Harare — Southern African Internet industry leaders Africa Online and UUNET South Africa have struck a deal that will see them inject assets worth US$3,4 million ($187 million) into a joint venture company that will be involved in the launch of Africa's first satellite-based Internet protocol backbone, a senior company official said this week.

The deal, still subject to approval by South Africa's central bank, involves the formation of a company called UUNET Africa that will be fully operational by the first half of next year and will be owned by Africa Online and UUNET South Africa.

UUNET South Africa, southern Africa's leading Internet-based network service provider, is a subsidiary of UUNET Technologies, the Internet service division arm of World-Com, a global leader in Internet communications solutions.

"What the deal means for Africa Online is that corporate clients will be handed over to this new company, which will be more focused on providing quality access to these companies because they will be its only clients," UUNET Africa's managing director Richard Beddow told the Financial Gazette.

Beddow, formerly Africa Online's regional manager for southern Africa, added: "Africa Online will focus on the consumer market and the technical aspect will also be outsourced to the new company."

Under the agreement, Africa Online will transfer 650 corporate clients to the new company, along with some corporate network assets and 65 employees involved in the corporate customer business.

The network assets to be transferred are valued at US$1,7 million ($93,5 million) and will be injected into the joint venture firm in exchange for an initial shareholding of 49,999 percent.

UUNET South Africa will also inject cash and/or network assets representing an equivalent amount of value to that invested by Africa Online in exchange for the remaining 50,001 percent.

Beddow said UUNET Africa, initially supposed to be based in Harare, would be headquartered in Johannesburg, where he would be relocating.

The position of regional managing director for southern Africa has been replaced with a chief operations officer, who will be based in Kenya, but each country will continue to have its own general manager.

"As the Internet has matured, organisations have come up that have specialised in different areas in the industry and as a broad-based ISP (Internet service provider), we have been a little challenged as to what our core business is," Beddow said.

"This venture will enable us to focus entirely on customer service and out-source the management of network infrastructure," he said.

"Having run this business myself, the one aspect that consumes about 80 percent of time is running the technical operation. The joint venture enables Africa Online to focus on customer service and forget about the technical side."

UUNET Africa will provide Internet services to 14 African countries, initially focusing on the eight countries in which Africa Online already has operations - Kenya, Uganda, Tanzania, Swaziland, Zimbabwe, Zambia, Ghana and Cote d'Ivoire.

Countries that will be serviced later by the joint venture company include Senegal, Cameroon, Nigeria, Ethiopia, Malawi and Mozambique After the joint venture, Africa Online clients are expected to benefit from upgraded network infrastructure, which will include the deployment of Africa's first satellite-based Internet protocol backbone.

This will span the whole continent and will lift efficiency, reliability and speed of Internet communication across Africa.

"If you're in Harare and you want to send an e-mail to Lusaka, it goes first to the United States and will have passed through a dozen or so other servers before connecting with the Zambian ISP," the UUNET Africa chief said.

"The satellite-based protocol will take a satellite that sits above Africa and covers the whole continent. E-mail goes up and straight down, which means it's much quicker."

He said Africa Online, which presently has a number of contracts for international bandwidth, would be able to have a contract with just one partner after the backbone becomes operational.

This is expected to bring bandwidth costs down, which will be passed on to the company's clients.

The backbone, to be launched in April or May next year, will also enable UUNET Africa to give bandwidth to technical professionals who want to start their own ISPs but have been hindered by high capitalisation costs.

"They would be able to approach UUNET Africa and enter into a contract where they wouldn't have to worry about equipment or bandwidth, they just provide the customer service," Beddow said.

"It's a nice opportunity for anyone who would like to get into Internet service provision but is put off by the costs. They can set up a virtual ISPs without infrastructure and none of the costs that go with it."

Examples of virtual ISPs include world leader America Online, which has no Internet networks of its own and has a contract with UUNET Technologies.

The service is expected to appeal to organisations which want to establish community-based ISPs, as well as to multinationals interested in setting up ISPs for staff and clients and will play an important role in Zimbabwe's Internet industry, increasingly being dominated by a few large players.

Rapid consolidation that has taken place over the past 12 months has seen the industry's 10 main players shrinking to just four - M-Web, Africa Online, EcoWeb and Zimbabwe Online - which have swallowed many smaller players.

The four companies account for about 98 percent of the market, with several smaller players accounting for the rest.

"There has been heavy consolidation," Beddow said. "Many of our operations require foreign currency and this means that businesses are quite exposed to what is happening in the economy. Companies that haven't achieved critical mass are battling to make ends meet and grow their business.

"This isn't good for consumers, who need more choice than that. The market is still growing and through this virtual ISP concept, customers will be offered a little more choice."