Broadband in Africa Where are we and where are we going? CITPO, InfoDev, AICD. Mark Williams January 27, 2010

Transcription

1 Broadband in Africa Where are we and where are we going? CITPO, InfoDev, AICD Mark Williams January 27, 2010

2 US$bn Investment into privately-owned operators has driven network expansion Investment into 2000 privately-owned operators has 2007 driven 2008 network expansion 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

3 Investment has been driven by rapid market reforms Mobile competition, number of countries with: >2 operators Duopoly Monopoly No network Advent of mobile competition

4 % population coverage Mobile network coverage has expanded dramatically 100% 90% 80% 70% 60% 50% 40% 30% 20% 90% 56% 21% 99% 91% 86% 67% 10% 8% 0% Network coverage has expanded dramatically LIC LMC UMC HIC

5 Millions Mobile growth in Africa has been exponential but 70% 60% 50% % 30% 20% 10% Nigeria South Africa Others Annual growth %

6 US$ per 100kbit/s (2006) broadband in Africa remains very expensive Broadband in Africa is currently very expensive North America LAC North Africa ECA Sub-Saharan Africa 6

7 Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central Chad Comoros Congo Congo, D.R. Co te d'ivoire Djibouti Equatorial Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Niger Nigeria Rwanda & Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwe Internet usage remains very low Internet users per 100 people Africa SSA North Africa

8 Policy attention is shifting to broadband: What are we aiming for? Shared access models (e.g. through internet cafes, educational institutions) <$15 per month Competition between infrastructure providers Wireless last-mile infrastructure Fiber backbone infrastructure Private-sector aggressively marketing services in a competitive market Pre-payment systems Widely available (50%+ of the population can access it 8

9 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

10 How far will the market drive broadband coverage? 10

11 Modeling analysis based on Regulatel methodology Highest cost per subscriber Universal Coverage Gap Sustainable Coverage Gap Coverage Gap SUPPLY Efficient Market Gap Existing Coverage Lowest cost per subscriber Highest revenue potential DEMAND Lowest revenue potential Spatial modeling using geo-coded data on network coverage, geo-type, population density, income distribution Data: GSMA coverage database, GRUMP, Pyramid cost data

12 Spatial modeling process Identify uncovered areas, divide into cell-sized grid Estimate cost and revenue for each cell Population GSM coverage Superimposed grid defining cell sites in uncovered areas

13 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. Winrock International / Pyramid Research Size of cell sites Rural = Up to 1,662 square kilometers (km 2 ) (radius of 23 km) Urban = 4 or 8 km 2 (radius of km) Winrock International / 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. Winrock International / 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, Winrock International / Pyramid Research, Minges (2007)

14 Results: GSM is profitable for 92% of the population in Africa Overall coverage gap for Africa (51 countries) is 8% of the population Wide variety in extent of gap: Mauritius = 0% gap, CAR = 53% Existing Coverage Efficient Market Gap Coverage Gap Tunisia Seychelles Mauritius Equatorial Guinea Comoros South Africa Nigeria Rwanda Egypt Morocco Uganda Swaziland Ghana Benin Co te d Ivoire Angola Algeria Senegal Kenya Togo Burundi Sudan Malawi Burkina Faso Cape Verde Gabon Libya Cameroon AFRICA Ethiopia Tanzania Lesotho Namibia Botswana Sierra Leone Guinea Mali Chad Sao Tome and Principe Zimbabwe Mozambique Niger Congo, Republic Gambia, The Djibouti Mauritania Zambia Eritrea Madagascar Congo-DRC Liberia Central African Republic 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Population

15 US$ million per year Cost of extending networks Although coverage gap is small, it is expensive to fill because of low population density Total amount is c.us$1.2bn/year Sub-Saharan Africa North Africa Efficient market gap Coverage gap

16 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 d cell site (single radio per sector) $12,97,000 per single-sector WiMax d 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 Terrain factor Rural = 5,024 square kilometers (km 2 ) (radius of 40 km) Urban = 78.5 km 2 (radius of 5 km) 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. Ho 2005, Seybold 2006, Alvarion Winrock International / Pyramid Research. Line of sight analysis was conducted using SRTM digital elevation data at 90m resolution. ESRI ArcGIS 9.2 software was used. Subscriber penetration Revenue potential One broadband connection per 100 urban inhabitants plus one broadband connection per 400 rural inhabitants 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). Winrock International / Pyramid Research Winrock International / Pyramid Research, Minges (2007)

17 Market will deliver a low-cost, low-quality, public access model Figure 2.9 Swaziland Mauritius Equatorial Guinea Tunisia Nigeria Egypt South Africa Rwanda Ghana Morocco Togo Uganda Benin Algeria Co te d Ivoire Sudan Kenya Comoros Angola Senegal Sao Tome and Burkina Faso Cape Verde Libya Seychelles Ethiopia Cameroon Gabon Tanzania Sierra Leone AFRICA Botswana Lesotho Malawi Burundi Congo, Republic Chad Namibia Mali Niger Mauritania Zambia Mozambique Djibouti Eritrea Guinea Madagascar Zimbabwe Gambia, The Guinea-Bissau Central African Liberia Congo-DRC Broadband coverage gap analysis Efficient Market Frontier 0% 20% 40% 60% 80% 100% Percent of Population 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 Source: Winrock International / Pyramid Research.

18 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

19 Total subsidy requirement NPV (US$bn) Total subsidy requirements for mass-market broadband penetration $5.0 $4.5 $4.0 $3.5 Urban penetration rate = 20%, rural penetration rate = 10% Total revenue = 2.7%/1.4% of GDP International connectivity prices = $2000/Mbps $3.0 $2.5 $2.0 $1.5 $1.0 $.5 $.0 ARPU = $10.00 per month ARPU = $5.00 per month 19

20 Total subsidy required NPV (US$bn) International bandwidth prices have a major impact on financial viability Model for Ghana ARPU = $5 per month %/10% 10%/5% 5%/2% Penetration rate (Urban/Rural) International bandwidth = US$2000/Mbps International bandwidth = $400/Mbps 20

21 Backbone networks 21

22 Broadband supply-chain International connectivity Connection to the rest of the world, provided by satellite or fiber-optic cable (usually submarine) Regional connectivity Domestic backbone Switching/ Routing Connection from the border to the nearest connection to the rest of the world 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 Backbone newtorks Rapid market could entry be a is major easing infrastructure constraint on constraints market development Access Link between the customer and the network. Usually xdsl or cable networks. In Africa, wireless is used (where it exists) Retail services All the soft inputs required (e.g. sales, customer care, billing etc.) 22

23 Broadband supply-chain International connectivity Connection to the rest of the world, provided by satellite or fiber-optic cable (usually submarine) Regional connectivity Connection from the border to the nearest connection to the rest of the world Domestic backbone Switching/ Routing Access 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) Backbone newtorks could be a major constraint on market development Retail services All the soft inputs required (e.g. sales, customer care, billing etc.) 23

24 backbone bandwitdth per user (kbps) Why are fiber backbones important? 300 Residential users Corporate users PSTN+WLL mobile narrowband access broadband access PSTN+WLL narrowband access broadband access 24

25 long-run marginal cost of capacity (USD$) Is fiber different from wireless telecoms infrastructure? capacity (Mbps) optical fiber microwave 25

26 Extending the backbone networks in Burkina Faso 26

27 Normalized cost Peripheral areas are much more expensive to serve than urban routes Traffic (Mbps) Long-run cost (US$/Mbps/month) core network periphery network 27

28 There is a lot of fiber backbone in Africa Very variable between countries Developing in from the coasts Growing rapidly 28

29 There is a lot of fiber backbone in Africa Very variable between countries Developing in from the coasts Growing rapidly South Africa has almost twice as much fiber as the rest of SSA combined 29

30 There is a lot of fiber backbone in Africa Very variable between countries Developing in from the 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 30

31 The regional pattern of backbone network development is evolving rapidly 000 km of fiber optic network 36.6 South Africa has most of the region s fiber but it is not growing as quickly as in other countries South Africa (operational) Rest of SSA (operational) South Africa (under construction) Rest of SSA (under construction) 31

32 Wide variations in fiber network length and growth rates across the region 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, % 400% 350% 300% 250% 200% 150% 100% 50% 0% Fibre under construction (kms) Fibre under construction as % of operational fibre 32

33 Development of terrestrial and submarine fiber are closely linked 33

34 Development of terrestrial and submarine fiber are closely linked Terrestrial network development is linked to landing points for submarine cables 34

35 The pattern of ownership of fiber networks is also evolving 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Private telecommunications operator Privatised telecommunications operator State-owned telecommunications operator State-owned electricity company Government-owned Operational Under construction *SSA excluding South Africa 35

36 Market dynamics of fiber backbone networks in Africa

37 Kenya: mixture of public and private network competition Non profitable routes Government-funded fiber network reaching rural areas Competitive privately-funded routes 37

38 Zambia: 2 SOEs with national fiber networks competing with each other

39 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

40 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 41

42 Remove restrictions on backbone infrastructure competition 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 42

43 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

44 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

45 Models from other countries 45

46 Australia extending backbone network competition to small towns Problem o Fully liberalized market but no competition to Telstra on smalltown/rural routes o Limits to regulated access to Telstra s network Strategy o 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 rural backbone

47 Australia extending backbone network competition to small towns Australia rural backbone

48 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 49