TEAMs operators to charge different connectivity prices
Michael Joseph: Onward connectivity rates between Dubai and Europe are still being negotiated
The cost of high speed Internet will vary significantly in Kenya even among consumers hooked to the superhighway through providers using the same TEAMs fibre optic cable, it emerged on Thursday.
The variations arise from the fact that shareholders in the government-fronted cable agreed to individually negotiate and pay for the cost of onward connectivity from Fujairah in the United Arab Emirates as opposed to the single price offered by rival Seacom.
Details of the East African Marine Systems (TEAMs) pricing were unravelled by Safaricom chief executive, Mr Michael Joseph, who is also the chairman of the TEAMs board.
Mr Joseph had told journalists that TEAMs could not immediately offer fibre optic bandwidth because there is no link between Kenya and Europe.
“There is no onward connectivity between Europe and Dubai, where TEAMS ends. Rates for that connectivity are still being negotiated, and we do not anticipate that prices will drop as drastically as initially indicated or within a short time-frame,” he said.
TEAMs was officially launched in June amid expectations that the cost of internet connectivity and voice services would fall significantly.
The undersea fibre optic cable is supposed to connect Kenya to Europe’s high-speed internet networks through Dubai. But according to Mr Joseph the vital link to Europe is yet to be established.
Other shareholders in the TEAMs consortium however told the Business Daily that each operator had been left to negotiate and pay for onward capacity with the owners of the global networks and many had secured significantly low pricing deals that should enable them to cut connectivity prices significantly.
The landing of the fibre optic cables in Mombasa has sparked a raging debate on the right pricing of downstream internet and voice services. While some operators have insisted that the fibre cables offer internet service providers enough room to significantly reduce prices, others have maintained that prices would only fall marginally.
Some operators have stated that they are not in a position to offer low prices as they are still examining associated costs.
“Energy prices are rising, pushing our operational costs higher but we still hope to pass on a 50 per cent cost savings to our customers,” said Chris Senanu, the chief operating officer at Access Kenya.
AccessKenya and Kenya Data Networks were among the first companies to lower internet charges with the arrival of the fibre optic links. KDN announced the biggest drop of 90 per cent.
It is however emerging that some players are planning to keep connectivity prices high in order to recoup hefty investments they have made in fibre optic cables.
A source familiar with the pricing of upstream connectivity on the TEAMs cable said that one of the shareholders had negotiated bandwidth price of $400 per unit down from the previous satellite based connectivity price of $5,000 per unit.
“This price is still high. The total cost — including onward connections — should come down to $100 per unit. For the consumer that should be a very noticeable drop,” said a source, who declined to be named due to his relationship with a competing fibre project.
In addition, many players do not want to commit to low pricing, fearing that demand will not be enough to make up for low prices.
Kenya has just three million intenet users out of a population of 38 million.
Sources within TEAMs say that initial tests on the system had revealed pent up demand for internet connectivity that has currently surpassed market expectations four times.
In less than a week since the tests began, over 4 STM1s — a measure used to indicate capacity on fibres — was utilized by one customer on TEAMs. Earlier projections had indicated that such amounts were too large for the Kenyan market.
The outcome ties in with the government belief that fibre optic internet should inspire major price drops for operators that should be passed on to consumers immediately to spur economic growth.
Bitange Ndemo, Information PS, said the on-going tests will be over between the August 15 and 21.
TEAMS is a government-led, public private partnership that aims to provide Kenya with a proprietary fibre optic link to solve the country’s bandwidth cost problems as well as spur the growth of new industries such as the Business Process Outsourcing (BPO) and provide the impetus for the realisation of the country’s economic blueprint, Vision 2030.
TEAMs has been grappling with shareholder issues that recently saw a handful of smaller investors forced out of the initial shareholding structure, leaving big telcos with managing control of the project.
Flashcom, Africa Fibrenet Uganda, Iquip Limited and Inhand, that each previously held a 1.25 per cent stake in TEAMS, were last month removed from the list of shareholders on the fibre project.
The four players represented a total investment of Sh400 million or five per cent shares.
Their holding has since been taken up on a pro-rata basis by Safaricom and Telkom who have increased their shareholding from 20 per cent to 22.5 per cent each.
International project The Government maintains its 20 per cent stake in TEAMs, while Kenya Data Networks and Essar Kenya hold 10 per cent stake each while Wananchi Group has five per cent, Jamii Telecom 3.5 per cent and AccessKenya 1.25 per cent.
TEAMS joins Seacom, a privately funded international project as two of four expected fibre links between Kenya and the rest of the world.
In recent weeks, the issue of redundancy has also cropped up in the industry, as both fibre projects do not have an alternate route or cable that can be relied on should a link be severed.
A cable cut on Seacom two days ago revealed that several businesses stood to be affected by down times if they relied on a single fibre link.
Mr Joseph said the cut has exposed the companies who did not have redundancy built into their systems and said Safaricom was currently negotiating new redundant routes within Kenya to minimise downtimes.
