broadband penetration in africa · penetration in africa since 2000 are already widely accepted...
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IN AFRICA PENETRATIONBROADBAND
Second Quarter, 2011
BROADBANDPENETRATIONIN AFRICA THE TERRESTRIAL CHALLENGE
Saharan African telecoms operators and investors have
witnessed phenomenal market gains and returns in a
continent once considered unsuitable for large scale private
investment. With penetration levels now greater than 41.4%,
the scope for continued rapid growth is arguably less
remarkable, but the scale of the opportunity remains
significant, given that the next lowest regional penetration
rates in the world are 67.8% in the Asia and Pacific region.
Going forward, as we transit into the next phase of the African Dear All,
telecoms growth trajectory, the consensus appears to be that
data and internet penetration (still at year 2000 levels
hen the history of African investment during the compared to mobile) will be the next major area of
first decade of the 21st century is written, no opportunity. While it is expected that mobile voice services will Wchapter is likely to be more fascinating than the for quite a while continue to be the major source of income
emergence of telecoms as a major force for economic for operators, there appears no doubt that data content
development and financial return on the continent. Indeed, transmission is one of few areas where the kind of growth
with the benefit of hindsight, the entirety of the African witnessed over the last ten years can be replicated in the next
investment opportunity may come to be remembered ten. To achieve this, the mechanism for wider transmission of
chronologically as the story Before Telecoms, and After large packets of information, internet connectivity, and wider
Telecoms. I am therefore pleased to be able to focus on the availability of bandwidth within and across countries most
future of the critical telecoms and information technology especially into the hinterland become critical barriers that
sector in the second edition of the Africa Infrastructure Review, must be overcome.
a quarterly publication of the Africa Finance Corporation
(AFC). The objective of this quarterly review is to share with you our
perspective on topical issues relating to infrastructure
The social, financial and developmental returns associated development, financing and investment in Africa. We hope to
with the explosion in telecoms infrastructure and service offer practical and innovative solutions, based on our
penetration in Africa since 2000 are already widely accepted expertise, local knowledge and unique insight into the African
as evidence of the underlying, private-sector driven market infrastructure space. This quarter, we focus on regional
potential on the continent. Headline statistics like mobile broadband telecoms penetration in sub-Saharan Africa. As
subscriber growth from just over 11.0m at the end of 2000 to mentioned above, the recent history of African telecoms is 1
more than 333.0m in 2010 serve to illustrate the one of unprecedented growth and profit in almost every area
phenomenon. Starting with the privatization of incumbents in (social, financial, developmental and environmental). I will not
Guinea, Ghana, Senegal and Cote d'Ivoire prior to 1999, dwell here again on the details of this already well-known
and quickly followed by the game-changing mobile license story.
auctions in Nigeria following the turn of the century, sub-
Introduction and Overview
Andrew AlliPresident & CEO, Africa Finance Corporation
...there appears no doubt that
data content transmission is
one of few areas where the
kind of growth witnessed over
the last ten years can be
replicated in the next ten.
1According to the International Telecommunications Union (ITU)
What next for African Telecoms Infrastructure? user propensity to pay for internet use and broadband data
service. Payment models that are typically based on large-While the explosion in growth of the telecoms services sector
scale contracts (rather than road-side retail) also give is quite well known, what is perhaps less publicized is the
reason to pause. Nonetheless, as with voice services, similar narrative surrounding the emerging broadband future of
inertia was experienced in the early days of the evolution of sub-Saharan Africa, and the key market factors, operators
mobile services, which were managed using customised and private investors leading the drive for growth and profit
“pay-as-you-go” payment models suitable to spending in this arena. As with the mobile voice story, the potential for
patterns of the African consumer (which can, and are being profit in broadband data infrastructure penetration and
replicated for internet connectivity). service delivery is accompanied by a great degree of risk
and uncertainty. Indeed, given the peculiarities of each
Taken together, I believe there is a strong market opportunity product offering, the investments and physical infrastructure
for operators who understand the key market factors driving required to deliver the service, and the competitive realities
market demand, possess the critical technical and of the marketplace, it could be argued that broadband data
operational competence to deploy required solutions, and constitutes a much higher risk opportunity than voice.
are able to put together the most optimal financing However, given the near absolute dearth of the service
arrangements to deliver a highly competitive long-term across sub-Saharan Africa (3.6% mobile broadband and
market solution to end-users. This review seeks to highlight 9.6% internet penetration in 2010), the scale of the
some of the markets and operators in sub-Saharan Africa opportunity is also unarguably large. While there are about
where we at AFC believe the above combination of 333.0m subscribers to mobile cellular services (mostly
underlying demand, market insight, operational capacity voice) in sub-Saharan Africa, there are only 29.0m mobile
and appropriate financing exists to make a private-sector broadband subscribers and an estimated 77.0m internet
led success of broadband capacity expansion. We focus users.
particularly on capacity borne via terrestrial cable networks,
which ultimately have the greatest potential to link sub-Clearly, if gross broadband subscriber numbers, penetration
Saharan Africa to the rest of the broadband universe. levels and average spend per user were to come anywhere
close to the levels achieved in the mobile voice market over
At AFC, we have already expressed our belief in (and the last ten years, the market opportunity could be just as
commitment to) making that important link for Africa by phenomenal. One obvious cause for restraint is the more
significant investment exposure to the sector. As one of the significant infrastructure investment requirement, relative to
PAGE THREE
11.4 17.025.1
35.754.2
90.4
135.2
184.7
261.2
313.9
333.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Millio
ns
Mobile Cellular Subscribers in Africa (2000 – 2010)
Source: International Telecommunications Union (ITU)
AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
Mobile Cellular Subscribers and Penetration Rates (Africa versus the World in 2010)
Source: International Telecommunications Union (ITU)
333 282
2,649
364
741880
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
0
500
1,000
1,500
2,000
2,500
3,000
Africa Arab States Asia & Pacific CIS Europe The Americas
Mobile Subscribers ( millions) Penetration Rate (%)
PAGE FOUR
African Undersea Cable Projects (2009 – 2012)
Source: http://manypossibilities.net/african-undersea-cables
13,700
10,000
4,500
14,000
7,000
9,500
14,000
0
100
200
300
400
500
600
700
800
900
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Seacom EASSy TEAMs WACS Main One GLO1 ACE
Length (km) Cost (millions of US$)
1.2
8 T
b/s
3.8
4 T
b/s
1.2
8 T
b/s
5.1
2 T
b/s
1.9
2 T
b/s
2.5
0 T
b/s
5.1
2 T
b/s
AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
PAGE FIVE AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
PAGE SIX
BOX ONE: A SHORT OVERVIEW OF SUB-SAHARAN AFRICAN BANDWIDTH
As a result, there is now a significant amount of wholesale
fibre optic capacity available across the coasts of sub- Generally speaking, there is typically a time lag (up to 12-18
Saharan Africa countries, borne by submarine cable months) between wholesale capacity availability and
networks. This capacity is targeted as serving the long-term investments at the retail level to take up that capacity. In the
bandwidth market requirements of the continent, but will intervening period, additional supply helps push prices to
require inland retail infrastructure investments to serve as more affordable levels for end-users, opening up wider
distribution channels. market demand at the lower end, and encouraging retail
infrastructure investments. Clearly, market dynamics across
much of the continent are now moving in favour of
Where is the Terrestrial Retail Capacity?
AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
PAGE SEVEN
investments in onshore terrestrial infrastructure to carry the emerging market environment, using the East African
broadband capacity inland from the coasts. Mobile operator as a case study for how a multi-country terrestrial
Network Operators (MNOs) will be primarily expected to fibre network can be successfully deployed by a purely
undertake a significant amount of the investment required. private operator. I'll also discuss briefly some of the
This is particularly so given their status as the primary emerging opportunities in west and central Africa,
interface with end-users in a largely mobile-dominated particularly for transmission capacity into landlocked and
market, technological advancements enabling mobile historically under-invested countries. The review concludes
broadband access, and long-term market realities which with some ideas as to how AFC can be of assistance, using
suggest a demand evolution away from voice to broadband our successful early stage investment in Main One as an
data services. It is expected that consumer demand, illustration of how the Corporation can help in bringing bold
bandwidth pricing and competitive realities will be the projects to fruition in Africa.
primary drivers of investment activity by MNOs. However,
there is also an opportunity for open-access data
infrastructure providers to serve both MNOs and other
wholesale users of bandwidth.
Technical Overview: While technical solutions are readily
The key questions I would therefore like to discuss in this available to address the challenges of deepening
review are: In which markets will these infrastructure broadband penetration on the continent, the challenge lies
investments come on stream the fastest? What would be the in seamlessly implementing a combination of solutions to
characteristics of operators (existing and potential) who will ensure wider access and profitability. Ideally, a wider roll out
be in the best position to execute on this opportunity, and of optic fibre would be best to address the terrestrial
how is the Africa Finance Corporation positioned to help challenge of broadband access and service provision. In
bring it all together? To help answer the first question, I will reality, this would not likely make the most economic sense.
explore briefly an overview of broadband in Africa, and
highlight the impacts of liberalization, market size and At AFC, we envisage that a combination of wireless
financing availability on private-sector led infrastructure broadband solutions with fibre optic cable infrastructure,
investments. I will then profile three leading operators in East including the use of electricity transmission and distribution
and West Africa that appear to be well positioned to win in lines (as successfully implemented in Kenya), railways, and
Overcoming Technical and Regulatory Challenges.
What is Required?
17.7% 16.3%
14.6%
17.2%
22.0% 23.1%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2005
2006
2007
2008
2009
2010
Share of Total Mobile Subscribers
Estimated Internet Users (millions)
Africa Internet Subscribers and Share of Mobile Subscribers (2005 –2010)
Source:
International Telecommunications Union (ITU)
AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
PAGE EIGHT AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
PAGE NINE
BOX TWO: CASE STUDY - KENYA DATA NETWORKS LIMITED, PIONEER EAST AFRICAN TERRESTRIAL FIBRE OPERATOR
sharing by MNOs has already become a widely acceptable effective linkages to existing and planned submarine cable
model (due to the obvious cost benefits), and a further systems. Notwithstanding this, a number of companies in
extension of this model could be highly impactful in West and East Africa are already undertaking multi-country
expanding access across the terrestrial broadband segment. roll-outs of terrestrial broadband infrastructure.
There is therefore a need for regulatory agencies to work on Improvements in regional broadband regulatory policies
frameworks that encourage better collaboration in the would accelerate investments in this area
development of backhaul broadband systems. Given the
right incentives and fiscal measures, we believe that this is
possible and should be encouraged. The situation with cross Clearly, there is scope for some lessons to be learnt from the
border infrastructure is somewhat less straightforward. In success of KDN in East Africa, in terms of building a
most regions of the continent, regulatory regimes for successful multi-country business around terrestrial fibre
telecom services have been harmonized (although full capacity transmission from sub-sea cables into sub-Saharan
implementation of adopted protocols at the country level of Africa. In particular, West Africa possesses many market
is somewhat sketchy) to promote more regional play by key similarities, including size, population density, regulatory
operators. Notwithstanding this, terrestrial infrastructure independence and market competitive structure. However,
providers have to be licensed in each country of a given sub- in contrast to Nigeria for example, the level of bandwidth
region. Common licenses for providers of terrestrial telecom utilization as at June 2009 in Kenya was 62.0% of the
infrastructure across sub-regions could facilitate investments 2,746.55Mbps available, with 40.0% consumed by Internet
in required infrastructure on a regional basis, ensuring Service Providers (ISPs). The KDN case study therefore
Strategic Implications for Operators in West Africa
AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
provides a pointer as to how a private, open-access guaranteed long-term access security. Governments and
operator could potentially develop a market leading their various agencies will also be an important group to
position in broadband data transmission across sub- partner with, given the public benefits of the infrastructure,
Saharan Africa (an estimated US$20.0bn total revenue public sector capacity to stimulate demand, the extensive
market by 2015 according to Pyramid Research). licensing and Right-of-Way requirements for various
elements of the business. Again, using KDN as an example,
I have summarized some of the most important learning in 2010 the company signed a five year agreement to lease
points into the three items below: a pair of dark fibres on the government-owned Kenya Power
& Lighting Company Limited (KPLC) fibre optic network
1. Strategic Market Positioning: To succeed, an along the Nairobi-Mombasa power transmission line for an
operator seeking to play and succeed in the terrestrial fibre annual fee.
business will need to be appropriately positioned for the
long term consumer/data market opportunity. However, in 3. Long Term Financing Availability: Strong, stable
the short term, wholesale backhaul services for MNOs who capital with a willingness to take on long-term project risk is
are still largely dependent on voice business for revenues an important element of any infrastructure investment. This is
may still be the primary target market. In addition, given the more so given the significant capital outlay and market risk
on-going investments in backhaul infrastructure by mobile inherent in a broadband infrastructure roll-out in sub-
operators particularly in Nigeria, an open access network Saharan Africa. Conventionally, telecoms infrastructure is
would need to be positioned to offer complementary generally capital intensive particularly in the early stages,
coverage (supporting MNO roll-out plans) while targeting with returns only fully accruing once sufficient traffic volumes
areas of growth in currently uncovered areas. Various other are being transmitted over the network. The history of mobile
alternatives could be explored in this regard, including a telecommunications in Africa suggests that the payback
strategy involving backward integration into data centres periods can be quite short. Nonetheless, any investments will
(creating wholesale clusters) similar to KDN data centre need to be predicated on conservative market uptake
project in Kenya (scheduled to be operational in early 2011). assumptions, and financiers of projects of this nature will
Another approach could be to secure long-term contracts need to make long-term commitments. The long-term
from single offtakers (e.g. governments or large corporates) commitment of a JSE-listed, US$670m (2010 total assets)
in currently under-served or landlocked areas as a basis for multinational group like Altech of South Africa to KDN in
a primary cable investment into the region. This would be East Africa can be considered a major element of their
similar to KDNs contract to supply bandwidth to Rwandan success to date. Operators in West Africa that are best able
government in tandem with its network expansion plans to to secure such financial support and access broad financial
Kigali. In summary, a detailed understanding of the market markets will be in the best position to replicate this success.
terrain and demand-supply dynamics would be critical to
developing an investment plan for such a network. I am optimistic about the potential for private
investors to replicate the success of Africa's mobile telecom
2. Partnerships and Alliances: Strategic partnerships revolution in the internet and broadband market segment.
are a crucial requirement for success. Given the significant This will be essential to unlock the immense opportunities for
investment requirements, competitive market landscape and productivity, value-addition and employment across the
potential for duplication of effort, the leading operators will continent. Despite the substantial potential for upside,
be the ones that are best able to strike mutually rewarding however, careful planning and partnership will be essential
partnerships with key market participants. MNOs are a first to making a success of the opportunity. We at the AFC are
obvious constituency given their firm grip of the consumer already closely involved with the sector through our
mass market. ISPs, large corporates, and other wholesale investment in the Main One Cable Company, and are
users may also need to be incorporated into broader long- actively exploring next level investments to further expand the
term partnerships beyond sales and purchase agreements. reach and developmental impact of the newly arrived
Similarly, partnerships with sub-sea cable operators may capacity. We are confident that significant investments will be
also need to go beyond purchase of bandwidth for catalyzed over the next few years into projects and
transmission. Altech-KDNs equity investment in TEAMS for companies to make this happen. Our objective is always to
example will allow it broaden the scope of its operations with work with our partners to ensure that projects are properly
Conclusion:
PAGE TEN AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
Suburban Telecom describes itself as “the largest supplier of Phase 3 Telecom describes itself as the company that “operate(s) &
wholesale internet solutions to Nigeria's GSM operators and ISPs, maintain(s) the largest private fibre optic network in Nigeria and the West
offering location to location connectivity, wholesale internet connectivity African sub-region. The company says it is connecting its aerial fibre optic
and network monitoring to various telecom operators and enterprise network in Nigeria to other West African countries commencing from
customers in Nigeria and across West Africa”. Suburban was started in Republic of Benin, Togo and Niger Republic, with on-going plans to
1999 as equipment supplier and advisory service provider. Since then, extend the network to Ghana, Ivory Coast all the way to Senegal; cutting
the company has evolved into essentially a wholesale supplier offering down the extremely high cost of connectivity and making capacity
access to hundreds of Internet Service Providers (ISPs) and enterprise available to all. The company appears more defined by its proprietary
customers. The company offers national service in Nigeria and the network, which it has commenced expanding via aerial national
Republic of Benin, and is positioned essentially as a provider of global infrastructure in two countries to extend its current combined length of
internet access, with a proprietary local fibre network. Locally, the fibre from 600km to over 3,000km. Phase3's aerial infrastructure in
Suburban network offers connectivity across majority of the southern Nigeria is deployed on the 330kV and 132kV high voltage lines; whilst
cities of Nigeria and extends to the north as far as Kano. The company aerial infrastructure in Togo & Benin are deployed on 161kV high
reports extensive coverage in major cities such as Lagos, Abuja, Benin, voltage lines. The company's infrastructure targets existing regional
Port Harcourt and Kano. Suburban also offers dedicated leased line telecommunication service providers currently operating in these
capacity to large, multi-located corporates like commercial banks countries, as well as the transmission needs of operators who plan to
seeking reliable interconnection between their local branches. interconnect with operators in Togo and Benin. This also positions
Phase3 as the infrastructure provider for the distribution of broadband
Overall therefore, the company operates a business model and product services to various locations in these countries.
line that appears more targeted at bespoke service offerings to large
consumers of bandwidth, rather than seeking to deploy national Overall therefore, the company operates a business model and product
terrestrial fibre infrastructure to support backbone requirements of MNOs. line that appears more targeted at deploying sub-regional terrestrial fibre
However, the company does own a nationally competitive fibre and infrastructure to support backbone requirements of MNOs, while also
WiMax network, offered at fixed rental to carriers (including MNOs), ISPs serving wholesale customers along the way. It defines its objective as to
and large enterprises. The company currently lists all the major MNOs “leverage on our fibre optic backbone infrastructure for the maximum
and ISPs in Nigeria as its customers. The privately held company says it benefit of all Nigerians and the West African Sub-Region's backhaul
has invested more than US$100m to develop a national and regional requirements, with a clear understanding of the linkage between a high
backbone network. As a 12 year old operator with a strong bandwidth per capita metric and GDP improvement in modern
understanding of underlying market demand, competitive network economies”. Phase 3 currently lists all the major MNOs and ISPs in
infrastructure and strong existing customer base, Suburban could be one Nigeria as its customers. As the leading owner of proprietary network
likely contender to lead the next phase of expansion in terrestrial infrastructure across the sub-region, Phase 3 is clearly another contender
broadband infrastructure across West Africa. to lead the next phase of expansion in terrestrial broadband infrastructure
across West Africa.
BOX THREE: THE WEST AFRICAN CONTENDERS: SURBURBAN TELECOM AND PHASE 3 TELECOM
structured, and financed in such a manner as to be management and technical talent that is a critical aspect of
sustainable over the long-term. In addition to our capacity to successfully executing on this market opportunity.
co-invest, we also offer project development, technical
advisory and financial arranging services. AFC sources I look forward to hearing from you in the weeks and months
telecoms infrastructure projects with strong sponsors, ahead as we continue on this journey, following the exciting
favourable offtake, operations, maintenance and other African telecoms story from the mobile revolution through
commercial agreements, as well as partners that can meet sub-sea cables and into sub-Saharan Africa.
appropriate legal, technical and regulatory requirements.
Typically, our sector experts are closely involved in providing
the necessary technical support to reassure financiers that
projects will succeed. We are also able to bring our global Andrew Alli
network of relationships to bear in sourcing the appropriate President and Chief Executive Officer
PAGE ELEVEN AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
BOX FOUR: HOW CAN THE AFRICA FINANCE CORPORATION HELP? THE MAIN ONE CASE STUDY
PAGE TWELVE AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
APPENDIX - ABOUT THE AFRICA FINANCE CORPORATION
AFC is an African-led international financial institution whose mission is to improve African economies by proactively
creating, developing and financing infrastructure, industrial and financial assets.
Founded in 2007, the corporation has as its key shareholders the Central Bank of Nigeria and leading regional
financial institutions. The institution was established by international treaty, and current signatories to its Charter are the
governments of Ghana, Liberia, Gambia, Sierra Leone, Guinea-Bissau, Guinea and host country, Nigeria.
AFC is involved as an investor, developer and financier of various infrastructure projects across Africa. In addition to
the US$240m Main One cable project where AFC is co-largest equity investor, the Corporation has also provided
expansion financing to Essar Telecoms Limited, a Mobile Network Operator in Kenya. AFC is the lead investor in the
Cenpower Generation Company Limited (Cenpower), which is developing the Kpone Independent Power Producer
(IPP) project. This is a 340MW combined cycle gas turbine power plant near Tema in Ghana. In Cape Verde, off the
coast of West Africa, AFC has underscored its commitment to pioneering renewable energy investments on the
continent with a lead investor role in a US$90m, 28MW wind farm project under development. AFC is the main African
participant in a seven-year US$750m syndicated reserve base lending facility to develop the landmark Ghanaian
Jubilee Oil Field, West Africa's largest offshore deepwater find in over a decade. AFC has invested in the international
oil and gas exploration and production company, Seven Energy Limited. Through its local subsidiary, Seven is playing a
pioneering role in developing alternative sources of gas for domestic utilisation in the Nigerian power and industrial
production sector. AFC is also a co-investor in the fully operational Bakwena Toll Road in South Africa.
For more information, please contact:
Ini Urua
Senior Vice President, Heavy Industry
Telephone: +234 1 279 9608
Email: [email protected]
Fola Fagbule
Special Assistant to the President and CEO
Telephone: +234 1 279 9618
Email: [email protected]
PAGE THIRTEEN AFRICA INFRASTRUCTURE REVIEW | Q2, 2011
