Broadband in Africa Where are we and where are we …siteresources.worldbank.org/EXTEDEVELOPMENT/Resources/Williams.… · Where are we and where are we going ? CITPO, InfoDev, AICD

Broadband in Africa

Where are we and where are we going ?

CITPO, InfoDev, AICD

Mark Williams

January 27, 2010

Investment into privately-owned operators has driven

network expansion

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

US

$b

n

East Asia and Pacific Europe and Central Asia

Latin America and the Caribbean Middle East and North Africa

South Asia Sub-Saharan Africa

*Excludes China

Investment into privately-owned

operators has driven network expansion

Advent of mobile competition

0

10

20

30

40

50

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

>2 operators

Duopoly

Monopoly

No network

Mobile competition, number of countries with:

Investment has been driven by rapid

market reforms

Network coverage has expanded dramatically

8%

67%

56%

86%

21%

91%90%

99%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2001 2003 2005 2007 2009

% p

op

ula

tio

n c

overa

ge

LIC LMC UMC HIC

Mobile network coverage has expanded

dramatically

Mobile growth in Africa has been

exponential but…

0%

10%

20%

30%

40%

50%

60%

70%

-

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007

Mill

ion

s

Nigeria

South Africa

Others

Annual growth

6

…broadband in Africa remains

very expensive

0.0

50.0

100.0

150.0

200.0

250.0

300.0

North America LAC North Africa ECA Sub-Saharan

Africa

US

$ p

er

10

0kb

it/s

(2

00

6)

Broadband in Africa is

currently very expensive

Internet usage remains very low

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Internet users per 100 people

Africa

SSA

North Africa

8

Policy attention is shifting to broadband:

What are we aiming for ?

Widely available

(50%+ of the

population can

access it

<$15 per month

Pre-payment

systems

Shared access

models (e.g.

through internet

cafes, educational

institutions)Private-sector

aggressively

marketing services

in a competitive

market

Wireless last-mile

infrastructure

Fiber backbone

infrastructure

Competition

between

infrastructure

providers

Policy questions

• What will it take to get low-cost access to broadband

in Africa ?

o How far is the successful voice policy model applicable to

broadband ?

o Is public support for broadband needed?

o What is the right policy mix?

• What can we learn from other regions about

appropriate policies for Africa ?

o Regulatory reforms

o Competition

o Targeted public intervention

9

How far will the market drive broadband

coverage ?

10

Modeling analysis based on Regulatel

methodology

Highest revenue potential

Lowest revenue potential

Lowest cost per subscriber

DEMAND

SUPPLY

Highest cost per subscriber Universal Coverage Gap

Sustainable Coverage Gap

Coverage Gap

Efficient Market Gap

Existing Coverage

• Spatial modeling using geo-coded data on network coverage, geo-type,

population density, income distribution

• Data: GSMA coverage database, GRUMP, Pyramid cost data

Spatial modeling process

• Identify uncovered areas, divide into cell-sized grid

• Estimate cost and revenue for each cell

PopulationSuperimposed grid

defining cell sites in

uncovered areas

GSM

coverage

Modeling parameters

Parameter Value or definition Source

Capital costs (capex) $167,000 per cell site in 2005, declining by an average of 2.1

percent per year.

Winrock International /

Pyramid Research

Operating costs (opex) $50,000 per cell site per year, plus diesel fuel costs. Fuel costs

are not included in the baseline scenario but can be explored in

the user-input sensitivity analyses.


Pyramid Research

Size of cell sites Rural = Up to 1,662 square kilometers (km2) (radius of 23 km)

Urban = 4 or 8 km2 (radius of 1.1–1.6 km)


Pyramid Research

Terrain factor (rural

areas only)

An integer factor ranging from 1 to 4 that is used to adjust the

number of base stations per cell site based on terrain. The

factor is calculated based on the percentage of raster cells with

unobstructed line of sight to a centrally located high point in the

cell site representing a hypothetical antenna position.


Pyramid Research. Line of

sight analysis was conducted

using SRTM digital elevation

data at 90m resolution.

GRASS GIS software was

used.

Revenue potential 4 percent of gross domestic product (GDP) per capita, weighted

for urban and rural income distribution. Where data is available,

revenue potential is reduced by applicable VAT and excise taxes

as identified in Minges (2007).

World Bank review team,


Pyramid Research, Minges

(2007)

Results: GSM is profitable for 92% of the

population in Africa

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Central African Republic

Liberia

Congo-DRC

Madagascar

Eritrea

Zambia

Mauritania

Djibouti

Gambia, The

Congo, Republic

Niger

Mozambique

Zimbabwe

Sao Tome and Principe

Chad

Mali

Guinea

Sierra Leone

Botswana

Namibia

Lesotho

Tanzania

Ethiopia

AFRICA

Cameroon

Libya

Gabon

Cape Verde

Burkina Faso

Malawi

Sudan

Burundi

Togo

Kenya

Senegal

Algeria

Angola

Cote d’Ivoire

Benin

Ghana

Swaziland

Uganda

Morocco

Egypt

Rwanda

Nigeria

South Africa

Comoros

Equatorial Guinea

Mauritius

Seychelles

Tunisia

Percent of Population

Existing Coverage Efficient Market Gap Coverage Gap

• Overall coverage gap for Africa (51 countries) is 8% of the population

• Wide variety in extent of gap: Mauritius = 0% gap, CAR = 53%

Cost of extending networks

763.3

105.9

966.8

238.2

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Sub-Saharan Africa North Africa

US

$ m

illi

on

p

er y

ea

r

Efficient market gap Coverage gap

• Although coverage

gap is small, it is

expensive to fill

because of low

population density

• Total amount is

c.US$1.2bn/year

Broadband modeling assumptions

Parameter Value or definition Source

Type of coverage Outdoor Winrock International / Pyramid

Research, Alvarion

Capex $20,25,000 per 4-sector WiMax 802.16d cell site (single radio per sector)

$12,97,000 per single-sector WiMax 802.16d cell site

$216,000 per CDMA 450 1x EV-DO cell site

$450 per subscriber for outdoor coverage customer premise equipment (CPE)

(including installation)

Winrock International / Pyramid

Research, Alvarion

Opex $50,000 per cell site per year Winrock International / Pyramid

Research

Size of cell sites Rural = 5,024 square kilometers (km2) (radius of 40 km)

Urban = 78.5 km2 (radius of 5 km)

Ho 2005, Seybold 2006, Alvarion

Terrain factor An integer factor ranging from 1 to 4 that is used to adjust the number of base stations

per cell site based on terrain. The factor is calculated based on the percentage of

raster cells with unobstructed line of sight to a centrally located high point in the cell

site representing a hypothetical antenna position.


Research. Line of sight analysis was

conducted using SRTM digital elevation

data at 90m resolution. ESRI ArcGIS

9.2 software was used.

Subscriber

penetration

One broadband connection per 100 urban inhabitants plus one broadband connection

per 400 rural inhabitants


Research

Revenue potential 1 percent of GDP per capita, weighted for urban and rural income distribution. Where

data is available, revenue potential is reduced by applicable VAT and excise taxes as

identified in Minges (2007).


Research, Minges (2007)

Market will deliver a low-cost, low-quality,

public access model

Figure 2.9 Broadband coverage gap analysis

Source: Winrock International / Pyramid Research.

0% 20% 40% 60% 80% 100%

Congo-DRC

Liberia

Central African …

Guinea-Bissau

Gambia, The

Zimbabwe

Madagascar

Guinea

Eritrea

Djibouti

Mozambique

Zambia

Mauritania

Niger

Mali

Namibia

Chad

Congo, Republic

Burundi

Malawi

Lesotho

Botswana

AFRICA

Sierra Leone

Tanzania

Gabon

Cameroon

Ethiopia

Seychelles

Libya

Cape Verde

Burkina Faso

Sao Tome and …

Senegal

Angola

Comoros

Kenya

Sudan

Cote d’Ivoire

Algeria

Benin

Uganda

Togo

Morocco

Ghana

Rwanda

South Africa

Egypt

Nigeria

Tunisia

Equatorial Guinea

Mauritius

Swaziland

Percent of Population

Efficient Market Frontier Coverage Gap

86% of the population would gain access to broadband through this model of public internet access points

Would require $3.6 billion in up-front capital investment plus $454.4 million per year in operating expenses

A more ambitious policy objective would

require more assertive public support

• Modeling strategy:

o Assume target penetration rates (urban and rural)

o Assume ARPUs

o Calculate profitability/subsidy requirement by cell

o Test impact of assumptions

•Key assumptions:

o Wimax/CDMA networks

o Partial infrastructure sharing

o International = current costs

o Cost of capital = 20%

o 10 year modeling horizon

18

Total subsidy requirements for mass-market

broadband penetration

19

$.0

$.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

To

tal su

bsid

y r

eq

uir

em

en

t N

PV

(U

S$b

n)

ARPU = $10.00 per month ARPU = $5.00 per month

Urban penetration rate =

20%, rural penetration rate =

10%

Total revenue = 2.7%/1.4%

of GDP

International connectivity

prices = $2000/Mbps

International bandwidth prices have a major

impact on financial viability

20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

20%/10% 10%/5% 5%/2%

To

tal s

ub

sid

y r

eq

uir

ed

NP

V (

US

$b

n)

Penetration rate (Urban/Rural)

International bandwidth = US$2000/Mbps International bandwidth = $400/Mbps

Model for Ghana

ARPU = $5 per month

Backbone networks

21

22

Broadband supply-chain

International

connectivity

Domestic

backbone

Switching/

Routing

Access

Retail

services

Connection to the rest of the world,

provided by satellite or fiber-optic

cable (usually submarine)

Carries traffic between fixed points within a

network. Provided by satellite, microwave

or fiber-optic cable

The ‘intelligence’ in the network, ensuring

that communications traffic is sent in the

right direction

Link between the customer and the network.

Usually xDSL or cable networks. In Africa,

wireless is used (where it exists)

All the ‘soft’ inputs required (e.g. sales,

customer care, billing etc.)

Regional

connectivity

Connection from the border to the nearest

connection to the rest of the worldBackbone

newtorks could

be a major

constraint on

market

development

Rapid market

entry is easing

infrastructure

constraints

23

Broadband supply-chain

International

connectivity

Domestic

backbone

Switching/

Routing

Access

Retail

services

Connection to the rest of the world,

provided by satellite or fiber-optic

cable (usually submarine)

Carries traffic between fixed points within a

network. Provided by satellite, microwave

or fiber-optic cable

The ‘intelligence’ in the network, ensuring

that communications traffic is sent in the

right direction

Link between the customer and the network.

Usually xDSL or cable networks. In Africa,

wireless is used (where it exists)

All the ‘soft’ inputs required (e.g. sales,

customer care, billing etc.)

Regional

connectivity

Connection from the border to the nearest

connection to the rest of the world

Backbone

newtorks could

be a major

constraint on

market

development

Why are fiber backbones important ?

24

0.4 0.2 0.2

24.9

151.2

98.1

249.1

0

50

100

150

200

250

300

PSTN+WLL mobile narrowband access

broadband access

PSTN+WLL narrowband access

broadband access

ba

ck

bo

ne

ba

nd

wit

dth

pe

r u

se

r (k

bp

s)

Residential users Corporate users

25

Is fiber different from wireless telecoms

infrastructure?

0

200

400

600

800

1000

1200

100 200 300 400 500 600 700 800 900 1000

long

-run m

arg

ina

l cost of

capacity (

US

D$)

capacity (Mbps)

optical fiber microwave

Extending the backbone networks

in Burkina Faso

26

Peripheral areas are much more expensive to

serve than urban routes

27

0.0

0.1

0.2

0.3

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0.5

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1.0

Traffic (Mbps) Long-run cost (US$/Mbps/month)

No

rma

lize

d c

os

t

core network periphery network

There is a lot of fiber backbone in Africa

28

Developing in from the

coasts

Growing rapidly

Very variable between

countries


29


coasts

Growing rapidly


countries

South Africa has almost

twice as much fiber as

the rest of SSA combined


30


coasts

Growing rapidly

South Africa has almost

twice as much fiber as

the rest of SSA combined

East Africa & Nigeria

have the fastest growing

fiber networks in the

region


countries

‘000 km of fiber optic

network

31

154.0

4.3

80.2

36.6

South Africa (operational) South Africa (under construction)

Rest of SSA (operational) Rest of SSA (under construction)

The regional pattern of backbone network

development is evolving rapidly

South Africa has most of the

region’s fiber but it is not

growing as quickly as in other

countries

32

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Fibre under construction (kms) Fibre under construction as % of operational fibre

Wide variations in fiber network length

and growth rates across the region

33

Development of terrestrial and

submarine fiber are closely linked

34

Development of terrestrial and

submarine fiber are closely linked

Terrestrial network

development is linked to

landing points for

submarine cables

The pattern of ownership of fiber networks is

also evolving

35

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Private telecommunications

operator

Privatised telecommunications

operator

State-owned telecommunications

operator

State-owned electricity company

Government-owned

Operational Under construction

*SSA excluding South Africa

Market dynamics of fiber backbone

networks in Africa

Kenya: mixture of public and private

network competition

37

Competitive

privately-funded

routes

Non profitable

routes

Government-funded fiber

network reaching rural

areas

Zambia: 2 SOEs with national fiber networks

competing with each other

Zambia: 2 SOEs with national fiber networks

competing with each other

Government recently announced it is giving

control of ZESCO’s fiber to Zamtel to create

monopoly in order to raise privatization sale

value of Zamtel

Policy on backbone networks

40

41

Policy recommendations

• Governments can do a lot to stimulate infrastructure

competition

o Remove restrictions on infrastructure competition

o Provide cheap/free access to public infrastructure

o Reduce investment risk

o Aggregate service demand from public institutions

• Outside of main cities and trunk routes, public

support to backbone networks will be needed. Three

basic models are available:

o Competitive subsidies

o Shared infrastructure

o Incentive-based private-sector models

Remove restrictions on

backbone infrastructure competition

42

• What does this involve ?

o Remove restrictions on wireline network development

(Tanzania, Republic of Congo, Sudan)

o Remove restrictions on wholesale (Mozambique)

o Encourage entry through carrier licenses (Nigeria)

o Rights of way (?)

• Challenges

o Protection of incumbents

o Boosting privatization valuations

o Protecting existing private operators with explicit or implicit

exclusivity arrangements

o Collusion between operators

Provide cheap/free access to

public infrastructure

•What does this involve ?

o Types of infrastructure: electricity, pipelines, railways,

sewers

o Giving rights of way alongside roads to lay fiber

•Challenges

o Security – access by third party is almost impossible

o Revenue raising by parastatals or local authorities make this

difficult

o Some countries pass laws to limit revenue-raising by local

authorities

43

Reduce investment risk and

aggregate public demand

•What does this involve ?

o Risk guarantees

o Clearer licensing commitments

o Arbitration arrangements

o Government equity investments

o Government is often the biggest client so pooling this

demand into a single contract may help reduce transaction

costs.

•Challenges

o Risk guarantees are difficult and expensive

o Some governments are doing the opposite – extracting more

rents from the sector through taxes, license-fees and

relicensing ‘ransom’

o Pooling of government demand into single contract may

leave supplier vulnerable to non-payment (chronic problem

for other utilities) 44

Models from other countries

45

Australia – rural backbone

•Problemo Fully liberalized market but no competition to Telstra on small-

town/rural routes

o Limits to regulated access to Telstra’s network

•Strategyo Create competition to Telstra on 6 priority up-country routes

(6000km, 100 locations) through subsidizing new entrant (up to A$250).

o Routes selected by government and then contracts tendered.

o Winner required to provide on a non-discriminatory basis –enforced through PPP contract. Operation for 5 years

o Operator required to provide range of wholesale services (Managed wavelength, Carrier managed leased line services (SDH), Carrier managed Ethernet, interconnection)

o Contract and awarded to Nextgen (mid 2009).

Australia – extending backbone network

competition to small towns

Australia – rural backbone

Australia – extending backbone network

competition to small towns

Rwanda: facilitating network development

• Three backbone networks – 3 private, one public

• Direct government funding for backbone network

• Government network reaches unprofitable areas of

the country but also crowds out private investment ?

• Innovative decision to lay multiple ducts and allow

for private operators – shared passive infrastructure,

reduces costs and stimulates network development.

Also avoids planning problems

48

49

Putting backbone policy in Africa into context

• Downstream market competition

o Regulated access to existing operators’ infrastructure: Local

Loop Unbundling, tower access

o Spectrum

o Licensing

• Demand-side stimulation

o Aggregating public demand

o Providing subsidized computers

o Computer training

Documents

Broadband in Africa Where are we and where are we …siteresources.worldbank.org/EXTEDEVELOPMENT/Resources/Williams.… · Where are we and where are we going ? CITPO, InfoDev, AICD