High civil engineering costs will defer the self-provisioning fibre dream

Given that it costs up to R1 000/m to roll out a fibre-optic network, it is unlikely that many of the over 500 new individual electronic communications network ser- vices (I-ECNS) licence holders, now entitled to self-provide, will take up the costly challenge.

The price tag is largely attributable to the significant civil engineering expertise and equipment involved in the process of fibre laying, with the cost of the actual fibre being relatively negligible.

Not many companies have pockets deep enough to allow for self-provision, and, with the explosion of competition, it could prove difficult to recover the investment.

“To deploy physical infrastructure is a very expensive game. If you don’t have secure cash flow and funding, rolling out infrastructure becomes risky. What you don’t want to do is part roll out infrastructure and find you run into cash flow problems,” says Africa Analysis MD Andre Wills in an interview with Engineering News.

Another major issue is that the industry is still awaiting clarity from the Independent Communications Authority of South Africa (Icasa) on what the licence fees will be. Fees are said to be a percentage of revenue, but which revenue is not clearly stated. The different fees for different parcels of services offered have not been defined.

“There was a big bang of licences, but this doesn’t tell you what the licence fees are, and you don’t have any spectrum. Nobody is going to spend a cent of capex until they know what the licence fee is going to be,” says iBurst MD Alan Knott-Craig, the son and namesake of the former Vodacom CEO.

LOCAL LOOP IN FOCUS

Indeed, ECN Telecoms CEO John Holdsworth reiterates that although South Africa is now one of the most liberalised telecoms markets in the world, the conversion of licences was merely the first step – self-provisioning is not a silver bullet, and there is a long way to go before dramatic changes are seen in the market.

Holdsworth explains further that Telkom’s existing infrastructure exceeds one-million circuit kilometres, making it near impossible for a newcomer to compete, which is why “we need to see local loop unbundling (LLU) happening”. “You won’t see movement in the market until that happens. Until that happens, we are essentially reselling Telkom broadband.”

The Department of Communications has indicated that LLU can be expected in 2010 or 2011.

Once there is LLU, a company can provide its own set of Internet Protocol services. Wills explains: “All you are interested in is the access. So, in that sense, you have an opportunity to go and change that product specification.”

“Facilities leasing is enormously important – all these networks must be forced to share their facilities. Telkom has got to open up its exchanges, and all the high sites have got to be shared among the providers. I think we will see facilities leasing regulation promulgated in the next 12 months. And that is going to force a lot of infrastructure sharing, which is very good for the market,” emphasises Holdsworth.

ECN Telecoms would not be focusing its attention or funds on rolling out an infra- structure network.

Benjamin Maphatlane, CEO of Business Connexion (BCX), one of the information and communication technology groups which has had its value-added network services licence converted, has also said that the company will not be putting up the millions required to build the infrastructure.

Meanwhile, telecoms media and technology group Altech, which was at the centre of the legal fight for the conversion of licences, has not made any announcements regarding a possible network roll-out, but CEO Craig Venter has indicated the company would make known “strategies stemming from the issuance of the licences . . . in due course”.

In fact, of the analysts canvassed by Engineering News, not one could mention the name of a company that has indicated it would roll out infrastructure.

However, should a company decide to lay its own network – and it is expected that, perhaps, a handful will do this – this would enable it to on-sell services. In this way, a company could use what it needs and then sell a portion of that network, or capacity, to other telecoms businesses that cannot afford to build their own networks.

However, Wills notes: “The strategic issues that a service provider deals with are fundamentally different to those dealt with by network operators.”

The other way to get around expensive infrastructure roll-outs is to use wireless equipment.

However, if a company decides to use wireless equipment, it will still need to get a spectrum licence from Icasa, and, as spectrum is limited, only a few are furnished with these licences.

“Icasa now has to come up with a fair way of allocating spectrum, including the 500-plus new licensees, and the allocation is going to take much longer. So instead of allocating the spectrum, it has to come up with guidelines for people to apply for spectrum,” says Knott-Craig.

He adds that, in this regard, he feels that the Altech legal debacle slowed things down for many players, because, instead of focusing on regulation and allocation of spectrum, and reallocation of unused spectrum, Icasa was concerned with licence conversions.

SO WHY ALL THE HYPE?

For companies with converted Vans licences, the money is not in the infrastructure, but in the services that are provided over that infrastructure.

“The stuff put out over the pipes is more and more important, and we are likely to see companies offering more creatively structured products.

“Providers will be able to operate their own networks and, in so doing, will be able to structure their services as they see best, and according to what their clients require, as opposed to simply reselling what Telkom offers,” World Wide Worx MD Arthur Goldstuck tells Engineering News.

“We are pleased with the [conversion of licences] as this has allowed our clients to increase their bandwidth to our data centres more than a hundredfold. So the liberalisation allows us to participate in a global economy and develop exciting unified business solutions based on our cloud computing ability,” Business Connexion services division executive John Jenkins explains to Engineering News.

It allows companies greater choice, and redundancy, in that they can contract with many infrastructure providers to achieve the service that they require to deliver.

“The ability to use multiple solutions for our distribution and the ‘last mile’ in this model allows us the flexibility to meet a variety of business requirement cost effectively,” adds Jenkins.

OPEN ACCESS

Dark Fibre Africa (DFA) is a company with fibre-optic network infrastructure in the ground. “We are an open access company and will provide infrastructure to anybody who has a licence issued by Icasa,” says DFA MD Malcolm Kirby.

This, essentially, means that companies that have had their licences converted to I-ECNS and are allowed to self-provide, but cannot afford to build a network, can enter into an agreement to lease fibre from DFA.

The company has already received significant interest from newly licensed companies, and hopes to see more companies get their licences issued, as opposed to merely granted, which will allow them to rent fibre infrastructure from DFA.

“A client will come to us needing to build a network to access their clients. What DFA does is build a fibre infrastructure based on their requirements. We try to look at as many of the operators as possible, and map their requirements on top of each other. We then build an infrastructure that is optimum to as many as possible,” explains Kirby.

DFA clients then build their networks on the DFA infrastructure, and deliver services to the end-user.

DFA’s infrastructure is not a communications infrastructure – it’s a communications enabling infrastructure, emphasises Kirby. “We make it easier for companies to provide communications. We look after the stuff in the ground. We call ourselves the humble trench diggers.”

GLOBAL ACCESS

At this stage, explains Goldstuck, the only way for companies to get their back-end data feed and international access is through Telkom.

“So, for the moment, the only place where you can get backhaul is Telkom – until the new undersea cable is up and running, these new licensees are still dependent on Telkom, to a large extent,” Goldstuck adds.

Currently, South Africa’s international access comes through the SAT-3 undersea cable, which lands in Melkbosstrand, in the Western Cape, and the capacity is sold through Telkom.

This is set to change in June, when the Seacom undersea cable, landing in Mtinzini, in KwaZulu-Natal, will become operational.

Seacom has indicated that the construction and burial of the cable under water is progressing on schedule. Once landed, the cable will connect Southern and Eastern Africa with the international broadband networks of Europe and India.

The landing of massive capacity such as Seacom’s places pressure directly on bandwidth pricing – which follows classic supply- demand fundamentals.

“Seacom will offer international access capacity, and that will always have a knock-on effect on pricing; however, the pricing constraint will probably move to national transmission local access pricing,” states Wills.

INFRASTRUCTURE BOOST

Mobile operator MTN and fixed-line operator Neotel have announced a joint venture (JV) that will bolster the national infrastructure backbone.

Under the collaboration, announced in January, the companies will roll out 5 000 km of fibre-optic cable to service South Africa’s major cities, at a cost of some R2-billion.

“Their JV is another boost to the national network, as this will be a major new source of capacity for new providers,” says Goldstuck.

The pooling of engineering and project management resources, and the sharing of services, make sense. Although broken down into phases, the project life will be spread over two years and, thus, customers will have to wait to realise the benefits of this JV and new national capacity.

“Telkom may well end up being the better provider – if it responds nimbly to all these threats,” notes Goldstuck, adding that it could become an opportunity for Telkom, if the company is strategically creative.

“What will happen is that you will see Telkom’s revenue stream converted from retail to wholesale at a lower margin,” adds Wills.

He further explains that instead of retailing it directly, Telkom will sell capacity to company X, “which will then sell it directly to you”.

Wills states that Telkom is unlikely to lose massive market share. “If you look at it globally, very few operators have lost significant market share following the introduction of competition."