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.

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.