KPLC taps new revenues with fibre optic offer

Electricity distributor, the Kenya Power and Lighting Company, has signed Sh828 million infrastructure sharing agreements with three telecoms operators, opening a new front in the battle for control of the ICT market.

The deal gives Safaricom, Wananchi Group and Jamii Telecoms access to KPLC’s fibre optic network that runs on the national electricity grid, improving their footprint presence in the country.

Though the contract is specific to the Mombasa-Nairobi cable route, the ability to deliver broadband on the national electricity network puts the three firms ahead of the competition in the ongoing battle for reach and could by extension offer them direct access to some of KPLC’s 1.3 million customers on the national grid.

KPLC’s fibre optic network should also help telecom firms overcome the bottlenecks associated with long distance bandwidth delivery, which require multi-billion shillings investments and have more recently become prone to frequent attacks.

“We have 18 pairs of fibre for leasing and have only awarded three to Safaricom, Wananchi and Jamii Telcoms leaving us with 15 more on the Nairobi-Mombasa route,” said Mr Joseph Njoroge, the KPLC CEO at a contract signing session in Nairobi.

By offering its fibre network to other players, KPLC is effectively elevating broadband service to basic utility status – in the same rank as water, power and the telephone.

For shareholders in the electricity firm, signing of these contracts also opens a new revenue stream that should help lift the company’s profits in the current financial year.

KPLC began the journey into the telecoms sector in 1998 when it unveiled a Sh1.9 billion investment in a fibre optic network to help monitor its power lines and lease excess capacity to telecoms operators.

Until Tuesday, the power distributor had only allowed telecoms operators to build cables on its electricity distribution poles in specific sections of Nairobi.

The success of that plan appears to have emboldened the power firm to jump fully into the information technology market with the construction of own fibre optic network and the leasing of excess capacity to other telecoms companies.

KPLC began the search for leasees last August and received 15 applications from both local and international firms.

On Tuesday, Jamii and Wananchi separately signed five-year lease agreements with KPLC for a pair of fibres on its cable at an annual fee of Sh27 million.

Mobile phone service provider Safaricom placed the heaviest bet on the fibre line, sinking Sh288 million for a 20-year access right.

Safaricom, which depends heavily on terrestrial fibre networks said it was keen to use KPLC’s network to overcome service delivery challenges arising from fibre cuts.

Safaricom CEO Michael Joseph said the deal would see the mobile firm shift its live traffic between Nairobi and Mombasa to KPLC’s cable in the next two weeks.

“With this contract, vandalism could become a thing of the past. In the medium term, we see this agreement as pushing down cost in the telecoms market,” he said.

KPLC’s move could prove damaging for companies that have spent billions of shillings in building own fibre networks countrywide.

The list of losers includes the government that has spent billions on a national fibre network that it hopes will deliver the internet to the villages.

KPLC’s fibre is being deployed alongside its existing electricity transmission lines, making it more difficult for vandals to damage.

KPLC’s move also offers a lifeline to smaller companies that cannot compete in the crowded fibre infrastructure market by giving them a readymade network for lease.

That decision could have the domino effect of enabling those companies to offer significantly lower pricing for their services, setting the stage for a market-driven competition that yields price gains for consumers.

“This could be the catalyst that will drive prices down. Once the complexities of connectivity are cleared, players can concentrate on the provision of services rather than investing in infrastructure,” said Mr Joshua Chepkwony, the chairman of Jamii Telecom.

For Jamii, the match-up with KPLC means that they can now offer cross-country connectivity for their urban fibre rings in cities like Nairobi, Mombasa and Eldoret.

The impact of the KPLC deal could however be felt most at Wananchi, the triple play firm that has an elaborate metro network running power poles in a number of up market Nairobi estates such as Kilimani, and Kileleshwa.

The deal clears the way for the firm to overcome the long distance bandwidth delivery challenge and eases its entry into the data market.

By leveraging on Kenya Power’s fibre, Wananchi can deploy a ‘design unseen’ network in key urban areas that is aligned to the power firm’s presence.

“Our goal is to be everywhere KPLC is. For us the deal means that we can effectively provide seamless connectivity into homes,” said Euan Fannell, Wananchi Group CEO.

KPLC is betting on the fact that several ICT firms are wary of building own infrastructure because of the high cost involved in both construction and maintenance.

On Tuesday, KPLC announced that phase one of its fibre link - between Nairobi and Mombasa - is complete and that it will be rolling out its network to the western circuit through Nakuru and Eldoret to Tororo in Uganda as well as in the Mt Kenya region.

The company also plans to construct a metro ring in Nairobi, an area with about five fibre projects in operation.

KPLC faces a tough proposition - how to woo companies that already have spent millions securing connectivity on satellite or fibre to its cable.

Both Telkom Kenya and Kenya Data Networks, who have been contracted to convey international connectivity from TEAMs and Seacom respectively, have said that they are battling increased instances of fibre vandalism on their networks, costing them Sh1.5 billion in repairs over the last year along the Mombasa-Nairobi route.