No price cut soon... just faster speeds, Internet firms say

We told you so! Internet prices are not coming down soon,” satellite broadband providers are gleefully telling consumers.

It was expected that with the switching on of the Seacom fibre-optic submarine cable connecting East Africa to the rest of the world, broadband speeds would improve and Internet costs would reduce at the same time.

Consumers are already experiencing faster connectivity, but this is not applying to costs.

Afsat Communications general manager Job Ndege says Africa experiences a capacity crunch and the landing of the cable in the region is welcome.

But the operators will need time to recoup their huge investments.

Terrestrial telecommunications infrastructure requires substantial investments that are often unaffordable by the public sector and don’t make economic sense to the private sector.

Some of the costs saved by opera-tors will be eaten up by retention of some bandwidth on satellite for redundancy purposes due to unknown reliability of the cables.

“Market competition will eventually bring down the costs, as seen in the mobile sector,” said Mr Ndege.

Afsat, through its iWay flagship brand, is the largest satellite-based broadband operator in Africa with a presence in 31 countries.

Reduced Internet cost will be felt only after the two other submarine cables become operational.

These are the Kenya government-led Teams (The East African Marine System) and the Eastern Africa Submarine Cable System (EASSy).

The sector could then witness a price change similar to that in the mobile sector.

“Customers will, in the long run, pay up to about 50 per cent, but this will depend on the business model adopted by cable and satellite operators,” said Mr Ndege.

It is evident that Internet consumers will wait much longer to enjoy price reductions.

Instead of the much touted 60 to 80 per cent price cuts, key stakeholders are hinting at 20 to 30 per cent reduction.

Safaricom chief executive Michael Joseph said it will take between six and nine months before Internet costs come down.

And when they do, the reduction will be by about 20 per cent.

“The issue of costs coming down has been over-hyped. But a 20 per cent dip in Internet access costs will make a big difference for consumers,” he says.

Besides the huge infrastructural costs to be covered, the operator has to pay for transmission costs from the source (Fujaira) onwards, as well as the cable’s maintenance costs.

Safaricom has put upwards of $25 million into the Teams cable and an equally substantial amount into buying capacity on Seacom.

Maintenance will also require further cash outlays.

The investment will have to be recovered first before material price reductions can be passed on to the consumer, said Mr Joseph.

“It makes business sense and we owe that to our shareholders and financiers.”

According to Jonathan Somen, managing director of AccessKenya Group, which connected its metro fibre to the Seacom hub in Nairobi, the doubled speeds are free of charge.

He says pricing is tricky, and it is not clear how bandwidth will be shared or priced.

UUNET Kenya managing director Tom Omariba also says price reductions will be by 20-30 per cent, unless the players revert to “overselling capacity, which will mean a bad end-user experience.”

Only the Kenya Data Network has announced a reduction in Internet prices by 90 per cent.

The move, according to chief technical officer Bhavesh Mistry, is meant to initiate new avenues for Web advertising and promotion of local content — voice, video and data.

Now that Internet costs are set to come down, are satellite providers up to the task?

Mr Ndege says the law of supply and demand will apply.

Currently, cellular firms, which hold most of the satellite capacity (60 per cent) in Africa, will rush to connect to the cable, which is best suited for their backhaul and backbone connections. In the process, they will free the capacity, which will be up for grabs.

“In this way, we’ll not only be able to get an increase in capacity to deploy, but also at a reduced cost in the long run,” he says.

All indications are that these companies are not ready to let go the capacity. Those that are sceptical of the cable have paid up in advance.

In the meantime, since the region is not fully “wired,” satellite will remain the choice of many. The cable is thriving only in urban centres and district headquarters.

Rural areas remain underdeveloped, with very little telecommunications infrastructure. Only satellite communication can broaden the reach and provide the highest reliability.

This is the reason Internet connectivity in Africa will remain expensive, compared with developed countries.

Internet costs in Africa are about 300 times more than those in European countries, according to AfrISPA (2007).

Mr Ndege advocates a combination of satellite and wireless Internet solutions for the last mile access as these offer a quick fix to teething problems associated with Internet access in Africa.