Spescom reports:

Jan 26th, 2011

Can carrier independent co-location assist?

At the Capacity Africa conference held in Kenya in September 2010, as well as the Capacity Europe conference held in the Netherlands in November 2010, the focus was on the international wholesale of bandwidth and network services.  There is much excitement over the changes driven by more bandwidth becoming available – courtesy of the commissioning of the SEACOM and EASSy undersea cables as well as the WACS cable due for connection on the West Coast of Africa in 2011. However, there are some challenges.

Says Pieter du Preez, Group Executive: Business Solutions Development at Spescom: “The bandwidth challenge faced by Africa is three-fold: firstly, there’s the legacy of a stranglehold on access to international bandwidth to deal with; secondly, the high cost of transporting that data on new networks; and lastly, the need to unbundle the local loop to provide broader access to bandwidth.

“In the first instance, the incumbent traditionally controlled break-in and-out points for international traffic. This has changed with the commissioning of new undersea cables, but the legacy left is hard to overcome. New capacity hitting our shores does take care of the first leg – the bandwidth is available. However, the demand for, and utilisation of available bandwidth are still only at a fraction of the capacity that will be available by 2012.”

To put this into perspective, consider that before July last year, South Africa only had 120 Gigabits per second capacity via the SAT3/SAFE cable.

This was upgraded to 340 Gbps in late 2009. Compare this to the more than 15 Tera bits per second of capacity that will be available by 2012 when the combined capabilities of SEACOM, EASSy, WACS and ACE go live. It is a 128-fold increase on the capacity available in 2009.

“The second link of the chain is the transport of bandwidth by terrestrial and non-terrestrial carrier networks. This seems to be moving along nicely – in Africa everyone is digging trenches. However, between 70% and 80% of the cost of laying fibre is in digging those trenches. Infrastructure investors still need to recoup this expense and it’s adding to the cost of bandwidth.

“This is also why it’s difficult to attempt to strike a comparison between US and Africa bandwidth prices. In the US and elsewhere, those investments have already been recouped – and it is service and innovative offerings that define the competitiveness.”

And the last part of the puzzle is facilitating utilisation of bandwidth.

“Capacity is meaningless without utilisation,” says Du Preez. “Hindering the wide spread accessibility of bandwidth in Africa are local loop unbundling and last mile connectivity. This is nothing new and has been the topic of many discussions over the last few years. However, carrier independent co-location may add a new dimension.”

Says Thomas Makore at Spescom: “There is a lot of new international bandwidth available, with more to come, and yet we (consumers and businesses) have not really seen a dramatic improvement in affordability of quality assured broadband in South Africa. Instead, service providers are providing more capacity at the same or slightly reduced prices. On a continent where fixed line and broadband penetration averages hover way below double digits, bringing capacity to the shore is only step one. The investment required to build terrestrial and last mile access networks will have to be recovered by the respective infrastructure owners, and this in a region where ARPU (Average Revenue per User) for mobile and fixed networks is in the low reaches of the spectrum by global standards.

The first principle of promoting competition is the availability of options, but availability is nothing without demand. And the demand for broadband capacity in Africa is still in its infancy, despite the continent being seen by many as a telecoms gold mine to be harvested by international conglomerates.

And with a large amount of capacity available on the first leg (some even class it as oversupply), we have to ask what is keeping demand at bay. The answer is found in underdeveloped regional Internet usage, relatively low demand for bandwidth intensive applications such as video and cloud services, cost and accessibility.

A large component of the solution to these challenges – and one that could add a new dimension to offerings – is participation by telcos and service providers in carrier neutral co-location.” No single player will drive the demand for broadband capacity, but an open market place for connecting to multiple carriers and services will aid in the ultimate distribution of bandwidth availability.

Makore is MD of Spescom’s NewTelco South Africa, a new carrier neutral co-location hub which launched services in November 2010, as well as MD of Spescom Telecommunications, a provider of access and transmission solutions and services to telcos in South Africa and the sub-Saharan region.

“In Africa, recouping infrastructure rollout costs depends on the business model of the organisation or entity that installed the infrastructure. These can differ quite widely. For instance, compare the agendas and probable ROI requirements of:

.    a private company that wants to create a ring in the city to speed communications between branches and secure its data,
.    a metro WAN or LAN implemented by a government organisation,
.    or infrastructure implemented by a mobile operator.

“Depending on what they have put into or onto the network, it could take 15 years to recoup the investment,” notes Makore.

“The slow adoption of broadband is in large measure due to massive challenges around last mile connectivity in Africa. Sharing of networks could assist in terms of recouping investments, but despite encouragement by various global development sector organisations, there has been little sharing of networks between service providers. Controlling the network is important to set returns. There is the potential of partnerships diluting earnings and undermining the one thing all carriers depend on for competitive advantage – service provision – if networks become oversubscribed. The challenge is that connectivity is not easily affordable and consumers still don’t have many options.”

Enter the carrier neutral co-location hub.

Says Makore: “Carrier neutral co-location essentially provides carriers with a telecoms hub or ‘market place’ where they interconnect with any other carrier who has a presence in that market place. Interconnections are unrestricted. NewTelco South Africa provides such a hub. It can up the ante for a number of players, resulting in a lot of repositioning in the market.”

NewTelco South Africa is a joint venture between Spescom Ltd and NewTelco GmbH which has already established five other carrier neutral co-location hubs in major world capitals, namely Frankfurt, London, New York, Vienna and Kiev. The South African hub will now add competitiveness and give local and international carriers the flexibility to exploit the growing telecoms market, by providing reliable and high-quality services.

The partnership offers New Telco GmbH an opportunity to expand its offering to the African continent, while New Telco SA customers can leverage the interconnectivity that the German company has already established across the globe with over 1000 carriers.

NewTelco SA will not compete with existing network providers, but will offer complementary value added services, targeting regional and international carriers without their own infrastructure and providing them an interconnect with other carriers at a co-location facility that is neutral, without needing massive investments in infrastructure.

Concludes du Preez: “The carriers can select their own long distance capacity, connectivity and negotiate price on traffic volumes. This will undoubtedly assist to bridge that gap, driving down prices and increasing competitiveness within the region.”

I know that the SEACOM cable has had a number of problems, mostly cable breaks, since it went live. It also has no redundancy in case of failure. I wasn't aware of the packet loss, so thanks for brining that to our attention.

I agree with you on the 'maximum profits minimum service' issue.

Then there is that last mile issue, and LLU that comes into play.
I don't think we'll see any major further shifts until if, when and how LLU is implemented.

We need more independent local fibre and if possible FTC (Fibre to Curb)

There is definitely not a lack of demand by end users as intimated by the article.
I see the pricing and local infrastructure as the major stumbling blocks.

As for 3G, HSPA+, LTE and 4G... Let's not even get started on that...

Funny you mentioned MWEB.
They just announced yesterday (I just became aware of it a couple of hours ago) that : "MWEB has landed SAT-3 cable capacity in its Cape Town node, after the Internet service provider (ISP) was affected by Seacom's downtime in July and announced that it would source additional capacity."

Here's a link to an article about that in iWeek.