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from African Business Source Expert
Alex Twinomugisha

Why Are African Internet Access Prices Still High?

africa fibre optic cablesIt’s been about 12 months since Africa was the only continent without submarine fiber telecommunication links to the rest of the world on all of its coasts.  The east coast did not have any fiber links while the west coast had only one fiber link, the (in)famous SAT3 cable.  There were a couple of fiber links in North Africa. Go back 3 to 5 years and even fiber inside African countries outside a few countries in Southern and North Africa was scarce. The only connection to the outside world for many African countries was satellite.

 Pretty much anyone who used the Internet regularly knew that reliance on satellite connectivity was the cause of high prices for internet access and telephony for countries relying either exclusively or mainly on satellite connectivity. On average, accessing the Internet cost Africans 50-100 times more than what it cost consumers in Europe, Asia and North America. What wasn’t as widely known was that local (in-country) connectivity was as expensive if not more expensive than international connectivity over satellite in most countries. If you have tried renting a “leased line” or dedicated circuit in-country in Africa then you know that the prices were astronomical and dependent on distance from the capital city. The intra-country connectivity is important because connecting to the internet or making international phone calls involves three important network elements: the connection from the user to the local service provider’s node or office (the “local loop” or “last mile”), the national or regional high speed backbone that aggregates traffic from all the providers and users and the international link which connects to the outside world.

The situation has changed quite dramatically in the last one to three years. First off, the east coast of Africa now boasts three, yes three cables (Seacom, EASSY and TEAMS) in just 12 months! The West African coast that has long had the SAT3 cable, infamous for its sky high prices, now has another four cables in the process of being laid or activated (MainOne, GLO1, ACE and WACS). Most of these new cables will be active in 2011. The excitement in East Africa with the landing of these fiber cables a few months ago was incredible. Telecom companies involved in the fiber roll out were promising “affordable” high speed bandwidth with prices pegged to drop by 90%. The East African operators, governments and the international development funding agencies vowed that the new cables would not go the way of the monopolistic SAT3 cable with its super expensive prices. Optimism was high, the Promised Land had arrived. Local telecommunication companies and governments have been investing heavily in in-country fiber network backbones; the latter with soft Chinese money. Most African countries now boast of a fiber backbone network or one on the way in a year or so. Despite all the initial excitement that greeted the landing or announcement of new cables and backbone networks in Africa, disappointment is setting in. Prices for Internet access have gone down by a factor of 2 rather than 10 as expected. Indeed prices are still high in most of Africa outside a few North Africa countries and others like Senegal. South Africa is a most puzzling case where prices are still higher than even East Africa with its new found fiber. 

So with most African countries now boasting of fiber in the backbone and fiber available on all the African coasts, why are prices still high? Why do countries like South Africa and Namibia with world class intra-country fiber networks and good external connectivity (at least for South Africa) still have some of the highest connectivity costs in Africa? Why has all the fanfare and promises of low connectivity costs in East Africa not materialized with two fiber cables already operational and a third on the way?

The main reason advanced by most operators is that fiber investment costs are very high and prices have to be high in order to recoup their investments. This is the reason given by East African operators in places like Kenya and the SAT3 operators in West Africa. Others point to a high demand-low supply as the cause.  In other places, like South Africa and Namibia, prices are high simply because of a monopoly or duopoly. Further examination reveals at least two other reasons for these high prices: the largest fiber owners in-country, have until recently, not been allowed to sell or provide services and most importantly, African service providers are still beset with archaic business models and anti-customer mindset! Let’s examine these two factors in some detail.

As we saw above, intra-country connectivity costs are high and contribute to the overall high cost of Internet access. With fiber now available in-country in many countries, one should expect that prices would come down. The problem is that those with the largest amount of fiber are not allowed to sell or offer services! You may not know but the largest fiber base in most African countries is held by the electricity companies and in some cases by oil and gas pipeline companies or rail and train operators. These companies need and laid fiber for monitoring and control of their networks. Until very recently, these electricity companies (dubbed “alternative infrastructure providers”) were not allowed to sell, lease or operate services on their existing fiber in many countries by the telecommunications regulators. The situation is changing, rapidly in some cases, with electricity companies in Uganda, Kenya, Zambia and other countries now allowed to sell their existing fiber capacity mainly to telecommunications companies. The second National Operator in South Africa benefited from purchasing and acquiring fiber from these alternative infrastructure operators. As this fairly large fiber capacity has been brought into play, intra-country capacity has been greatly boosted and prices have come down. African governments and regulators need to keep up with this deregulation trend and allow all the existing fiber in the hands of non-telecommunication entities to be made available for telecommunications services. Aside from making more capacity available, this new fiber also increases competition thus further lowering prices.

The second factor which I consider to be even more important is what I refer to as an archaic business model and business mindset. Telecommunication companies such as Internet Service Providers (ISPs) in Africa overwhelmingly rely on a small base of customers that they charge high prices. These customers (banks, large companies, multi-nationals, -collectively dubbed the “corporates,” large educational institutions, government agencies, development agencies and NGOs and a tiny number of high net worth individuals) need connectivity and are willing to pay these high prices.  This mindset still pervades the ISPs and thats why prices are still high as they “need to recoup their investments” from a small customer base. But this business model is flawed: there are millions of individual customers and small business that also need connectivity but cannot afford to pay the current high prices. The success of mobile phone companies has taught us (and any ISP that is awake) that communication services are not the preserve of the rich and powerful. Unfortunately, the typical African ISP is unable to shift to a “large customer base, low margins” business model: drop the prices and attract a lot more customers. This is the main cause of recurring high prices. Fortunately for the consumer, the mobile phone companies with their understanding and masterly of the large-customer-base-low-margins business are getting into the act. These mobile phone companies understand that there is a killing to be made in providing data and internet services. They are investing in fiber networks, purchasing most of the available capacity from alternative infrastructure providers like electricity companies and they have a tried and test last mile solution. By overlaying their 3G networks with fiber networks, they are capable of providing decent connectivity services at an affordable price. The traditional ISPs and telecommunication companies in Africa are in for a rude shock if they stick to their existing business models. I would dare say that they will soon be extinct. And that’s a good thing too for they surely deserve what is coming to them! And we the customers can take solace from the fact that we have cheaper internet connectivity coming to us soon. Now African governments and regulators only have to ensure that the mobile phone companies do not become new monopolies and forget the lessons learned on their meteoritic rise.

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Alex Twinomugisha

Alex has extensive experience in ICT for Education and Development in the areas of planning, design, implementation and management. He is currently the Africa Regional Director for GsECI based in Nairobi, Kenya. Prior to his work with GeSCI he was a technical consultant to the World Bank in Washington DC for the African Virtual University (AVU) project responsible for setting up and managing the online and satellite infrastructure for eLearning involving 34 learning centers in over 15 African countries. He has undertaken other special assignments providing technical assistance and advice in the acquisition, deployment and use of ICTs in Education for various international organizations.

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  • 7 Responses to “Why Are African Internet Access Prices Still High?”
  • zulusafari says:

    A few things to point out.

    First, of the first undersea cable laid in E Africa (SEACOM), not even 10% of it’s available bandwidth has been purchased (much less utilized). So whoever used the excuse of ‘not enough supply’ is either ignorant or lying. Neither would surprise me.

    And that 10% is just the ‘oldest’ cable. I’m sure the other newer cables are much less than that, though their capacity is much lower than SEACOM’s. So their potential capacity is not as high.

    Second, to your point about mobile operators getting in the game. It’s great that they ‘get it’. The problem is that they are not increasing their bandwidth. As they have an ever increasing install base for their data usage, they are now being overwhelmed and speeds are starting to significantly slow down. This trend will continue if they don’t fix their business models (random, short-term promos that flood their system and crash an otherwise well running operation) and buy more bandwidth. Plenty is available.

    At least land line operators state a max share ratio (even though that might not be actually used) whereas with mobile operators you could be sharing your connection with an exponentially growing base, all while charging the same price.

  • Rampage says:

    As you point out, high financing costs are the most cited reasons for the exorbitant. many ISP’s speak of achieving critical mass and ecomomies of scale, however to recover costs from a small subset of the entire population is not the best route I believe.

    Also, I’m sure elasticity of demand has been considered when making pricing decisions, but I still find it difficult to understand how they can justify such astronomical fees.

    Finally, I’ve been told on several occasions that “our rates are competitive compared to the market”. Yes on a local scene, the prices might be competitive (oligopoly?), but this is a global industry and it is no where near competitive – how so can enterprises compete on a global scale?

  • Smanga says:

    Zimbabwe is a country coming from a deep economic backslide but even though, we start seeing the early benefits of data connectivity on mobile phones. However, the charges for this service is out of this world to say the least. In our case, this is a direct reason of a strong monopoly and lack of competition for Econet, the telecommunications company offering this service. Again the telecommunications giant blames the high cost on the need to break even from the high initial investment they made into this. Solution: government should allow more players to offer similar services and also invest in fibre. The country has strict laws that discourage investment and this must be quickly addressed. Econet has also seriously invested in fibre and other players (broadlands and telecel) are knocking on government’s door for the greenlight to invest in fibre. Clearly, government should allow for competition to help improve quality and prices.

  • Justin Ekpa says:

    Alex, thanks for an insightful and very illuminating piece. I couldn’t agree more with you on all the points you made in your analysis.
    The issue of archaic business models should be a source of concern to us all now I know it is not limited to my country Nigeria.
    From what I see here, most of service providers that should have expanded their businesses remarkably have found themselves folding up because they tended to neglect the small consumers who require small amount of internet bandwidth in the comfort of their homes but for a small and affordable price. This could translate into so much when you consider the demand and the population of those in this group. A few providers are realizing their mistakes too late and are now grappling with the telephone companies who have almost cornered all the market by promoting and making it part of their products. Despite this, the unit price is still high because the telecom companies have sort of gained monopoly and formed a cartel. It is a sad development.
    Funny enough, the government agencies are among the biggest patrons to the operators of the archaic business model. Public officers still see internet as a luxury and use public funds to subscribe for bandwidth that ends up unutilized because right in their offices, it is wired only to their tables for their exclusive use(family, friends and concubines alike) while the entire organization and perhaps other departments that need it most to perform the organizations business are starved of it. What a shame Africa.

  • [...] wise, Africa has come some way but still has a long way to go. Though the cost of broadband has come down significantly ove the past few years, the costs are [...]

  • Pedantic Fool says:

    SAT-3 was *NOT* the only cable. You’ve totally forgotten about SAT-2, which is still active.
    SAFE.

    I didn’t read past the first paragraph – finding such obvious errors in what was expected to be an investigative piece was enough to convince me that the writer hadn’t done their necessary background research. This is why African writers have bad reputations

  • Generally I do not learn article on blogs, but I
    wish to say that this write-up very compelled me to check
    out and do so! Your writing taste has been amazed me. Thank you, quite great article.

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