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Don’t write off Satellite yet

Don’t write off Satellite yet



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Published by tmakau
The Landing of the fiber optic cables on the East African coast is being touted as a revolution and a turning point for Africa's Internet. This article looks at the factors that might not make this dream come true and the fact that satellite technology is here to stay.
The Landing of the fiber optic cables on the East African coast is being touted as a revolution and a turning point for Africa's Internet. This article looks at the factors that might not make this dream come true and the fact that satellite technology is here to stay.

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Published by: tmakau on Jun 23, 2009
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Don’t write off Satellite yet.
By Tom Mulei Makautmakau@ieee.orgThe landing of the submarine fibre optic cables on the shores of the east African coastbrings to close the notoriety of the eastern African seaboard being the longest stretch of coastline in the world (7000 km) without a single submarine fibre optic cable landing onit.Industry analysts are predicting a massive reduction in international bandwidth chargesbecause bandwidth delivered via submarine fiber optic cables is cheaper compared to thesame bandwidth via satellite systems. However, I am of the school of thought that thinksthat we should not expect the massive reduction in costs with the arrival of the cables ineast Africa. I base my arguments on the fact that the historical underlying factors that ledto the insanely low prices in the US and Europe are not present in Africa to warrant sucha reduction. My other basis is that international bandwidth costs are just one of the costspassed on to the consumer and not the only determinant factor of cost of connectivity inAfrica.
The dotcom bubble
The years between 1995 and 2001 witnessed an intense investment in ICTs in the UnitedStates and Europe characterized by many start-ups and massive capital investment inInternet infrastructure based on speculation of an impending IT explosion. Thesecompanies had envisioned a huge market for high speed broadband internet.In their investment quest, many of these businesses dismissed standard and provenbusiness models, focusing on increasing market share at the expense of the bottom lineand a mad rush at acquiring other companies leading to many of them failingspectacularly.This period before the burst saw the laying of hundreds of thousands of kilometres of fiber optic cables both on land and under sea as companies invested based on purespeculation not on strategic market research information. When the envisaged marketfailed to materialize, these companies could not get a return on their investments or be
2profitable and went burst culminating in what is known today as the dotcom bubble burst.Some of the casualties include WorldCom, Tyco, global crossing, Adelphiacommunications and many more.When these companies went bankrupt, their massive investment in national andinternational fiber optic networks lay unutilized and was bought for throw away prices bynew investors such Comcast and Sprint. So low were the prices that some cable wasbought for 60 US cents per Mbps per kilometre in 2002 compared to the 37 US dollarsper Mbps per kilometre the Seacom cable is costing to build in 2009.Because of the heavy investment in the cables connecting Africa, the operators have nooption but offer prices to the consumers that will ensure profitability to the investorsbecause any attempt to emulate their American counterparts will lead to failure to break even or even make a profit.
The numbers
According to Gerry Butters, the former head of Lucent's Optical Networking Group atBell Labs, Moore's law holds true with fiber optics. The amount of data coming out of anoptical fiber is doubling every nine months due to improvement in modulationtechniques. Thus, excluding the transmission equipment upgrades, the cost of transmitting a bit over an optical network decreases by half every nine months. This isindeed very good news for operators and consumers alike as this effectively brings downthe cost of using an optical fiber connection for data transmission.Over the past decade alone, the cost of moving bits over fiber has dropped sodramatically that if the automobile industry could match it, you could buy a BMW for just a dollar or two.The downside to this is that operators must pass this reduction in transmission costs tocustomers. This has the effect of lowering the average revenue per user (ARPU) and theoperator must increase his customer base fast enough to break even or be substantiallyprofitable.
3To attain a substantial internet penetration in Africa via fiber optic cables, a massivecapital investment in backbone and last mile solutions is needed because of the sheer areato be covered, the African continent is larger than the USA, Europe, Australia andOceania put together but with a much smaller market for internet services due to the lowliteracy levels and poverty. (Only 30% of Africans can read and write and more than 50%of them live on less than a dollar a day, this is effectively the total market for internetservices in Africa). Some critics might ask then how mobile phone services havemanaged to capture such a large market share within a short time, what they have torealize is that the literacy levels needed to use a mobile phone are not as high as that of using the internet and the cost of ownership of a computer is not comparable to that of amobile phone.The problem for the operators seeking a large market share is that there is no mass marketin Africa to justify the massive investment and the lower costs they wish to charge. Justto put everything into perspective, in the fourth quarter of 2008, Comcast grew itscustomer base by an additional 331,000 new customers while AOL time Warner grew by241,000 more internet users and 200,000 phone users in the same period. These twooperators have a wide market reach all over US and are not constrained by politicalboundaries and licensing regimes as their counterparts in Africa whose operating licensesare within countries and not all over Africa. It is very hard to get those growth numbersacross Africa let alone within one country.As of March 2009, Africa had a total fifty four million users online out of which the topten internet user countries contributed 45 million users.Eight of the top ten countries have access to submarine fiber optic connections; the twothat do not have this connection and still rely on satellite are Kenya and Zimbabwe thatshare a nearly equal internet penetration percentage to countries with undersea fiberconnections. This shows that the demand for internet in Africa is more consumer needsdriven than price driven. Irrespective of the price, penetration numbers will remain fairlyconstant. A good example is America with very low prices (25$ per Mbps) and a

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