New subsea cables to drive down prices - TechCentral

New subsea cables to drive down prices

africa-640

Not a week goes by without a new round of 4G/LTE roll-out announcements. This week it was Glo expanding its reach in Nigeria and Zantel providing mainland coverage in Tanzania. The supply side for increased bandwidth use is increasingly encompassing the main urban areas in Africa. In future, it is likely to follow the pattern of 3G coverage roll-out: what starts in the cities ends up on the roads and in smaller towns. And 5G’s yet to come…

That’s on the supply side, but the demand side is a little harder to read. Two weeks ago, Ben Roberts, CEO of Liquid Telecom Kenya, said: “People are more reliant on data services.” In the same week, Nate Anderson, GM for East Africa at Uber, said that in 12 months it has got 100 000 active users. The speed of take-up would have been unthinkable three years go.

As ever, African markets differ considerably and Kenya is in the vanguard, but the line of travel is very clear. However, there are still issues around pricing. In some markets, 3G is being priced the same as 4G. In others, 4G is still commanding a premium. But even with low pricing, affordability remains a key issue. Many customers are rationing themselves because they don’t want to break the barrier of their data allocation: in other words, they live in fear of using data, a very strange position for any company selling it.

Operators themselves are now buying STM16s and not STM4s or STM1s. The step-up in bandwidth from 4G and greater 3G use is very visible at the wholesale level.

These changes are driving optimism about building new international fibre cables. In May, news emerged of the two projects proposed for the east coast of Africa: Africa-1 (which has attracted major players like PCCW, MTN and Telkom) and a Liquid Telecom-led project.

This week, more details emerged of two international fibre cables on the west coast of Africa. The first of these new cables will be Monet, which will go live by mid-2017. It will run from Fortaleza and Santos in Brazil to Miami and has as consortium members Angola Cables, Algar Telecoms, Antel and Google. It has a design capacity of 60Tbit/s.

The connecting cable to Monet is the South Atlantic Cable System (Sacs), which is 100% owned by Angola Cables, the wholesale operator in Angola, and is not due to go into service until mid-2018. This was originally what seemed like an act of market hubris by the Angolan government backed by oil revenues.

But with the fall in oil prices, the government has had to seek additional funding from the Japan Bank for International Cooperation and Sumitomo Mitsui Banking Corporation with the support of Nippon Export and Investment Insurance through the Banco de Desenvolvimento de Angola for the US$130m project. The cable contractor is NEC. The link will connect Luanda with Fortaleza in Brazil and then onwards on Monet to Miami. The system has a design capacity of 40Tbit/s and the contractor is TESubCom.

submarine-cable-640

Angola is pitching itself as the telecoms hub for surrounding countries on the west coast, but it remains to be seen whether what was one of Africa’s high-price monopoly wholesale markets can take on the required low-price commodity market instincts to make this idea a success. Angola Cables was set up to separate out from the bureaucratic, slow-moving and not wholly efficient processes of incumbent Angola Telecom, so only time will tell whether it can make a success of this opportunity.

It goes without saying that three new international cables arriving on the continent will have an impact on prices. Wholesale prices in South Africa have already fallen to $5 per megabit per second at the STM16-64 level and it is safe to say that in places where markets operate freely, prices will quickly go sub-$50 and lower per megabit per second. These lower prices are exerting a downward effect even in countries where there are monopolies: no one wants to be left out when lower prices mean more people will use the bandwidth.

The inevitable fact is that wholesale bandwidth in Africa is a commodity and to make a business of a commodity you need high volumes at low prices. However, at this point, the mobile operators have not yet quite figured out how to make this work. Wholesale bandwidth sellers are very conscious of this shift but at present are like backseat drivers: you can shout at the driver in front but you don’t have the wheel. However, this is another of those shifts in the data market that will begin to completely reshape the business model.

Comments are closed.

© 2009 – 2019 NewsCentral Media