Andela, joined forces to start Flutterwave. It is important to know that while GB had come from a corporate executive background, joining forces with E who came from a pure entrepreneurial background was a perfect fit. E started as the founding CEO and later handed the reigns over to GB in October 2018 who, in turn, has done a great job of taking the company to unicorn status within three years. According to GB “Covid-19 played a big part in our growth because we were able to quickly onboard more customers”. He reckoned that “people who might not have said yes to online payments have now said yes because of the pandemic.” This confirms my earlier claim in a previous essay that the pandemic is speeding up the digitalization of the economy in Africa. Chidi and GB are both corporate executives who turned into entrepreneurs and from my previous essay they come with unique strengths which in the case of Flutterwave combining with E’s straight up entrepreneurial genes may be partly the reason they got to unicorn status faster .

However, in his excellent oped, Dr. Israel Ovirih a Lagos-based investment banker, serial entrepreneur and tech-evangelist outlines the critical ingredients for getting to unicorn status.
1. How big is the problem, or the pain and how serious is it? What are the products, services and derivatives created by the startup to alleviate or eradicate the pain? Are they being properly product-ized? Or service-tized? Is it being done in a creative and innovative manner?
2. The GRIT in the founding team and leadership, which dovetails into measuring their unflinching commitment, smartness and, if you like, the do-or-die optimism which drives the dream and its execution.
3. The amount of traction they have gained and how clear their roadmap is, in the face of the various contradictions in the local legislation or policy.
4. The present financial health of such startups and how healthy they are capable of becoming, considering their Value Proposition and Execution Story to date.
5. Finally, the strength of the market; local, regional, continental and indeed global.

The last point has a strong bearing on whether a company can become a unicorn, gazelle or remain a zebra as the market which some call the “Hand of God” is the ultimate determinant.

Africa is already connected NOT by Facebook and Google

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In the midst of the pandemic, Facebook (and partners) announced 2Africa a new subsea cable. About the same time last year, Google also announced a subsea cable called Equaino. It looks like they are trying to save Africa, but this is the problem – we have way too much capacity on the beach and not enough inland to connect to the wireless and cellphone networks to drive broadband to the masses. What Africa NEEDS today is terrestrial fiber to drive the existing subsea cable capacity inland to improve the broadband capacity of the wireless and cellphone networks. The diagrams below by Steve Song under the auspices of Many Possibilities gives you a historical account of Africa been connected to the world by subsea cables since 2001 through SAT3 – a consortium of majority Africa owned telecom operators. As per the second diagram Google and Facebook are building the 19th and 20th cables which would be live in Q4 2021 and Q4 2023 respectively. Hence Facebook and Google cannot be connecting Africa to the world in 2020 – at best their two new cables could serve as redundancy to the existing ones as well as provide capacity in the future.

In 2001, SAT3 and all other subsea cables were built through a club consortium which meant if you did not belong to the club you could not play. The club consortiums then set a high price tag for their fiber because they had a monopoly in the markets. In 2004 I started a movement under the auspices of the Ghana Internet Service Providers Association (GISPA) and Africa Internet Service Providers Association (AfrISPA) both of which I co-founded to dismantle these consortiums and monopolies with the intent to drive down the price of connectivity to make broadband more accessible and affordable. Our first victory was in November 2004 when GISPA signed an agreement with Ghana Telecom to reduce the cost of SAT3 by 1/3. GISPA then led the establishment of the Ghana Internet eXchange (GIX) to keep local Internet traffic in Ghana. AfrISPA members followed the GISPA lead and started negotiating for cheaper prices as well as building their local internet exchanges to keep Internet traffic within their countries.

In 2005, Russell Southwood, Anders Comstedt and I wrote “Open Access Models: Options for Improving backbone access in developing countries” for the WorldBank in which we presented an alternative approach to club consortiums and monopolies for the development of fiber networks. I followed this up in 2006 by writing one of two missives that made the case for “Open Access” communications infrastructure in Africa. Come 2007 I got invited by Dr. Bitange Ndemo to join the founding team that launch The East Africa Marine System (TEAMS) based on the open access model we had developed – a first in East Africa with Kenya as the nexus. 2009 saw the arrivals of the TEAMS and SEACOM cables which had Convergence Partners as one of it’s investors led by Andile Ngcaba who also led the launch of Africa’s first Dawn Satellite – by 2013 ten more subsea cables went live. According to Paul Hamilton of African Bandwidth Maps, Africa’s total subsea design capacity at 2018 was 226.461 Tbps with the sold international bandwidth at 10.962 Tbps, including subsea capacity at 10.470 Tbps and terrestrial cross-border capacity to submarine cables at 479 Gbps so the real challenge today is how to increase this terrestrial capacity.

As per the map above we have 18 cables with Google building the 19th and Facebook the 20th so the economic impact of subsea cables which Facebook funded RTI International to undertake should be attributing the impact to the existing cables and not the ones that are not yet in existence. Gillian Marcelle, PhD, Managing Member of Resilience Capital Ventures LLC who has had several decades of facilitating and mobilizing capital for the digital economy has this to say: “tackling connectivity across the continent and mobilizing positive economic and social outcomes must draw on indigenous expertise. The the days for us Africans waiting for a savior are LONG gone.” Based on her extensive investigations of African telecoms and tech industries, she went on to admonish recent efforts that render African knowledge and expertise invisible. She further added that there is considerable global and regional scholarly work that already goes much further than simple correlations between GDP, economic output and investments in connectivity enhancing projects. When asked about her key recommendations, Dr Marcelle offered this view: “Many advocates including those active in the global caucuses and multistskeholder partnerships have established conclusively that it is necessary to understand patterns of inequity and exclusion that arise from bottlenecks and blindspots. What is required now are smart and authentic partnerships that build on the foundation laid to produce tremendous positive outcomes. In Kenya, Ghana, Nigeria, Rwanda and South Africa there are ecosystems with components and actors to make good on this promise.”

What Africa NEEDS today is terrestrial fiber to drive the existing subsea cable capacity inland to improve the broadband capacity of the wireless and cellphone networks. The problem they should be solving is not bandwidth to the beaches, but bandwidth to the Savannahs and jungles. Liquid Telecom which is part of the Econet Group owned by Strive Masiyiwa has been in the forefront of building terrestrial cross-border fiber networks across the continent – they have the most extensive network from Cape Town to Cairo but yet to cover West Africa as per the map below. We need three or four more of such networks to not only increase the capacity but provide competition to drive down the price of cross-border bandwidth. CSquared which counts Google as one of its investors is building metro fibers in Ghana, Liberia, and Uganda. Others like Wannachi Group in Kenya, DFA in South Africa, Smartnet in Zambia, Spectrum Fiber in Ghana, Phase3 Telecom in Nigeria, etc and in some cases the Mobile Network Operators (MNOs) are also building metro and national fiber networks.

We are also seeing the growth of data centers to host the applications being developed by digital innovators that drive consumption of the bandwidth being built. The African Internet eXchange System (AXIS) which was founded by AfrISPA and implemented by the AU is growing the Internet fabric by increasing the routing of local traffic on the continent. In Ghana the Internet Clearing House (ICH) by Afriwave Telecom is created the framework for deploying local value-added services that the government and other institutions can take advantage of – this would drive the growth of local content. As we know “content is king” so as we develop more localized African content that is hosted in the data centers and networks on the continent, we would need less and less international bandwidth. Hence my argument that Africa does not need additional subsea cables but rather more terrestrial fiber to improve the existing capacity whiles driving prices down to offer an amazing broadband experience.

ICT Policy and Technology Innovation in Africa

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In this presentation that i made to the Africa Grantmakers Affinity Group (http://www.africagrantmakers.organd Grantmakers in Film + Electronic Media  http://gfem.org), I will seek to describe how the African continent has been able to become connected to the Internet in a relatively short period of time, tracing some of the successes as well as obstacles to more robust connectivity. I will highlight some of the current efforts to further connect the Continent to itself and the world.  It is my belief that there are a number of these “homegrown” African efforts using mobile and Internet technology that should not be overlooked as resources by those concerned with African development and investment.

 

The deregulation of the telecommunications sector in the early 1990’s under the World Bank’s Structural Adjustment Program led to (a) the general de-monopolization of the industry and (b) the creation of Second National Operators (SNOs). Significantly, most of these SNO’s failed due to the lack of an effective regulator.

 

These developments led to:

·      the establishment of national-level regulatory institutions like the National Communications Authority in Ghana.

·      the liberalization of the air waves and the move beyond government-run media to the establishment of private radio, television, and newspapers

·      the creation of the Internet sector in the form of value-added service providers

·      the establishment of Mobile Operators in early the late nineties

 

Mobile penetration is currently about 30% across the continent, and Web is 5%.

 

The growth of mobile has been due to unique policy and market factors:

·      the general lack of landlines and the challenge to get them even if “available” from the incumbents

·      some regulators’ ability to establish interconnection between them, which was already a national policy in some countries

·      mobiles are cheaper to buy and use – and mobility is just cool!

·      some of the biggest mobile companies have come out of Africa, like Celtel/Zain and MTN, each in over 21 African countries

 

Mobile is now the platform on which the most dynamic innovations are taking place:

·     M-Pesa  – air time as money for transfer and purchasing

·     Ushahidi  – combination of sms and web for inditification of “troubled areas” during the Kenyan elections  (David Kobia will expand more on this)

·     Tradenet – combination of sms and web for farmers and market information exchange

·     African Election Portal – combination of sms and web for election information and certified results

 

Broadband, or high speed Internet access is mainly delivered through wireless connectivity using mobile, licensed frequency and wifi. While it is Internet Service Providers (ISP’s) that have taken the lead in broadband provisioning, mobile phone operators with GPRS, EDGE, 3G and other technologies are joining in speedily.

 

Africa pays 40 times what the developed world pays for broadband. This is due to some factors, which are being addressed by the African Internet Service Providers Association (AfrISPA) and other institutions:

·      Most prominent is the fact that Africans communicate with each other through 3rd parties, which cost a “capital flight” of about $500m USD, according to 2002 estimates.

·      AfrISPA has being working with countries to establish Internet eXchange Points (IXP’s), which ensure local communication is kept local. There are 22 IXP’s on the continent now.

·      Under AfrISPA’s African Internet eXchange System (AXIS), we seek to build an IXP in every country and to also connect the countries through cross-border terrestrial connectivity.

 

Much of Africa’s international connectivity has being through satellite (VSAT), which is very expensive.  For example, a 2MB connection costs between $5000 and $7000 per month.

There is a lot of effort underway to build terrestrial fiber connections, which are incredibly robust delivery systems for Broadband – in some cases converting existing fiber on the power pylons (the large vertical steel towers supporting high-tension power lines). This is going to have a significant impact on Broadband connectivity and cost.

 

Currently, there are about a dozen undersea cables for Broadband delivery that are proposed to be built, apart from SAT3 on the West and Southern coast of Africa. There are five of these that I am confident will happen:

1.     The East African Marine Systems (TEAMS) which is planned, fully funded and due to come online by June 2009 to cover East Africa and now has TEAMS 2 going down to South Africa.

2.     Sea Communication (SEACOM) also planned, fully funded and due to come online by June 2009 to cover South, East and North Africa.

3.     East Africa Submarine System (EASSy), which was supposed to be the first rolled out, but due to a change in model, it is now set to come online in 2010 to cover East and Southern Africa. Also fully funded.

4.     GLO -1, which is an undersea cable, built by Globacom, the largest mobile operator in Nigeria. It is being built from London to Nigeria and countries it has operations in like Benin and Ghana. Part of the cable is built and there is a planned extension to the US from London.

5.     MainOne, which is also planned and about to close the financing, is due to go from Portugal to Nigeria and Ghana where they have a license and landing rights. It is also planned to go down south, providing competition to SAT3, which has rather increased the cost of broadband in that part of the world instead of reducing.

 

As mentioned, currently broadband costs are very high in Africa – a 2MB connection costs between $5000 and $7000 per month.

 

At a recent meeting in Malawi we tried to get the cable operators to give us an idea of their actual cost to market:

       TEAMS is proposing 2MB at $500 per month.

       The other cable companies are indicating their ability to compete at that level and even get cheaper, so we do expect Broadband to get significantly cheaper in Africa over the next 3 years.

 

With broadband getting cheaper due to the developments above and growth in PC access due to the lowering of PC prices combined with entry of low end laptops like the “One Laptop per child, EeePC, etc, there is going to be an exponential growth in Internet subscribers over the next three to five years.

 

This would combine with the innovation in digital technology, which is gaining root very quickly in Africa as indicated above. There would be mushrooming of new business, which would grow to become SMEs and eventually become the enterprises of tomorrow.

 

The uptake in technology clusters like Ghana Cyber City, a 36 acre planned technology park to be build in Accra, would set the stage for the creation of an ecosystem of interaction among these SMEs and also herald the advent of major outsourcing into the continent. The interaction between the homegrown SMEs and the outsourced business in the technology park would create a high level of output on both sides. 

Berkman Conversation on Africa’s Internet Infrastructure

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Tuesday, April 10, 12:30 pm
Berkman Center Conference Room
23 Everett Street, Second Floor, Cambridge, MA

Guest: Eric Osiakwan and Ethan Zuckerman
Topic: “Africa’s Internet Infrastructure”

Following up from their Luncheon Series talk from last September, Eric and Ethan will discuss current developments in Africa’s Internet and communications infrastructure. We’ll learn about exciting possibilities and innovations, as well as challenges, in connecting African communities to each other and to the global web.

Eric Osiakwan is the Executive Secretary both of the African Internet Service Providers Association (AfrISPA) and the Ghana Internet Service Providers Association (GISPA). He is also a Visiting Fellow and Scholar at the Stanford University and Reuters Foundation Digital Vision Program, and a Berkman Center affiliate. During the past four years, he has been involved in several information and communication technology (ICT) related projects and initiatives in the US, Europe and Africa for a number of Governments, companies, NGOs, and international agencies.

Ethan Zuckerman is a Berkman Center fellow, focusing on the impact of technology on the developing world. His current projects include a study of global media attention, research on the use of weblogs and other social software in the developing world, and work on a clearinghouse for software for international development. Ethan is also a co-founder of the Berkman-sponsored popular international citizen journalism project Global Voices.

AfrISPA: http://www.afrispa.org
GISPA: http://www.gispa.org.gh
Ethan’s blog: http://www.ethanzuckerman.com/blog
Last September’s Luncheon Series talk: http://blogs.law.harvard.edu/mediaberkma…

This event will be webcast live. Webcast viewers can join the discussion through IRC text chat or in the virtual world Second Life. For information about our event webcasts and remote participation, see http://cyber.law.harvard.edu/home/webcas…. If you miss the live chat, catch the podcast audio & video at MediaBerkman, at http://blogs.law.harvard.edu/mediaberkma…. Lunch is provided to those who RSVP.

Kenyans in multistakeholder owenership of national fiber network

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Folks, below is exactly what i have being chanting as a way forward in the ownership of the infrastructure;
” The Kenya Government will have a 40 per cent holding in the project, Etisalat 20% and the remaining 40% will go to investors in the East African region. The Government has said it will organise an IPO on the Kenyan Stock Exchange. Several Kenyan companies have expressed interest and one said that the Government had told them it would “guarantee their loan”. The details of the finance package have not yet been settled but it is unclear where the Kenyan Government will raise its 40% from. Will the World Bank simply shift a portion of its EASSy funding to the new project as many think likely?”
NB; From this week’s Balancing Act, full story below for your pleasure courtesy of Russell Southwood.

Thank God the Kenyans are experimenting with this approach where government owns part, private sector owns part, educational institutions should also own part, CSO owns part through IPO on the stock market.

The Kenyan government can actually raise the 40% from government bonds and am not an expert on the stock market discipline of shares or bonds but this is where the financial experts need to come out with innovative solutions that can help raise much of this money locally – it is possible.

You Kenyans are showing the way and even it it does not work you would be know for showing us how this model is not workable and then we can try another. We Africans must try new ways of doing these things and make our own mistakes and find our own solutions to our problems but learn to avoid the mistakes of the Americans, Europeans and Asians. Thank God for this BOLD move, it is commendable.

I dont mean to make my blog Kenya praise church but it is about time that we applaude bold initiatives and sing the praise of those who are making an attempt at leadership in these times.

TOP STORY: KENYA BEGINS THE COUNTDOWN TO CHEAP INTERNATIONAL FIBRE
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It’s like waiting for a matatu. You wait for ages and none come along. But just when you’re about to give up hope, three come along at the same time, all trying to come to a screaming halt in front of you. Kenya now has three (or more) potential international fibre projects that could be complete within 12 months. Each one is loudly proclaiming that it will
deliver cheap international bandwidth. Russell Southwood took the temperature in the market last week about what the impact of this bandwidth will be upon the market.

The Kenya Government has signed an MOU to build a fibre link to Fujairah in the UAE currently costed at Ksh5.7 billion. The construction and supply contract will be awarded early next year and the project, dubbed The East African Marine System (Teams), will be ready by November, according to a joint statement issued by both parties from Dubai. Many
in the sector believe that it will be more like 19 months or more before completion.

The Kenya Government will have a 40 per cent holding in the project, Etisalat 20% and the remaining 40% will go to investors in the East African region. The Government has said it will organise an IPO on the Kenyan Stock Exchange. Several Kenyan companies have expressed interest and one said that the Government had told them it would “guarantee their loan”. The details of the finance package have not yet been settled but it is unclear where the Kenyan Government will raise its 40% from. Will the World Bank simply shift a portion of its EASSy funding to the new
project as many think likely?

The Government’s commitment to a 12 month schedule is a bold move but one that must lay them open to a certain amount of scepticism. The tender for expressions of interest was only issued 2 weeks ago and Government timetabling is notoriously slow compared to the private sector. Apparently the Private Secretary has been telling interested
parties that the Government wants prices comparable to those to be found in India in 12 months time. This benchmark has been set in order that Kenya will be able to compete in the international outsourcing market.

Apparently a number of interested parties said that they would put up all the money to build it if they could have a monopoly and he sent them away disappointed. But more worryingly one interested party told us that it could only get involved if it also allowed Telkom Kenya to be a shareholder.

The next international fibre project is KDN’s and it has now signed its contract with Flag Telecom. Its link from Mombasa will terminate in an undersea junction in international waters off of the Yemen. It says the link will be fully operational in the first quarter of 2008, just 15 months away. The company believes that it will come to market with capacity at $500 per mbps pm but that the price of bandwidth will go up to those wanting to invest as time passes. In other words, for those who commit early prices will be lowest and for those who come in late, prices will go higher. It also stresses that its landing station at Mombasa will allow other carriers to co-locate there charging only electricity and services at cost.

So this leaves the third project EASSy looking as if it will be the third runner. NEPAD appears to have made little more progress on persuading more African Governments to sign its political protocol. And whilst the members of the EASSy consortium (that still includes KDN and Telkom Kenya) are still moving things forward, there remains a disconnect between the political and commercial ends of the project. If both of the above projects go ahead, there is clearly much less need to build the Mombasa-Djibouti section of the route and it has to be said that both of the above projects have better international connection points.

As if three were not enough, Ethiopia’s ETC has now had its international fibre connection working effectively for two months via Port Sudan and Saudi Arabia. But because it is landlocked and it had endless fruitless arguments with Djibouti Telecom over control of a possible fibre link, it wants to find a second international fibre connection. Therefore it is in serious conversations with both of Kenya’s fibre network operators about connecting to the Mombasa links when they are ready. If this goes ahead, both it and Kenya will then have two international fibre links.

Because the process of getting the international fibre to Kenya has been both confusing and “on-off”, everyone in the market (including customers) have understandably not really grasped the impact of its arrival on their businesses. Until now ISPs and satellite resellers have largely been in the businesses of living on the margin they make
between buying and selling bandwidth.

These margins have been kept high as they have concentrated on selling to comparatively few customers. Ironically it has been a high-price, low volume business where their primary commodity – bandwidth – has always been in short supply, not least because some of them increased their margin by contending it as much as possible. This has meant that bandwidth quality is often variable at best for those not paying “top dollar” for a premium service.

If you argue that international fibre prices should be low price, high volume, then the national business model changes: what’s sauce for the goose is sauce for the gander. Bandwidth becomes cheap and plentiful at a sub $1000 threshold. The margins that can then be charged make it difficult for those who are not operating at volume to stay in business.

However it does now open up opportunities for new services, content and applications that can be sold to customers who should now be paying European prices for real broadband connections (1-2 meg upwards) rather than the paltry 64 kbps they are currently receiving. There are at least 500,000 households in Kenya that are at an income level that make them potential targets for broadband. It would take only half of those households to sign up for there to be the beginnings of a very different market.

The real sign that the market has not “got it” is that some key ISPs are not passing on the information about these soon-to-be cheap prices but are seeking to protect their high margins by telling customers higher prices. A heads-up, guys. The sector is a village and news will get round quickly and we’ll encourage the circulation of this price information. The market’s about to change, get ready to change with it.

At the national level, there is now a third source of fibre capacity. Jamii Telecommunications has signed an agreement with the Kenya Light and Power Company (KPLC) to sell an STM1’s worth of its fibre capacity in Nairobi and Mombasa, with KPLC saying that it will triple its capacity shortly. Two other companies – CTN and Cable Vision – have been granted a licence to sell KPLC’s capacity and it is telling (in terms of the argument above) that both are in the video download and pay-TV business. Not so far afield, Tanzanian power utility TANESCO is currently building out fibre capacity and has invited bids to sell this capacity. Again KDN is poised to make a fibre connection to Tanzania.

However a recent ping on the Kampala-Nairobi route shows that neither KDN nor Telkom Kenya has got its fibre route operational. KDN is promising it will be operational by the end of first quarter 2007 and that prices will be 20% cheaper.

Elsewhere in the market, the new VoIP operators are finding it difficult to get interconnection agreements and to get proper service from interconnect service providers. Telkom Kenya is charging absurdly high prices but has at least reached interconnect agreements. Nevertheless the new fixed wireless operators – Flashcom and Popote – are having
difficulties: customers are unable to receive or make calls to certain countries. Apparently anyone who calls a customer number of these fixed wireless operators from Germany gets a number unobtainable.

Access Kenya’s Yello VoIP service has been aimed at corporates and has attracted 250 customers who generate 120,000 minutes a month. But it has had difficulty getting interconnection agreements with the mobile operators. It made a complaint to regulator CCK in April and became so frustrated that it said it would run an advertisement publicising the
position. Safaricom came back to the table but Celtel refuses to enter discussions, saying that it will do so in its own time.

Kenyan ISPs are under heavy pressure from all the new operators. Flashcom and Popote are taking more money from data than voice at the moment as customers are primarily signing up for cheaper Internet access. Also the introduction of EDGE services by Safaricom is eating into their high-end customers: one ISP’s CEO admitted privately that he
was losing hundreds of customers a month to these new competitors. The challenge for everyone in the market will be whether they can take the soon-to-arrive cheaper international bandwidth and use it to transform the market.

OPEN ACCESS SAT3

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I woke up to the fluctuating sound of the power system, the generator of the hotel I was staying in had taken over from the national power grid which is loadshedding on an abitrary basis. This is Banjul, the capital of Gambia which recently hosted the African Union meeting. The day before i drove on a smooth road from the airport for about thirty minutes to my host’s office then to the hotel where i was booked to stay – a really nice place which is expanding.

I wondered for a longtime on my bed about the power problem contrary to the good road on which i drove, later i was told one of the major power units of the country had gone down hence the loadshedding which also made using of the mobile network almost impossible. My mind quickly shifted back to my challenge and the subject with which i went to bed, OPEN ACCESS and SAT3 what do they have in common or are they mutually exclusive. Same as the good road i drove on and the bad power experience, do they have anything in common or are they mutually exclusive.

Road and Power are necessary ingredients for development and they compliment each other and so i started to draw the same similitude and relationship between OPEN ACCESS and SAT3, from my bed to breakfast i carried my able assistant (the new Macbook Pro) and we outlined our thinking and considerations of the subject. Please enjoy.

Since publishing the Open Access EASSy paper @ blogs.law.harvard.edu/eric/2006/10/20/open-access-eassy (you must read it to understand this paper), I have being challenged on the viability of Open Access to SAT3 and questioned on the need to institute the same standrards for both cables though we all know that SAT3 is already established and EASSy is yet to be. In this thesis I make an attempt at upholding the same Open Access structure and principles of EASSy to SAT3 – this is possible because both cables lie in the same realm but the context of their execusion are different. This is ONLY possible because of the window of opportunity presented by the end of exclusivity by the historic operators on SAT3 in April 2007 so I also suggest a process approach.

For the records, SAT3 was established with an exclusivity period to recoup investment by the historic operators and this is due in April 2007 at which the SAT3 country governments can either entrench the exclusivity of the historic operators or consider other mechanisms such as what an proposing. SAT3 stands both as a pillar of hope and despair for the African continent; hope because it was the first cable and there is an opportunity for it to significantly change bandwidth prices based on it’s non-performance, despair because we may decide to keep things the way they are currently and continue with the incumbency and high bandwidth prices.

The reasons for the non-renewal of the exclusivity range from, the historic operators haven recouped their investment in the cable at high cost since the inception of the cable and yet made fiber bandwdith more expensive than satellite capacity. Secondly we know that the loan granted by the WorldBank to the historic operators for their contribution to the SAT3 cable was guaranteed by their respective governments hence the onus lies with the government after supporting the private interest of the historic operators to now consider the public interest of providing cheap and affordable bandwidth for socio-economic development.

If the SAT3 goverrnments and regulators collectively or individually decide to end the exclusivity in April 2007 then the question to me is, what steps should they take towards Open Accessing SAT3? I don’t hold monopoly on the steps and process because national and or regional relationships coupled with on the ground details must be taken into consideration but I would proceed to outline what I see as the larger framework of what is possible in terms of structure, principles and processes – same as for the EASSy cable. Hopefully other cables or subsequent ones would adopt or follow the same strucure, principles and process to have the desired impact.

For the records again, I applaud the work done by the Open Society Initiative for West Africa (OSIWA @ osiwa) and other institutions for not only holding two (2) workshops to discuss the SAT3 issues but bringing a community of engagement, culture of awareness of the issues at stake and channelling internal capacity within the various constituencies ie governments, regulators, private sector, educational institutions and Civil Society to understand whatever decisions they make regarding the cable. My effort in this paper is to compliment such efforts with an adoption that considers some elements and layout a general framework based on the several discussions and engagements.

Declaring SAT3 an “essential facility” would mean that it holds much in the public interest so must be treated with the public good as primary and other consideration as secondary. Private consideration would be first on the secondary ladder because that is important for the running of the public entity. Am not for once suggesting a move from an extreme private position to an extreme public consideration, but rather my suggestion is to use minimal public holding as a temporal measure to move from an exteme private interest to a balance between the private and public consideration. Open Access is about balance and consideration of the various interests.

The governments holding the essential facility in trust after declaring it so is only a temporary measure which must be seeded quickly to a multi-stakeholder institution which would work in the interest of the various constituency and ensure that there is a clear reflection of equity. Regulatory and public policy must recognise the establishment of the essenttial facility which in this case would be “infrastructure provider” – providing infrastructure for the other service providers wthin the value chain.

In some cases the regulatory and public policy environment must create the structural change from a vertical to a horizontal layering communication system and that enables the change process. Whatever the case may be, the first fundamental step is the re-alignment of the communication paradigm where there is a distinction between infrastructure and services. This means a move from the vertical to the horizontal communication system. The essential facility in this case, the SAT3 country segment would constitute the infrastructure provider which DOES NOT provide services on the value chain. Ghana, Nigeria, South Africa and Senegal has hinted that they are going to adopt this approach post April 2007. In the case of Ghana, the government has also contracted the Chinese to finalise the nationwide fiber network which was owned by the Volta River Authority called Voltacom. Voltacom would be merged with the SAT3 country segment to form an “infrastructure provider” which would provider international and national bandwidth infrastructure.

Owership of the infrastructure provider is the next consideration, enjoining a multi-stakeholder ownership model ensures that there is balance of power, money and interest. It is in the interest of the government to ensure that this happens so that they are not labeled as “corrupting” the entity. The mechanism is for the government through an initial private and or public offering to invite the private sector, educational institutions, civil society, investors, PTTs and the consumer to own a part of this entity through a transparent and neutral process. Enlisting the infrastructure provider on the stock exchange would ensure that it is subject to the dictates of that environment ensuring access and commonality on ownership.

SAT3 at this point would have adhered to Open Access in terms of the structural change below;

Within the structural framework, the cable would have differentiated “Infrastructure” from “Services” where Infrastructure is seen more in the “Ownership” realm whiles Service is seen in “Access to capacity”.
The most distinguishing feature of the Open Access approach is that, ownership of the infrastructure DOES NOT GUARANTEE any access (discriminatory or not) to capacity on the value chain for the provision of service to the market. The respective country capacity would be on the money here.

A set of principles would hold for the ownership of the cable and those principles would be different from those for access to capacity.

Infrastructure ownership principles for the SAT3 cable would include;
The ownership of the cable must be in a public private partnership involving Government, PTTs, ISPs, Educational Institutions, Civil Society and Consumers.
A fair distribution of these constituencies from the member countries in an equal sub-regional distribution leading up to the Board of Directors of the enterprise in case a regional approach is adopted like EASSy.
The same set of rules must be established to identifying the various shareholders from the various countries in the different constituencies, again this applies to regional.
For the purposes of this exercise a Special Purpose Vehicle (SPV) or a legal entity with an African wide structure and majority Africa ownership should be considered
The essential facility must have a public interest combined with a private sector approach in it’s business model in order to ensure cheap and affordable bandwidth to the end-user.

Value Chain access to capacity for service delivery principles are;
The essential facility must sell capacity to all entities who meet the legal and regulatory requirements in each country directly and non-discriminatorily.
Service Providers shall be offered Transport Infrastructure Layer access to different capacities depending on their requirements.
End Users shall be free to choose any local Service Provider connected to the National and or Regional Network.
The essential facility shall not compete with Service Providers (its customers) by offering services at the Service Layers directly to End Users.
All countries must create a regulatory structure that recognizes the essential facility.
The essential facility shall be formed, owned and operated in such a way as to facilitate competition and to foster innovation at the Services Layer, and where practical and commercially viable at all levels, with a view to maximizing usage of the network and benefits to the End Users.

Once these are in place the market structure would align such that the infrastructure cost which is almost always duplicated several times by service providers is consolidated. That reduces the barrier to uptake on the service side and makes the service providers focus on services and competition in the market place for innovation and customer service delivery at cheaper or affordable cost. Ultimately the customer benefits and the uptake of ICTs as a sector and cross sectorial enabler would be enhanced.

This sets out the framework for Open Access as it relates to the SAT3 cable but I must admit that this is not the ONLY approach in terms of process but structurally and principles wise, the above is not far from wrong. The devil as they say is always in the details, though.

NB: These principles and structure are drawn from the Open Access study conducted by Anders Comstedt, Eric Osiakwan and Russell Southwood for InfoDEV @ the WorldBank – www.infodev.org/en/Project.80.html

KENYA is RISING

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Am sitting in my hotel lobby after a long day of work in Joburg, trying to eat some dinner whiles i deal with e-mail backlog on my laptop…..:-)

A friend walks in as he had promised to deliver a copy of the latest edition of the Computer and Communication Africa (CCA) magazine published by AITEC and Multimedia Group online @ http://new.aitecafrica.com/node/11 – with hardcopy.

You must be proud of yourselves, Kenyan was my immediate post to the KICTANET list – i just got a copy of the last edition of CCA for 2006 and the lead story is “Kenya’s drive to become ICT powerhouse” and much more on Kenya.

While i have being familiar with the momentum there i was amazed when i read the stories about the pace of engagement. In some ways this confirms my believe that Africa has pockets of excellence but what we need is SPEED to SCALE and definately you guys are on a FASTRACK. We are with you and i want to personally congratulate the level of engagement from the various constituencies and not belittling the others by singling out the exemplary leadership of the PS, Dr. Ndemo and Hon. Minister, Mutahi Kagwe.

Thanks to AITEC for throwing the spotlight @ http://new.aitecafrica.com/ and not to promote AITEC but i think we should all get copies of the hardprint….:-)

Go Kenya.

The BPO Value Proposition for Africa

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Am on the Kenya ICT Action Network (KICTANET), a multi-stakeholder discuss list and Mr. Waudo asked “Thanks to PS Ndemo for bringing this out. As for Wafula’s question, the work force survey undertaken by the CSK earlier this year revealed that there is very little linkage between what the ICT training institutions (including Universities) are producing and the requirements of the industry either now or in the foreseeable future. Certainly there appear
to be no mechanisms to facilitate such linkage. Perhaps something could be done now before we find ourselves in India’s position?”. Below is my intervention;

We all know that one of the demons that has held back Africa’s rise is the DE-LINK between industry and academia (research) and also with governments. Prof. Ernest Wilson’s (of Maryland University) squad model makes the argument that you need a constant interaction between these constituencies for growth and innovation to take place. He argues that Silicon Valley is a clear example.

My proposition therefore as a way to answer the question above is to leverage the BPO opportunity. Most African governments are at least on board the BPO wagon so my idea is, lets establish the BPOs in the University environment given the current public policy favouring. The BPO companys can take advantage of cheap but good student labour whiles they build the real estate for their operations using university land on a “build operate and handover basis”.

The Universities then get real estate which they use for their long term expansion of physical infrastructure. The BPO companies get their work done cheaply and when they migrate in the long term, much value would have being gained. The University students get work experience for the long term job market entry and also interim cash to support their University education. This also gives the non-computer related students some basic skills and exposure and for the CS, EE etc students, they build their internal capacity not only to take calls and do word processing but more technical stuff. They would soon be writing software for those BPO companies. Mostly importantly this becomes the nucleus of the government/academia/private sector LINKINING which would grow into other areas.

Hence the value proposition of the BPO banwagon is, it gives us a foot into the door but we must move up the value chain very quickly or we would end up doing the low end jobs which would make us less competitive in the Knowledge economy.

When I proposed this to my Ghana Cyber Group friend (Yaw Owusu, leading the way with a private TechPark in Ghana) whom i have cced on this mail, he said, then the Tech Parks (BPOs + more) should be in the University/Research Environment and his example of been able to acquire land from the Ghana CSIR which is close to the University of Ghana would be a good prototype.

This is the story am going to be telling at the the first University Leaders Forum in Cape Town to which governments, academic leadership, private sector and Civil Society has being convened.

OPEN ACCESS EASSy

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In late 2004, I was admitted to the Digital Vision Program @ Stanford University and around the same time invited by the WorldBank through its Information for Development Programme (infoDev @ www.infodev.org) to join other colleagues to conduct a study “Leveraging New Technologies and Open Access Models: Options for Improving Backbone Access in Developing Countries (with a Focus on Sub-Saharan Africa)” . The study was done under the auspices of Spintrack AB @ http://www.infodev.org/en/Document.10.as….

Recent experiences in a number of countries with “open access” models for the financing and ownership of backbone telecommunications infrastructure offer interesting insights into how new technologies, including the migration to Internet Protocol (IP) based networks, make possible new technical and business models for financing this infrastructure buildout. Africa can learn from these experiences and adapt. In this paper, I look at Open Access in relation to the East African Submarine System, known by the acronymn EASSy (see http:// www.eassy.org). In the wake of the fallout in moving this project forward, I build grounds for commonality, charting the path for re-engagement by the various constituencies.

Open Access in the context of communication (Open Communication) means that anyone, on equal conditions with a transparent relation between cost and pricing, can get access to and share communication resources on one level to provide value added services on another level in a layered communication system architecture.

The concept of Open Access to communication resources is central in the ongoing transformation of the communication market from a “vertically integrated” market with a few operators owning and operating everything between the physical medium and the end-user, to an “open horizontal market” with an abundance of actors operating on different levels and providing value added services on top of each other. Put plainly, anyone can connect to anyone in a technology-neutral framework that encourages innovative, low-cost delivery to users. It encourages market entry from smaller, local companies and seeks to ensure that no one entity can take a position of dominant market power. It requires transparency to ensure fair-trading within and between the layers based on clear, comparative information on market prices and services. It seeks to build on the characteristics of the IP network to allow devolved local solutions rather than centralized ones.

Open Access is also about broad approach to policy and regulatory issues that starts from the question: what do we want to bring about outside of purely industry sector concerns? It places an emphasis on: empowering citizens; encouraging local innovation; spurring economic growth and investment; and getting the best from public and private sector contributions. It is not simply about making micro-adjustments to the technical rules of the policy and regulatory framework but seeking to produce fundamental changes in the outcomes that can be delivered through it.

The study published in August 2005, came at an opportune time, in that it helped to inform and shape the international debate and planning for the EASSy project now in the final planning stages. infoDev then provided follow-up support for this dialogue and planning process both by supporting the coordinating role of the NEPAD e-Africa Commission relative to the EASSy project, and by supporting dialogue and joint planning among civil society groups, and other key stakeholders, seeking to promote open access approaches within Africa.

This ensured acceptance of open access by the government, incumbent PTTs, Operators, ISPs, educational institutions, private investors and more generally by civil society. However at the signing of the EASSy protocol, which is the political framework for the build-out, there has been a division among the various constituencies on how Open Access is enshrined in the protocol.

EASSy in adhering to Open Access must align with the structure and principles below;

Within the structural framework, the cable must differentiate “Infrastructure” from “Services” where Infrastructure is seen more in the “Ownership” realm whiles Service is seen in “Access to capacity”.
A set of principle would hold for the ownership of the cable and those principles would be different from those for access to capacity.

The most distinguishing feature of the Open Access approach is that, ownership of the infrastructure DOES NOT GUARANTEE any access (discriminatory or not) to capacity on the value chain for the provision of service to the market.

Infrastructure ownership principles for the cable include;
The ownership of the EASSy cable must be in a public private partnership involving Governments, PTTs, ISPs, Educational Institutions, Civil Society and Consumers.
A fair distribution of these constituencies from the member countries in an equal sub-regional distribution leading up to the Board of Directors of the enterprise.
One set of rules must be established to identify the various shareholders from the various countries in the different constituencies
For the purposes of this exercise a Special Purpose Vehicle (SPV) must be a legal entity with an African wide structure, which must must be majority African owned in order to trade in the various countries.
The SPV must have a public interest combined with a private sector approach in it’s business model in order to ensure a “regulated return on investment” to ensure cheap and affordable bandwidth to the end-user.

Value Chain access to capacity for Service delivery principles for the cable are;
The SPV must sell capacity to all entities who meet the legal and regulatory requirements in each country directly and without discrimination.
Service Providers shall be offered Transport Infrastructure Layer access to different capacities depending on their requirements.
End Users shall be free to choose any local Service Provider connected to the Regional Network.
The SPV shall not compete with Service Providers (its customers) by offering services at the Services Layer directly to End Users.
All countries must create a regulatory structure that recognizes the SPV.
The SPV shall be formed, owned and operated in such a way as to facilitate competition and to foster innovation at the Services Layer, and where practical and commercially viable at all levels, with a view to maximizing usage of the network and benefits to the End Users.

This sets out a framework for Open Access as it applies to the EASSy cable. .

NB: These principles are drawn from the Open Access study conducted by Anders Comstedt, Eric Osiakwan and Russell Southwood for InfoDEV @ the WorldBank – http://www.infodev.org/en/Project.80.htm…

Avoiding an EASSy debt for Africa

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On the 29th of August 2006, seven (7) Southern and Eastern African countries signed the Inter-Governmental Protocol of the Inter-Government Authority (IGA) of the East and Southern African Submarine System (EASSy) which is the governmental framework through the New Partnership for Africa’s Development (NEPAD) within which the cable is going to be owned, built and operated.

The protocol, which is the outcome of an African led consultative process, mandates that the EASSy cable has an African majority ownership. The current proposal for the cable is a combination of debt and equity financing of 70% against 30% for the total cost of three hundred million dollars ($300,000,000). The question must be asked why do we want to saddle Africa with another debt if the business proposition of the cable is viable?

The NEPAD E-Africa Commission, which is facilitating this process with the government’s mandate to have an African majority ownership of the cable based on an Open Access structure, must consider my proposal not to accrue debt for this project because much of the money can be raised through equity and stocks on the continent.

The EASSy Special Purpose Vehicle (SPV) must be owned in a public private partnership with the participation of governments, private sector, educational institutions, network operators, civil society and the consumer.

The EASSy SPV should be listed on the various country stock exchanges so that it works within the stock exchange discipline, which allows it stocks to be traded without burdening the company to make huge profits to pay it shareholders. This approach meets the current “regulated return on investment” clause in the protocol in that the company would not be bent on paying it’s investors huge profits so would price capacity at cost however the investors can trade their stocks in the company on the stock exchanges to make profit based on the performance of the company.

Governments and public institutions must be able to invest public funds, pension funds etc into the EASSy SPV. The stock market would serve as a platform to trade these shares later or an exist strategy to recoup the investment.

For the “indigenous” private enterprises the proposal is to lower the financial uptake for equity from the current one ($1,000,000) to two ($2,000,000) million dollars to between hundreds of thousand of dollars and one million dollars ($1,000,000). This must include not only Eastern and Southern Africa private enterprise.
Educational institutions who consume a lot bandwidth must also be allowed to invest like the UbuntuNet Alliance which has about three million dollars ($3,000,000) for the purposes of participation in the EASSy SPV.

Civil Society and Consumers must be allow to purchase shares or bonds of the EASSy cable on the stock market – hence my proposal is for the various governments to guarantee the Initial Public Offering (IPO) of the EASSy SPV on the various country stock exchanges.

The trading of stocks of the EASSy SPV on the exchanges would seek to rapidly expand the participation of the African people and create the African ownership, which is the flagship of NEPAD.

The process would also generate long-term activities on the exchanges and create a trading post for a critical regional infrastructure company, which would ensure effective and efficient management of the enterprise.

This would also have an impact on the stock markets in that trading of an “unusual” entity would create innovation, ensure that our financial sector is able to re-engineer to scale with development interest – that private interest is at par with development goals to create a win-win situation.

The stock market serves as the platform for trading the stocks of the EASSy SPV so that should the company be doing well then the investors can make money by trading their shares; otherwise the stock market is a good exit strategy for those who want to dispose off their shares if the company does do well in their opinion.

Why should we saddle Africa with an EASSy debt when the viability of the project can guarantee raising equity for it implementation ensuring that an African led process, is African financed without debt?

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