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EASSY consortium reaches crunch point for choices about pricing, access and governance – interview with project co-ordinator, John Sihra
The East African fibre project EASSy is reaching a crunch point for key decisions about pricing, access, equity and governance. Ministers from African Governments will meet in March to signal their approval of work done so far on these issues. The project has been offered a package of World Bank funding in exchange for adopting Open Access principles in contrast to the closed access SAT3 fibre cable (see Telecom News below). However, EASSy appears to have chosen to reject this financing but has accepted the need to respond to the Open Access arguments in some form.
So what is open access? It is not some fixed dogma but starts from the basis of asking the question: how can we get sufficient competition at all levels so that we can ensure low prices whilst at the same time making sure that there are sufficient investors willing to take the risk?
International fibre bandwidth is expensive to build and its life is time-limited, usually to 25 years. Therefore it makes practical commercial sense to organise it in such a way that the maximum use is made of whatever capacity can be provided over as longer period as possible. In order to achieve this, those building the fibre need to adopt two approaches simultaneously:
1. Taking into account the need to operate and maintain the cable, the pricing of the international fibre capacity must be as low as possible in the initial period, with the pay-back being spread over the full 25 year life of the cable.
2. The investors in the cable need to take the view that the existence of the lowest possible commercial international fibre prices will allow them to make their money from their core businesses – fixed or mobile telephony and national infrastructure – or from other businesses building services and applications that make use of their networks. In other words, the cable exists to help everyone make profits at a country level, not to be highly profitable in itself.
Having adopted this approach, those involved need to ensure the following occurs:
Users (like private companies, Governments, or CSOs) can get more or less equal access to the international fibre capacity in their respective countries. Unlike with SAT3, the investors should not be in a position where they are effectively holding a monopoly, or hoarding capacity, or assigning themselves an exceptional price advantage.
Because the underlying assumption is that everyone is using the international fibre to make money through their other activities, it is essential that the basis of the pricing of the capacity is completely transparent. Since no-one is in the business of gaining a commercial advantage in selling the international bandwidth, there is no reason why the financial basis for the capacity offered cannot be open to transparent scrutiny: both investors and users should expect nothing less.
There should be no artificial barriers to investing in the international fibre project and it should be possible for an investor to sell on its share to another investor subject only to an agreed procedure. At present, EASSy is demanding that potential investors have an international gateway licence. As it must know, access to these have been severely limited in many countries to protect the incumbent telco. In two years time, there will be considerably more international licence holders but they will have missed the opportunity to invest in the EASSy project because of this artificial barrier. In South Africa, the Government is talking of issuing international licences to ensure MTN and Vodacom can invest. Will other countries make the same commitment to other potential investors?
EASSy is saying that there has to be a limit to the number of investors. This is not something that would be understood by any sector seeking investment in a company. But this attitude has left a number of potential investors on the sidelines. Although it would probably deny it, EASSy appears to have prioritised getting traditional telco investors, precisely the kind of companies that are unwilling to cede their protected privileges to newcomers. Only 5 of the 27 Consortium members announced at the end of January 2006 were private companies. A number of organisations interested in investing have failed to receive even the good grace of a reply. However recently, it has become a little more responsive to requests, conscious perhaps of the public spotlight on the issue.
In order for landlocked countries or countries without landing stations to get access to the EASSy fibre, there has to be clear agreements in place that allow companies in these countries to connect to the fibre on the same basis as those with coastal landing stations. There cannot be “gatekeepers” in the system who keep prices artificially high as there currently is with SAT3. Furthermore, each country needs at least two competitive providers of both inter-regional and international capacity or the alternative is the rather unpalatable prospect of price control.
There are siren voices that are saying that the EASSy project needs to be built as quickly as possible and that tackling these issues is too time-consuming and complicated. Unfortunately Africa has only once chance to get it right and if it gets it wrong it will live with the consequences for the next 25 years.
Below we talk to John Sihra, Project Co-ordinator, EASSy about how it is seeking to respond to these Open Access issues. Has it done so adequately? You must be the judge…..
Q: How did the Consortium come into being?
The role came into being when the project was first mooted. The original group involved were saying ‘Let’s see if the project is going to be a viable.’ They carried out a preliminary study with a small team and the outcome of the study was positive. At that point an MOU was signed by the small number of existing interested parties and some more who wanted to join.
Q: How is the Consortium currently organised?
There is a Project Management Committee on which sit all of the CEOs of the members of the project. There are three working sub groups:
Technical and Commercial: It looks at all the technical aspects of the project including things like landing stations, the optimum route and the best technologies to use.
Finance and Commercial: Its role is to look at how to fund the project and its governance.
Backhaul: It looks at the terrestrial connectivity and the planning of inland routes.
Construction and maintenance: Once tenders have been agreed, we go into the construction phase. Therefore this working group identifies suppliers and evaluates tenders.
Q: Has the final routing been fixed?
The basic configuration is fixed. We would have liked to have had Eritrea on board but they could not get ready within the timetable. We’re putting a branching unit on the route so that it can join in the future.
We’ve also recently been joined by Mayotte and Comoros. It was their last opportunity to get connected to the rest of the world in this way. Also Mauritius Telecom has joined the project as a member for increased capacity and diversity of supply. We were hoping that the Seychelles would come on board. The work would have cost US$40-50 million but it’s not looking likely that it’ll do so.
Q: What’s happening with the tendering for the construction contract?
We have invited four companies and had responses from all of them.
Q: Are they within your US$200 million project budget expectation?
They are slightly more but we will go into negotiations with one or two of them.
Q: How is the financing looking?
It’s looking good. We had a data-gathering meeting in Cape Town late last year and the commitments exceeded our expectations. We believe that we will be able to raise the necessary funding by ourselves.
Q: Are their members of the Consortium who will require World Bank funding in order to come up with their financial contribution?
Some have been approached by the World Bank, including Zambia, Malawi and Burundi as a result of lobbying by NEPAD. Most of the members are funding the equity themselves.
Q: How does somebody get selected to become a member of the Consortium?
It’s open to any service provider with an international gateway licence. For example Satcom in Tanzania and KDN in Kenya.
Q: But isn’t the requirement for an international gateway licence a barrier. The Kenyan regulator may announce a series of international gateway licences after the financing round closes in April. In two years time, there will be a considerably larger number of international gateway licences. Aren’t these companies going to be excluded?
It doesn’t exclude anybody. The MOU stage is open. Up until the time it closes, anyone is free to join the project. Anybody who has a need to join is welcome. But we cannot keep extending the MOU parties as it would be extremely difficult to manage. We already have a total of 33 companies. We only need one person to disagree and there’s nothing we can do about it.
Q: So how is the decision-making structured?
The Construction and Maintenance agreement allows for some decisions to be taken by a smaller group. There are several levels of voting, including majority decisions.
Q: So there are several different tiers of voting?
I wouldn’t say tiers of voting. Larger investors have more say in the running of the company. If you put in more, you get more say. Some decisions can be made with 40% of the members and some with 60%. It would need 60% to approve an upgrade.
