South African firms jolt Kenya’s internet market

South Africa’s growing influence in the internet sector is likely to halt consolidation in the platform’s market, a move analysts say will cut down prices significantly.

Market analysts though upbeat with the increase in foreign market ownership as an impetus to competition and reduced prices, are cautioning that the country needs more independence in Internet Service Provider (ISP) market ownership to cushion it against price controls by foreign owners.

“We expect prices to come down substantially and more restructuring of the market with special attention shifting away from corporates to the domestic scene,” said Vincent Mutavi, an ISP analyst.

Mr Mutavi however cautions that there is need for the country to monitor the operations of big ISPs and the increase in foreign ownership so as to avert a reverse in the gains made by the landing of the fibre optic cable.

Over the last two years, foreign ownership and influence in Kenya’s Internet service provision market has risen significantly, with the latest being the acquisition of another company by a South African firm.

In a deal seen by analysts as a sign of growing confidence in the country’s internet and data market, Telkom South Africa, through share-purchases acquired Afsat, a local satellite data transmission firm and Africa Online, to make up for its failed bid for a stake in Telkom Kenya in 2007.

Early this year, another South African tech firm — Allied Technologies Limited, increased its stake in Kenya Data Networks (KDN) through the purchase of a nine per cent stake in addition to the 51 per cent it has held since 2008.

In 2004, Verizon South Africa bought UUNET Africa including the Kenyan subsidiary, and was later bought by South Africa-based mobile operator MTN.

Later, MTN and Telkom South Africa through a joint venture formed SDN Mauritius that took over 70 per cent of UUNET Kenya with the remaining 30 per cent being held by local shareholders in line with the Communications Commission of Kenya requirements.

Afsat Communications was formed in 1992 to provide high-end satellite broadband solutions for the African Market and is headquartered in Nairobi, with subsidiaries in Tanzania, Uganda, Kenya, Nigeria, Zambia.

Afsat offers its service through a network of 41 distributors in 30 countries across the Sub-Saharan Africa continent.

Afsat is now set to merge with Africa Online — a provider of internet services on the continent and a subsidiary of the African Lakes Corporation.

Africa Online’s coverage extends to Tanzania, Uganda, Ghana, Ivory Coast, Namibia, Swaziland and Zimbabwe.

In an interview last week with sister publication Daily Nation, Afsat Managing Director Dawood Shah said the merger was awaiting regulatory approvals in Kenya and the countries in which the firms operate.

Already, Mr Shah said they have received the green light from the Kenya’s Monopolies and Price Commission.

After the merger, each will continue with its operations, but will be managed from the head office to be based in Nairobi.

The aim of the merger is to bring satellite and fibre into a one-stop shop.

“This will enable us harness hybrid solutions and allow us to provide connectivity solutions irrespective of whether it is VSAT or terrestrial,” said Mr Shah, who has already moved to the Africa Online office at Landmark Plaza in Nairobi in readiness for the restructuring, said.

“At the moment we are learning from each other as we wait for regulatory approvals,” he added.

Afsat has been predominantly a satellite broadband provider and according to Mr Shah, satellite still has a critical role in internet.

“Satellite is much more for people and companies who want high reliability, consistency, speed, availability, and strong support. And with cable vandalism all over, companies in which internet is critical cannot retire satellite easily,” he says.

The arrival of fibre optic cables has not eliminated all connectivity problems.

Connectivity in East Africa was disrupted recently by damage to the SEA-ME-WE 4 cable in the Mediterranean.

“We know fibre can carry a lot more capacity in terrabytes compared to the limited satellite; however that does not mean satellite has no place,” Mr Shah said.

However, he reveals that satellite broadband uptake has been slower.

He says since the entry of fibre optic cables, they have seen about 10 to 12 per cent of clients in satellite moving to other technologies.

Even in the US, the most wired country in the world, satellite is growing by 19 per cent annually while terrestrial links grow at 0.5 per cent.

Telkom South Africa is focusing on achieving strong growth through both organic and acquisitive business development strategies, as well as by utilising synergies across the group.