Global Insight Perspective | |
Significance | This follows a crucial meeting in Kigali (Rwanda) in which operators from only 7 of 23 countries signed the protocol for the creation of a special purpose vehicle (SPV) company to own and manage the East Africa Submarine Cable System (EASSy). Kenya was among the countries which did not sign the protocol, and a three-month extension was granted for the remaining operators to sign up. |
Implications | Kenya first announced a plan to build its own submarine cable in May, but was persuaded to put these plans aside in order to give time to conclude the EASSy project. "With Plan B", said Kenya’s Information and Communication Permanent Secretary Bitange Ndemo, "we can start as early as next month because it does not involve all this protocol signing." |
Outlook | The plan threatens to undermine the EASSy project seriously, and with it the provision of international bandwidth supplied by submarine cable to all the other eastern and southern African countries which would be served by the cable. Kenya, along with all of its eastern and southern African neighbours except for Djibouti, Sudan, and South Africa, relies exclusively on satellites for all of its international traffic. |
The statement issued yesterday by Kenya's president said that "today's Cabinet meeting approved the source of an undersea fibre-optic cable connection between Mombasa and Fujairah in the Gulf of Oman." A number of other submarine cables land at Al Fujairah, which would provide onward upstream international connectivity to Europe and Asia. The Kenyan government first made the surprising revelation on 2 May 2006 that it was considering building its own submarine cable, from Mombasa to Djibouti, to satisfy its need for upstream international bandwidth. Speaking at the East African Regulatory, Posts, and Telecommunications Organisation (EARPTO) meeting, Kenya’s Information and Communication Permanent Secretary Bitange Ndemo said that the cost of constructing the cable would be raised on the Nairobi Stock Exchange, and that the cable could be ready for commercial service by the end of 2007. The new statement made this week indicates that the government has developed its plans further, with a change in destination and proposed financing costs.
The Kenyan government said that the submarine cable will be a joint venture between the government and the private sector. The statement said that it estimated the project to cost 8 billion shillings (US$110.5 million). No firm details or timeframe have been announced at this stage, but Reuters reports that it may seek a long-term bond on the Nairobi Stock Exchange. Since Kenya liberalised the international bandwidth in 2004, three new international gateway operators have launched services. With the introduction of competition against Jambonet (Telkom Kenya), the availability of international bandwidth has increased dramatically and tariffs have fallen. The introduction of submarine cable would dramatically increase the amount of bandwidth available. Moreover, the Cabinet statement said that the cable network will also serve Tanzania, Uganda, Sudan, Rwanda, Burundi, Ethiopia, and Somalia. It is therefore likely that Kenya will use the cable to retail international bandwidth to operators in these neighbouring countries.
Telkom Kenya is also one of the signatories of the Memorandum of Understanding (MoU) for the proposed EASSy cable, which would run from Mtunzini (South Africa) to Port Sudan (Sudan), with landing points in Maputo (Mozambique), Toliara (Madagascar), Dar es Salaam (Tanzania), Mombasa (Kenya), Mogadishu (Somalia), and Djibouti. The International Finance Corporation (IFC) issued a statement in July saying that a key consensus had been reached among all EASSy stakeholders at a meeting held in Nairobi (Kenya) from 4 to 6 July (see sub-Saharan Africa: 19 July 2006: Elusive Consensus Reached on EASSy Submarine Cable Project). According to the IFC: "The stakeholders’ meeting successfully reached its main objective of arriving at a consensus around a hybrid project structure that meets the governments’ developmental objectives of ensuring low-cost open access to international connectivity, while providing for financing flexibility and maintaining the commercial appeal of the project." However, only 7 of 23 countriessigned the Policy and Regulatory Framework Protocol for the NEPAD ICT Broadband Infrastructure Network which would lead to the creation of a special purpose vehicle (SPV) company to own and manage the EASSy cable (see sub-Saharan Africa: 1 September 2006: African Countries Sign Broadband Agreement).The seven countries which did sign the protocol wereTanzania, Uganda, Rwanda, Lesotho, Malawi, Madagascar, and South Africa.
Outlook and Implications
The announcement that the Kenyan Cabinet has decided to seek financing to build its own submarine cable moves the country beyond signs of growing frustration at delays in the EASSy project, and suggests that Kenya will pull out of the project to pursue its own. Its first announcement in May appeared to be a negotiating tactic to accelerate the conclusion of EASSy, but Kenya now appears to have decided to go it alone. These delays have stemmed from the inability of the parties to agree on final ownership and financing structures between those who favour an open-access model and those who favour a closed system. Under the original timeframe, the EASSy consortium was to close financing in the second quarter of 2005 and sign the construction and maintenance agreement (C&MA) in the fourth quarter of 2005, and the cable was to be ready for commercial service (RFCS) in the second quarter of 2007.
Meanwhile, Telkom South Africa's chief executive officer, Papi Molotsane, said this week in an interview with Business Day newspaper that Telkom SA may consider abandoning participation in the EASSy project if the return on its proposed investment is not sufficient to justify it to shareholders. "The overriding issue that we have to evaluate is the impact EASSy will have, the investment it will require, and the return we will get," said Molotsane, noting that if the project does not make sense for its shareholders the company will have no reservations withdrawing. "We support Nepad, but we have to do things that really make sense for our shareholders, who expect returns on their investment. We have indicated to the (communications) minister that if it doesn’t make sense we will not go forward. At this stage it is difficult to say whether we will stay or pull out."
Meanwhile, Kenya Data Networks (KDN), the first alternative international gateway operator licensed in Kenya, has already reportedly entered into a provisional agreement with FLAG to build its own submarine cable from Kenya. That agreement reportedly covers the construction of a submarine cable spur from Mombasa to meet the Falcon cable off the coast of Yemen, which would be completed by the end of September 2007 at the latest. It is reportedly valued at US$115 million, according to Balancing Act, but does provide an escape clause if KDN chooses to take it. KDN signed the MoU for the proposed EASSy cable (see Kenya: 14 July 2005: KDN Joins EASSy Submarine Cable Consortium). Significantly, in November 2005, FLAG signed an agreement with the Sudanese operator Canar Telecommunication to provide East Africa’s first landing station for the FALCON cable at Port Sudan (see Sudan: 21 November 2005: Second Sudanese Fixed-Line Operator Invests in FALCON Submarine Cable). KDN’s decision to seek its own link followed shortly after the Kenyan government made its announcement in May that it was considering building its own cable. That not only threatened to undermine the EASSy project, and all of the other operators who are involved in the project, but could also prove to be a competitive threat to KDN. KDN then commissioned studies during May looking for alternative options for its international fibre connectivity, according to the East African Standard, and has since commissioned a survey for the best routing of a new submarine cable from Mombasa.