Last June, Nigerian carrier Globacom revealed it had received a license from the government of Senegal; the announcement created much ado, for the license was awarded outside of traditional channels, with the country’s regulator ostensibly not aware of it. The process was certainly a step back for Senegal’s telecoms regulatory framework. As for Globacom, it’s another step in the company’s relentless effort to build a strong challenger to France Telecom in French-speaking West African markets.   

Over the past few years, Globacom has advanced meticulously, like a spider spinning its web. From its base in Nigeria, the company acquired licenses in Benin, Ghana, Cote-d’Ivoire and now Senegal. While the mobile portion of the licenses typically garners the most attention, it is mere pretense. In all these markets, Globacom would be the fourth mobile operator at best, with challenging profitability prospects. The value is elsewhere, rooted in the upcoming launch of Globacom’s Glo-1 submarine cable.

The licenses provide Globacom with more than landing points; they are a beachhead into West Africa’s burgeoning and underexploited wholesale market, a starting point to offering services in typically neglected landlocked West African countries. With its current coverage, Globacom will be in a position to challenge France Telecom and its primary West African vehicle, Sonatel, by selling bandwidth and corporate services into such markets as Mali, Burkina-Faso and Cote-d’Ivoire, and leveraging the volumes afforded by its Nigerian presence.

Globacom is too often under-estimated, primarily because  the company is information-shy and somewhat nebulous. It’s a mistake to do so; on evidence alone, we find Globacom’s strategic acumen to be as good as any; they know precisely what they are doing.

On Monday, WIOCC’s CEO Chris Wood announced completion of the EASSY submarine cable, of which WIOCC is the largest investor, for the end of June 2010. After much delay due to shareholding structure divergences, the much awaited infrastructure  will bring 1.4 Tbps in additional capacity to the African East coast. The cable owned by 16 different investors aims to provide fast and reliable international bandwidth access to 10 countries including Botswana, Burundi, Ethiopia, Lesotho, Malawi, Rwanda, Swaziland, Uganda, Zambia and Zimbabwe.  Only the coastal countries will initially benefit from access to the cable while inland international terrestrial links are built. The cable is bound to compete in the mid to long term with Seacom’s cable which already offers a capacity 1.2 Tbps to South Africa, Mozambique, Tanzania and Kenya. The implications of the arrival of EASSY are multiple for Africa’s eastern markets.

 TARIFFS: as we found in our latest report on the Future of African Broadband, the landing of submarine cable on the east coast of Africa will divide end-user’s access price by 2-5. In Kenya and South Africa, for example, the arrival of Seacom and TEAMS cables have already led to a more than 50% decline in retail prices from 2008 levels in some speed categories.

 ADRESSABLE MARKET: while some inhibitors will remain such as end-users’ equipment cost (PC, router, 3G device) will remain the lower access tariffs mean that a larger share of East Africa population will be able to afford the service. We found in our latest report that the EASSY cable will provide bandwidth to countries where the addressable market for an internet access at US$25 per month varies between 1% for Rwanda and 20% for Botswana. 

 ADOPTION: the landing of EASSY is not the solution to all broadband adoption issues in East Africa. Adoption levels will increase substantially but are bound to remain relatively low for some markets over the next five years. Penetration levels at YE2015 will vary between 0.67% of households in Zambia to 40% in Botswana.  Some major questions remain. How fast operators will be able to invest in the last mile network infrastructure needed to deliver the bandwidth? Can manufacturer provide smart phones to Africans? Are Broadband Computing bundles a solution?

 Our latest report on the “Future of African Broadband” sponsored by the WIOCC, provides investors and operators alike with some crucial elements to answer those key questions in the development of broadband in Africa.

After years of slow growth and outright despair at whether broadband would ever take off on the African continent, our research suggests that the market is inching ever closer to a tipping point. Our latest report, “the Future of African Broadband: Economics, Business Models, and the Rise of 3G”, makes a number of key points with regards to supply and demand, some of which are summarized below:

There is strong demand for broadband in Africa, if the price is right. We estimate that the African addressable market for household retail connections is about 25m, based on 2007-2009 household income data. North Africa and South Africa account for about 70% of this estimated African household addressable market; outside of those countries, many markets have a household addressable market of 150,000 (e.g. Mozambique) to as many as 400,000 households (e.g. Kenya) depending on their individual structural and income characteristics. The business segment is similarly attractive. The enterprise installed base – defined as registered, tax-paying formal companies- is at about 3m; outside of North and South Africa, the corporate market base varies between 3,000 in low income economies to more than 100,000 units in larger intermediary African economies.

Longstanding supply bottlenecks are being slowly, but surely removed; last mile competition is an increasing reality, wholesale segments are being liberalized, wireless technology has improved enough to provide alternatives to wireline broadband; over the next five years, a combined 500 Gbps+ in initial, available international capacity will be brought into the market. The domestic backhaul segment remains a major supply bottleneck, and in our view, the weak link in the emerging African broadband infrastructure value chain. Even here, however, things are improving.

We see the best broadband opportunities in markets with strong household addressable demand in volume terms, yet one that is currently underpenetrated. The opportunity matrix screen we developed to identify such markets yielded Nigeria, Kenya, Cameroon, Angola, Madagascar and a small few others as markets with the highest upside in this respect.

At last, it was here. The SEACOM cable landed on East Africa’s Coast over the summer, and has now gone live in Kenya and Tanzania. We summarize some initial observations from our own recent trip to East Africa, press reports and other anecdotal evidence. Our verdict: promising on bandwidth utilization, wait and see on retail prices.

1. While no official estimates have been announced, we estimate that SEACOM has been able to pick up slightly more than a dozen customers since its launch, each purchasing anywhere from an STM-1 (155mbps) to 2.5Gbps.

2. Undeniable though the enthusiasm from ISPs and corporate customers for the new cable may be, it is coupled with some caution. The main ISPs are purchasing enough bandwidth to meet immediate demand and stay competitive, but are moving cautiously as they (1) seek to reduce the cost or get out of long term satellite contracts and (2) wait to see the impact of the arrival of two additional cables on wholesale bandwidth prices.

3. Service providers with stakes in other cable projects (namely the TEAMS and EASSY cables expected in 2010) are nonetheless picking up capacity on SEACOM, lest they be at a competitive disadvantage, a trend that highlights SEACOM’s first-mover advantage.

4. Taking capacity inland and reaching landlocked markets will remain significant challenges; cunningly, SEACOM has been buying up terrestrial cross-border capacity into landlocked markets (e.g. to Rwanda and Uganda) to expand its offering beyond seaport routes. Its main challenger in East Africa will be Kenya Data Networks.

5. The submarine cable impact on wholesale prices is unquestionable. By our estimates, SEACOM has slashed wholesale bandwidth costs by at least 60% in Tanzania (for a dedicated E1); in Kenya, a dedicated international E1 is already going for less than $1,500 (excl. VAT). Kenya Data Networks, one of the country’s largest wholesale players (and a major SEACOM client) announced that it would slash its wholesale rates by 90%. The retail price impact will be slower, though there is some movement here as well. The initial step will be for increased bandwidth for a similar amount of spend; we anticipate a six to nine month lag for a decline in retail prices.  

6. The impact on wholesale bandwidth requirements is already perceptible. In Kenya and Tanzania for example, estimates from the Broadband and Wholesale Forecasts released by the AfricaNext Data Unit project a 150% and near 200% increase in international bandwidth utilization respectively for 2009, and that’s with less than 6 months of submarine cable availability.