Local Telecoms Operators Risk losing $1bn Fibre Cable Market
The submarine cable system operators in Nigeria and the rest of Africa risk losing the region’s $1bn markets to foreign players if they failed to unite against the operations of the Over The Top (OTT) firms which are bringing in new cables to the continent.
It was learned that the plan by these foreign players would further worsen the glut of subsea fibre capacity on the continent and possibly plunge Africa into a crisis that could cause deep divisions on how to react to the move by the OTTs. The move is also seen as capable of destroying the local and regional initiatives and whittle down indigenous players’ investments and revenues.
An investigation by The Guardian showed that the regional operators that are likely to be affected by the OTT’s move include those in Nigeria such as nTel, which runs SAT 3; MainOne, which runs MainOne cable; Globacom with Glo 1; and MTN with WACS. Other operators are ACE, Seacom, EASSy, LION, SEAS and Angola cables.
Experts, who spoke at the South Africa Network Operators Group (SafNog) conference in Johannesburg, South Africa, said the planned submarine cables, Equiano and Simba, belonging to Google and Facebook, which are expected to land on the continent in 2021, could kill the innovation that comes with building submarine cables by regional operators.
Leading the charge, the Founder and Chief Executive Officer, Open Cables, Sunil Tagare, said except Africa’s submarine cable system operators unite, the arrival of Equiano and Simba cable systems could impact negatively the huge investments already made by the local operators, which he put at over $1 billion.
According to Tagare, the concerns about the two cable systems are that there will be too much capacity coming into the market, which will significantly lead to a drop in prices. “Though it is a good development if it would help the customers, it may not be good if, of all the carriers within the countries of branching, only one of them gets low price from the foreign operators, while others are getting high prices because they are not investing. This will force others out of business. So what Equiano and Simba will do is to create a monopoly in every country along the route to one carrier, which will be really bad for the industry from a long-term perspective.’’
Tagare noted that the strategy of Google and Facebook, which they use in most countries as OTT, is to divide, and rule the regional players, and subsequently introduce imperial war tactics to penetrate the market.
To the Open Cable founder, the regional players appear confused, not knowing who the competitor is, and are screwing each other on cable station access and last-mile infrastructure.
According to him, Google will spend around $300 million to build the Equiano, which is coming from Portugal, and expect revenues from the carrier to the tune of between $390 million to $610 million, after it must have kept 50 per cent of the bandwidth for own use.
For Simba, Tagare disclosed that it would cost Facebook $800 million, and about $720 million revenue is expected from the carrier in the first year of operations after it must have kept 10 per cent of bandwidth for its own use. He said the Simba would potentially earn $21 billion as advertising revenue.
Tagare warned that if the regional players failed to unite and pursue the same agenda, the plan by the Google and Facebook would likely see them pay 100 per cent for the CAPEX of the branches of foreign cables, and another 100 per cent for the operations and maintenance (O&M) of the branches, in addition to their share of the main cable.
While calling on African regulators to look critically into the matter and guard against exploitation, Tagare further warned that ‘‘under no condition should any indigenous player accept to pay 100 per cent of the CAPEX and O&M for any branch, rather they should walk away.’’
According to him, what will be fair to the carriers (indigenous operators) signing up to Equiano and Simba will be for them to get 20 per cent of bandwidth for free with zero investment. This, he said, would guarantee their continued relevance.
“What Google may do with Equiano, for instance in Nigeria, is to look for a carrier which can invest say $50 million in the cable. If this is done, Google will give the operator a monopoly for Equiano in the country, so the price for megabyte will drop substantially for that carrier, but all other carriers will be pushed out.
“But if the carriers within Nigeria, for example, can come together as one group and say we are going to pull the $50 million together, then everyone will get a low price, but because the carriers themselves don’t typically like to work together, but compete, that would be a challenge. If they succeed, that could create a monopoly in Nigeria. If one carrier gets a low price, it may not pass it to the consumers. They will keep the price high and make huge money.’’
Taking a swipe at the OTTs, Tagare said they didn’t want to pay taxes in any jurisdiction, and didn’t want to be regulated as a carrier.
He disclosed that the OTTs revenue almost on a yearly basis is in excess of over $1trillion with a market capitalisation of between $8trillion to $10trillion, while the combined 54 African countries’ GDP only amounts to $2 trillion. Tagare urged the OTTs to really invest in Africa, and possibly not in cables.
It was learnt that the largest OTT player made over $100 billion profit in West Africa last year without paying any form of taxes.
The Chief Executive Officer, SEACOM, Bryon Clatterbuck, described the subsea infrastructure as a very small part of the investments required in Africa. He said huge investment was required to develop the continent’s economies and communication infrastructure.
Clatterbuck said the majority of these investments were required in domestic terrestrial, cross-border, metro access, radio access, and data centers, among others. According to him, more capacity and diverse routing in subsea infrastructure is needed and can kick-start other investments.
The Chief Executive Officer of MainOne, Funke Opeke, said that the consumption of bandwidth on the submarine cable systems in the country was still insignificant despite huge capacity on the shores of the country.
A former Minister of Communications and Technology, Dr. Omobola Johnson, urged telecoms regulators to focus on ensuring that Internet connectivity is reliable, available, affordable and fast, rather than its penetration. She lamented that only major cities like Lagos, Abuja and Port Harcourt enjoy reliable Internet services while connectivity in other cities is poor.
“We need to define our infrastructure aspirations in a very different way and I challenge the Nigeria Communications Commission (NCC) to do this. What we should be talking about is the ubiquitous infrastructure that is available to every Nigerian wherever they live. We need to talk about fast infrastructure because when you leave Lagos, Abuja and Port Harcourt, it is almost impossible to do anything on the Internet because the infrastructure is just not there, and even if it is, it is not reliable enough. The Internet has to work all the time,” she said.
It is interesting to note that Google named Equaino after a Nigerian author, Olaudah Equaino, who was kidnapped as an 11-year-old and sold into slavery in the 1750s.