NOT SO EASSY
Telkom has exclusive access in SA to the fibre-optic submarine cable system that connects Africa with Europe (Sat-3/Wasc) and Asia (Safe). This 27 450 km contiguous system, which runs from Portugal, along the western side of Africa, around SA, and on to Malaysia, carries the bulk of SA’s international telephone and Internet traffic. But Internet service providers (ISPs) have long complained that the prices Telkom charges them for access to the system are excessive and that more competition is needed. They say this is contributing significantly to the high cost of accessing the Internet in SA.
Telkom, with a 13% stake, is the largest of 36 shareholders in Sat-3/Wasc/Safe. It invested US$85m of the $650m project cost.
The fixed-line operator announced last week that it would cut the price of leasing telecom circuits on the cable by 28% on September 1. This follows two similarly steep reductions in the past 18 months. But ISPs say this still does not go nearly far enough.
Government is under pressure to act, and earlier this year hinted it might ask Telkom’s regulator, the Independent Communications Authority of SA (Icasa), to declare the cable system an essential service, paving the way for ISPs to have access to it at much cheaper rates. This is a move strongly opposed by Telkom, which has warned that it would have consequences .
"It would be an unfortunate precedent to nationalise the cable landings as it would discourage Telkom, or any other investor for that matter, from further investments in projects of this nature, with obvious serious implications for the SA market," says Telkom spokesman Xolisa Vapi.
Proponents of the idea argue that when Telkom initially invested in the cable system, Telkom was owned by the state and the investment was therefore subsidised by taxpayers. Those against the idea argue that Telkom is a semi privatised company whose shareholders invested in it on the assumption that the cable was its asset and that it could determine the prices it charged other companies to lease capacity on it.
Government, therefore, is in a bind. ISPs want it to declare the cable an essential service but, if it does so, it could scare off the private capital needed to build new systems. Who’d stump up the cash if there was a chance government might insist that prices were regulated?
Those hoping the second network operator (SNO) will come to the rescue will be disappointed. Even though India’s VSNL, which is a shareholder in the SNO, is a consortium member of Sat-3/Wasc/Safe, it is prohibited by the members’ agreement from building a landing point in SA.
The SNO also can’t access Telkom’s landing points – one at Melkbosstrand near Cape Town, another at Mtunzini in KwaZulu Natal . It is understood, however, that Telkom’s exclusive access to these sites will expire in 2007, which could put downward pressure on prices.
All Telkom’s Vapi will say when asked about the potential impact of the loss of exclusivity is that the terms and conditions of the cable system’s construction and maintenance agreement are confidential and that Telkom does not have the right to disclose its content.
But there is another project that could help reduce bandwidth prices: the 9 900 km East Africa Submarine System (Eassy). This cable system, which will cost about $200m to deploy, is due to come online in mid-2007. A detailed tender will be issued to suppliers next month and construction should start in the first quarter of next year.
Eassy will be the first submarine telecom cable to run along the east coast of Africa. Until now, countries such as Kenya, Uganda and Tanzania have had to rely on expensive satellite connections. (Sudan is the exception – it laid a cable under the Red Sea to Jedda in Saudi Arabia, where it connects to a cable system called Sea-Me-We 3.)
Unlike Sat-3/Wasc/Safe, whose only SA investor is Telkom, Eassy has several potential SA participants, which should help spur price competition on the new route. They are Telkom, MTN, Vodacom and Sentech. Eskom and Transtel, which together own 30% of the SNO, are also involved. Of these six companies, however, only Sentech and Telkom are licensed to carry international telecom traffic.
One of the reasons MTN is keen to invest in Eassy is the high prices it has been subjected to in Nigeria and Cameroon, where it operates GSM networks. In those markets, it is forced to lease access to Sat-3/Wasc/Safe from the incumbent fixed-line operators. "The costs are prohibitive and in many instances higher than those for corresponding circuits on satellite," says Yvonne Muthien, MTN’s group executive for corporate affairs.
The World Bank and its sister organisation, the International Finance Corp (IFC), which provide development finance to emerging markets, are likely to help fund some East African countries and operators that are keen to invest in Eassy. However, the organisations say they are keen that the mistakes made with Sat-3/Wasc/Safe are not repeated.
David Donaldson, manager of advisory services at the IFC, says some monopoly fixed-line operators in West Africa have priced access to Sat-3/Wasc/Safe so high that they have inadvertently created alternative satellite industries. He says the development finance community wants to use its leverage to ensure access to Eassy is as affordable as possible for non participants, while being mindful of not destroying the investment case.
Landlocked countries are also keen for a more liberal arrangement. BTC, Botswana’s fixed-line operator, is forced to purchase international bandwidth from SA. But, fed up with high prices, it is believed to be planning to build backhaul links to Maputo, from where it will connect to Eassy. BTC is an active participant in the Eassy project.
Namibia is similarly upset about SA’s high prices. When Sat-3/Wasc/Safe was being built, Telecom Namibia declined to stump up the cash necessary to build a landing point along its coastline, preferring instead to acquire connectivity from Telkom. But because of the high fees Telkom expected Telecom Namibia to cough up, it declined to take up the service and instead invested money in satellite communications capacity.
Namibia is now investigating the feasibility of laying a fibre-optic cable to Luanda, Angola, where a landing point is located.
© Financial Mail
Reproduced with the permission of the Financial Mail
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